Crisis Management

Target as Target

Risk experts grade Target's efforts to manage the reputation damage caused by the data breach.
By: | February 3, 2014 • 4 min read

After fumbling its initial response to a massive data breach, Target Corp. has rebounded, according to experts in crisis management.

However, they said, the retailer still faces challenges in regaining consumer confidence, especially among people directly harmed by the cyber attack, which struck at the height of the holiday shopping season.

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In late November and early December, malware lodged in the retailer’s point-of-sale system siphoned off account and personal information for up to 110 million customers. But Minneapolis-based Target is not the only company that may have been struck. Luxury retailer Neiman Marcus suffered a smaller breach, and news reports suggest at least six other retailers have been hit. These other companies likely are keeping a close eye on Target’s handling of the crisis.

Critics have focused, in part, on the company’s early communications. Target appeared initially to underestimate the gravity of the situation, crisis consultants said. For example, Target’s first message to customers apologized for the inconvenience.

“You don’t call something like this an inconvenience,” said Rich Klein, a crisis management consultant in New York City.

Initial email (truncated) sent by Target on 12/19/2013. The original email included an additional 4 pages of information.

Initial email (truncated) sent by Target on 12/19/2013. The original email included an additional 4 pages of information.

Subsequent messages from Target used stronger language, acknowledging customers’ stress and anxiety, he said. Messages also switched from assuming customer confidence to promising to regain it, Klein added, praising the change.

“I would still say it’s so much better to get it right the first time,” he said.

2nd email to guests, 12/20/2013.

2nd email to guests, 12/20/2013.

Still, he added, the company made good use of its Twitter feed and Facebook page. Facebook, for example, was used only to communicate about the breach, not to advertise sales, though it also acted as something of a lightning rod for complaints.

Consultants also panned the company’s decision to extend a 10 percent discount to shoppers during the weekend of Dec. 21, a few days after news of the breach first surfaced. While the discount was a nice gesture, it did not adequately address customer concerns and seemed to suggest the crisis had passed, consultants said.

In addition, the company has occasionally appeared to be behind the news, with information trickling out in the media before being revealed by Target, said Jeff Jubelirer, vice president of Philadelphia-based Bellevue Communications Group. “We should expect more from a retailer of that size and that reputation and that level of success.”

A key turning point came on Jan.13 when the company’s CEO, Gregg Steinhafel, appeared on CNBC, apologizing for the breach, reassuring customers and defending the company’s reaction:

Steinhafel should have been giving interviews in December, said Jonathan Bernstein, an independent crisis management consultant in Los Angeles. “They would have suffered less loss of sales and less impact on their stock value if they had been more assertive from the get-go.”

Other observers gave Target high marks for making a relatively quick disclosure of the breach and offering a free year of credit monitoring to customers. The four-day gap between discovery of the breach on Dec. 15 and public disclosure on Dec. 19 was faster than it’s been in other cases, said Alysa Hutnik, an attorney in the Washington, D.C. office of Kelley Drye.

“I haven’t done the math, but I think that would rate somewhere at the very top,” said Hutnik, who specializes in cyber security issues.

Another high point is the prominent role of Target’s CEO, Hutnik said. “He knows there’s work to be done to earn back customer trust, and it looks like he is taking that obligation seriously,” she said, noting that top executives rarely serve as public faces after a data breach.

Other positive steps include Target’s $5 million investment in cyber security education said Michael Soza, a partner in accounting and consulting firm BDO.

“This latest move … is really going on the offensive to show that they really are trying to get out in front of this thing and really attack what is not just a Target problem,” Soza said.

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As long as no other damaging details leak out, most customers will remain loyal to the chain, said Daniel Korschun, an assistant professor of marketing at Drexel University in Philadelphia.

But the company will have to work harder to win back customers who suffered directly. They will be hard to find and hard to soothe, especially if they’ve had to spend hours on the phone undoing damage to their credit or bank accounts.

“Those are the ones where the trust has really been lost,” Korschun said.

Joel Berg is a freelance writer and adjunct writing teacher based in York, Pa. He has covered business and regulatory issues. He can be reached at [email protected]

2017 RIMS

RIMS Conference Opens in Birthplace of Insurance in US

Carriers continue their vital role of helping insureds mitigate risks and promote safety.
By: | April 21, 2017 • 4 min read

As RIMS begins its annual conference in Philadelphia, it’s worth remembering that the City of Brotherly Love is not just the birthplace of liberty, but it is the birthplace of insurance in the United States as well.

In 1751, Benjamin Franklin and members of Philadelphia’s first volunteer fire brigade conceived of an insurance company, eventually named The Philadelphia Contributionship for the Insurance of Houses from Loss by Fire.

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For the first time in America — but certainly not for the last time – insurers became instrumental in protecting businesses by requiring safety inspections before agreeing to issue policies.

“That included fire brigades and the knowledge that a brick house was less susceptible to fire than a wood house,” said Martin Frappolli, director of knowledge resources at The Institutes.

It also included good hygiene habits, such as not placing oily rags next to a furnace and having a trap door to the roof to help the fire brigade fight roof and chimney blazes.

Businesses with high risk of fire, such as apothecary shops and brewers, were either denied policies or insured at significantly higher rates, according to the Independence Hall Association.

Robert Hartwig, co-director, Center of Risk and Uncertainty Management at the Darla Moore School of Business, University of South Carolina

Before that, fire was generally “not considered an insurable risk because it was so common and so destructive,” Frappolli said.

“Over the years, we have developed a lot of really good hygiene habits regarding the risk of fire and a lot of those were prompted by the insurance considerations,” he said. “There are parallels in a lot of other areas.”

Insurance companies were instrumental in the creation of Underwriters Laboratories (UL), which helps create standards for electrical devices, and the Insurance Institute for Highway Safety, which works to improve the safety of vehicles and highways, said Robert Hartwig, co-director, Center of Risk and Uncertainty Management at the Darla Moore School of Business at the University of South Carolina and former president of the Insurance Information Institute.

Insurers have also been active through the years in strengthening building codes and promoting wiser land use and zoning rules, he said.

When shipping was the predominant mode of commercial transport, insurers were active in ports, making sure vessels were seaworthy, captains were experienced and cargoes were stored safety, particularly since it was the common, but hazardous, practice to transport oil in barrels, Hartwig said.

Some underwriters refused to insure ships that carried oil, he said.

When commercial enterprises engaged in hazardous activities and were charged more for insurance, “insurers were sending a message about risk,” he said.

In the industrial area, the common risk of boiler and machinery explosions led insurers to insist on inspections. “The idea was to prevent an accident from occurring,” Hartwig said. Insurers of the day – and some like FM Global and Hartford Steam Boiler continue to exist today — “took a very active and early role in prevention and risk management.”

Whenever insurance gets involved in business, the emphasis on safety, loss control and risk mitigation takes on a higher priority, Frappolli said.

“It’s a really good example of how consideration for insurance has driven the nature of what needs to be insured and leads to better and safer habits,” he said.

Workers’ compensation insurance prompted the same response, he said. When workers’ compensation laws were passed in the early 1900s, employee injuries were frequent and costly, especially in factories and for other physical types of work.

Because insurers wanted to reduce losses and employers wanted reduced insurance premiums, safety procedures were introduced.

“Employers knew insurance would cost a lot more if they didn’t do the things necessary to reduce employee injury,” Frappolli said.

Martin J. Frappolli, senior director of knowledge resources, The Institutes

Cyber risk, he said, is another example where insurance companies are helping employers reduce their risk of loss by increasing cyber hygiene.

Cyber risk is immature now, Frappolli said, but it’s similar in some ways to boiler and machinery explosions. “That was once horribly damaging, unpredictable and expensive,” he said. “With prompting from risk management and insurance, people were educated about it and learned how to mitigate that risk.

“Insurance is just one tool in the toolbox. A true risk manager appreciates and cares about mitigating the risk and not just securing a lower insurance rate.

“Someone looking at managing risk for the long term will take a longer view, and as a byproduct, that will lead to lower insurance rates.”

Whenever technology has evolved, Hartwig said, insurance has been instrumental in increasing safety, whether it was when railroads eclipsed sailing ships for commerce, or when trucking and aviation took precedence.

The risks of terrorism and cyber attacks have led insurance companies and brokers to partner with outside companies with expertise in prevention and reduction of potential losses, he said. That knowledge is transmitted to insureds, who are provided insurance coverage that results in financial resources even when the risk management methods fail to prevent a cyber attack.

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This year’s RIMS Conference in Philadelphia shares with risk managers much of the knowledge that has been developed on so many critical exposures. Interestingly enough, the opening reception is at The Franklin Institute, which celebrates some of Ben Franklin’s innovations.

But in-depth sessions on a variety of industry sectors as well as presentations on emerging risks, cyber risk management, risk finance, technology and claims management, as well as other issues of concern help risk managers prepare their organizations to face continuing disruption, and take advantage of successful mitigation techniques.

“This is just the next iteration of the insurance world,” Hartwig said. “The insurance industry constantly reinvents itself. It is always on the cutting edge of insuring new and different risks and that will never change.” &

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