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]

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.