Risk Insider: Martin Eveleigh

Reputational Risk: Looking Out for Your No. 1 Asset

By: | March 1, 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 how difficult reputational damage is to predict and quantify.

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.

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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 which 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 an 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.

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

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.

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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.

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