Risk Insider: Martin Eveleigh

Looking Out For Reputational Risk

By: | March 10, 2017 • 2 min read
Martin Eveleigh is Chairman of Atlas Insurance Management, which he formed in 2002. He specializes in designing alternative risk transfer programs – particularly risk pools – and captive structures. He can be reached at [email protected]

Reputational risk has been rising up the list of strategic risks for years. A 2010 study revealed that, at least once during every five-year period studied, 80 percent of companies lose more than 20 percent of their value due to major reputational events. Reputational damage is like any other source of risk, which can affect the corporate bottom line and growth.

Captives Fill a Market Gap

Reputational risk is one category for which the standard insurance market has offered limited products and coverage. It’s not hard to understand why considering reputational damage is difficult to predict and quantify.

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A captive can be a lucrative vehicle for addressing and covering potential damage to corporate reputation and goodwill. It provides flexibility and coverage and can be designed to meet the needs of the owner. By paying for expenses and compensating otherwise irrecoverable losses, a captive liberates owners to make more intelligent responses to events in real time. By facilitating a company’s ability to defend or preserve a reputation, establishing a captive can be seen as the reverse side of building brand awareness in the first place.

 Specific Risks, Specific Coverage

Considered a secondary risk to a larger primary risk, reputational damage can often be more costly than the primary risk. In recognizing and covering the risk of reputational damage within the captive, a captive insurance manager will help the client quantify the risk and the financial impact to the company.

To assist in the formation of a captive, the manager will interview prospective clients to evaluate their business and assess their customers, regulation and public exposure. They can then design an enterprise risk captive to cover actions, exposure and risks that can lead to reputational damage.

Social Media and PR: Living On The Fault Line

Social media acts as an aggregator of information. Even when allegations can be disproven, the damage is costly and time-consuming to repair.

To fully mitigate the reputational risks social media presents, it is important to develop an effective response plan for any situation. The heart of a crisis management strategy is developing an approach to utilize in the first 15 minutes to one hour following an event. If you aren’t prepared and ready with what to say, someone else will respond for you in a way you can’t control. It’s critical to get that first statement right.

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Providing companies with proper coverage, a well-structured captive program, fortified with a strong crisis communications strategy will recognize and address the potential magnitude of loss from responding to and repairing reputational damage.

Reputational damage isn’t just for big targets. Today’s standard insurance market provides few attractive products for addressing this important category of risk. A captive is a smart solution to the problem of defraying the risk of reputational damage. Unlike standard market models, which often target vertical industries, a captive can be designed to meet the specific needs of its owner or parent company and transfer the risk through a structured approach.

More from Risk & Insurance

More from Risk & Insurance

2017 RIMS

Cyber Threat Will Get More Difficult

Companies should focus on response, resiliency and recovery when it comes to cyber risks.
By: | April 19, 2017 • 2 min read
Topics: Cyber Risks | RIMS

“The sky is not falling” when it comes to cyber security, but the threat is a growing challenge for companies.

“I am not a cyber apocalyptic kind of guy,” said Gen. Michael Hayden, former head of the Central Intelligence Agency and National Security Agency, who currently is a principal at the Chertoff Group, a security consultancy.

Gen. Michael Hayden, former head of the CIA and NSA, and principal, The Chertoff Group

“There are lots of things to worry about in the cyber domain and you don’t have to be apocalyptic to be concerned,” said Hayden prior to his presentation at a Global Risk Forum sponsored by Lockton on Sunday afternoon on the geopolitical threats facing the United States.

“We have only begun to consider the threat as it currently exists in the cyber domain.”

Hayden said cyber risk is equal to the threat times your vulnerability to the threat, times the consequences of a successful attack.

At present, companies are focusing on the vulnerability aspect, and responding by building “high walls and deep moats” to keep attackers out, he said. If you do that successfully, it will prevent 80 percent of the attackers.

“It’s all about making yourself a tougher target than the next like target,” he said.

But that still leaves 20 percent vulnerability, so companies need to focus on the consequences: It’s about response, resiliency and recovery, he said.

The range of attackers is vast, including nations that have used cyber attacks to disrupt Sony (the North Koreans angry about a movie), the Sands Casino (Iranians angry about the owner’s comments about their country), and U.S. banks (Iranians seeking to disrupt iconic U.S. institutions after the Stuxnet attack on their nuclear program), he said.

“You don’t have to offend anybody to be a target,” he said. “It may be enough to be iconic.”

The world order that has existed for the past 75 years “is melting away” and the world is less stable.

And no matter how much private companies do, it may not be enough.

“The big questions in cyber now are law and policy,” Hayden said. “We have not yet decided as a people what we want or will allow our government to do to keep us safe in the cyber domain.”

The U.S. government defends the country’s land, sea and air, but when it comes to cyber, defenses have been mostly left to private enterprises, he said.

“I don’t know that we have quite decided the balance between the government’s role and the private sector’s role,” he said.

As for the government’s role in the geopolitical challenges facing it, Hayden said he has seen times that were more dangerous, but never more complicated.

The world order that has existed for the past 75 years “is melting away” and the world is less stable, he said.

Nations such as North Korea, Iran, Russia and Pakistan are “ambitious, brittle and nuclear.” The Islamic world is in a clash between secular and religious governance, and China, which he said is “competitive and occasionally confrontational” is facing its own demographic and economic challenges.

“It’s going to be a tough century,” Hayden said.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]