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Coverage Spotlight: Reputation Guard

Reputations are Fragile. A New Solution Helps Companies Protect and Restore Them.

The bottom line suffers when a viral story hurts a company’s brand. Mitigating the damage and recouping the loss requires planning ahead.
By: | June 1, 2018 • 5 min read

In the age of viral videos and around-the-clock reporting, news travels fast. For organizations whose business hinges on a positive brand image, any negative story can skewer that image in a matter of hours, whether it’s true or false. There is, after all, no jury in the court of public opinion.

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Protecting a business from reputational damage takes a two-pronged approach: first, an organization must have a plan in place to launch a response to any negative event as quickly as possible. Second, it needs a way to measure and recoup income losses caused by a drop in consumers’ trust or approval. Many institutions struggle with both tactics.

Jeanmarie Giordano, Head of Professional Liability, AIG, and Kathryn Bannister, Professional Liability Product Manager, AIG, discuss how the risk has evolved, what makes it difficult to mitigate, and how a new solution helps insureds execute both prongs of their mitigation strategy.

R&I:: What’s driving reputation risk today?

Jeanmarie Giordano, Head of Professional Liability, AIG

Jeanmarie Giordano: Damage to reputation has been a concern of boards for years, and those concerns have not abated given the speed with which information can travel. With social media and a 24-hour news cycle, an incident can go viral incredibly quickly.

Corporate scandals and executive wrongdoing have always garnered negative press, but we live in an age where there are certain news outlets that are quick to publish stories whether they contain misinformation or not.

Traditional news outlets are still concerned with the need for accuracy, and stories still go through a lengthy vetting procedure when being published in traditional media. But there is no such vetting on social media. And unlike traditional media, the average Twitter or Facebook user is not obligated to issue a retraction if a story is proven false. Once it’s out there, the damage is already done.

That means companies have to respond incredibly quickly and get their side of the story out on the same channels. Knowing what to say and having that response coordinated and planned is the stumbling block for most companies.

R&I: Which types of companies are most at risk?

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JG: Most of the headlines have centered around well-known, prominent people and organizations in a variety of sectors, but no one is immune. Middle-market firms as well as non-profits and educational institutions can be especially devastated by a reputation event because they may not have the resources to invest in working with a crisis management firm proactively.

Campus protests in recent years have reinvigorated this discussion. The student population in higher education is very social media-savvy. If they see something happening on campus, the first thing they’ll do is whip out their phones and capture it and share it.

At one university, campus protests were so impactful that the school experienced decreased enrollment the following year and had to lay off professors and close dorms. This shows how significantly a reputation event can impact revenue and lead to loss of income.

R&I: How can companies calculate the financial impact of a reputation event?

Kathryn Bannister, Professional Liability Product Manager, AIG

Kathryn Bannister: Quantifying reputation risk continues to be a challenge, which makes it hard for companies to prepare financially. Some carriers specify particular reputation events that trigger a policy, or they set complex thresholds for what is considered income loss. But reputation events are highly unpredictable, and such predefined conditions don’t allow for a lot of flexibility in the coverage.

AIG recently expanded its ReputationGuard® coverage to include income loss protection, under which we engage forensic accountants to calculate the income loss after the period of indemnity ends. This allows for a more accurate assessment of how an event actually impacted business. It depends on a variety of factors — industry, specific revenue streams, and external market factors.

A mishandled response to a crisis can generate more reputational damage and result in greater financial consequences than the incident itself, so it’s important to get out in front of reputation risk and mitigate the exposure proactively as much as possible.

R&I: What proactive steps can companies take to reduce their exposure?

KB: Establishing a clear response plan is critical. Companies are increasingly taking advantage of their carriers’ partnerships in order to manage risk in areas like property, cyber and employment practices; we think managing reputation risk should be no different and AIG provides access to communications, public relations and crisis management firms to create a plan before an event occurs.  A quick response is only possible when the groundwork has already been laid out.

JG: When a reporter knocks on your CEO’s door, will he know what to say or what not to say? Will you respond with a statement on social media or with a press release? What’s the timeframe for that response? Or should you do nothing at all? A communications expert can keep pulse of what’s being said and determine how best to respond, but companies have to know who to contact, when to reach out, and who will take charge of the response.

R&I: How effective are the reputation coverages currently available on the market?

JG: Insurance policies are reactive by nature. An event happens, the insured files a claim, the claim is adjusted, and then there’s a payout. That model doesn’t necessarily work for a fast-moving risk like reputation damage where time is of the essence. Without a market standard for assessing lost income, payout may vary depending on the carrier and may not be commensurate with the damage inflicted anyway.

R&I: What makes AIG’s ReputationGuard different?

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JG: One of the most unique features of this product is that it’s triggered by the insured contacting one of the crisis management firms we partner with. They don’t have to come to us first, thereby eliminating down time between an incident surfacing and the insured getting the expert assistance they need to respond as quickly as possible to protect their reputation.

The coverage also emphasizes proactive preparation. It provides two free hours of assessment and consultation with one of our panel communications firms. Not only does that help the insured outline a preparedness plan, it also starts to build that relationship so if the company needs to reach out to the firm during a reputation event, it’s not the very first contact.

KB: We recently extended coverage to include income loss protection. Quantifying reputation risk is the challenge, and we’re recognizing that and providing for the fact that forensic accountants need to be involved both in the crafting of policy wording, and to examine what transpired after an event. We consulted with two external forensic accounting firms in developing the contract language and incorporated their considerations into the wording.

Because this risk is so hard to plan for, the coverage is meant to be broad, so it can respond to whatever crisis a company is facing. &

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.

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In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.

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Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”

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How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.

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One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]