Risk Insider: Nir Kossovsky

Top 4 Issues Driving Reputation Risk Solutions

By: | June 20, 2018 • 3 min read
Nir Kossovsky is the Chief Executive Officer of Steel City Re. He has been developing solutions for measuring, managing, monetizing, and transferring risks to intangible assets since 1997. He is also a published author, and can be reached at [email protected]

As reputation tornadoes like #MeToo, #TakeAKnee, and #DumpNRA rip through society, it might appear that reputation risk is the peril of negative social media. But we’re seeing things differently. Our clients, most of whom are seeking tornado shelters for what can be most concisely described as the peril of economic damage from angry disappointed stakeholders, want reputation risk management, financing and transfer solutions for these four top issues:

    • Compliance — Many of the world’s largest and brand-aware companies took to heart the Economists Intelligence Unit’s 2005 declaration that reputation was the “risk of risks.” Unable to find adequate risk transfer solutions at the time, they financed the risk through captives. Those companies, and the many others that followed in their footsteps, are now responding to regulatory pressures to upgrade their legacy underwriting and pricing support.
    • Collateral Damage — Socially-driven reputation “tornadoes” evidenced by events named Weinstein, Wynn, ABC/Barr, Starbucks, and NRA have raised awareness that reputation risk, like fraud risk, is both complex and likely. Its three interrelated issues—expectations, experiences, and media amplification—literally define the elements of a robust enterprise risk management strategy. And its prevalence underscores the point that no person, company, institution or even country is immune.
    • Termination — Boards and executives are recognizing the going-forward effects on their personal careers after run-ins with activists. When heading Salomon Brothers, Warren Buffett famously warned his employees that he would be ruthless if any lost a shred of his company’s reputation.
Advertisement




  • Capital Costs — In the perennial quest for lower capital costs, an ERM and risk governance solution to what is now a decade-long top board concern has an ROI in terms of lower capital costs. How so? For more than a decade, reputation risk has been one of the highest ranked board-level concerns. 9/10 companies dutifully disclose reputation as a source of both value and as a risk in their 10K filings. Given its relative scarcity, a validated ERM solution to reputation risk is a simple, convincing and completely credible story for credit raters and bond buyers.

 There’s now one more issue: mitigating D&O liability. (See this related post on the Harvard Law Blog)

Ever since shareholders in 2011 sued Buffett and Berkshire Hathaway’s Board for lax oversight and the “damage they caused to the company’s reputation,” litigators have been poking around the edges. With nearly every company disclosing reputation risk in its regulatory filings, the pitch to a jury is straightforward: The Board knew there’s a risk, the Board disclosed there’s a risk, but the Board didn’t define it, describe how exactly it could hurt the firm or what exactly the Board was doing to oversee its management.  That’s lax oversight.

Reputation is soft power, and the leadership team that wields it best will sell more, faster, and at a higher price; will obtain labor, vendor and supplier services, and capital at a lower cost, and hold both regulators and activists at bay.

Reputation is soft power, and the leadership team that wields it best will sell more, faster, and at a higher price; will obtain labor, vendor and supplier services, and capital at a lower cost, and hold both regulators and activists at bay. It is unquestionably valuable, and threat to its value is still the “risk of risks.” It is now also measurable and more easily manageable, and its risk is financeable and insurable. Which means that irrespective of your strategic issues, there are practical measures that can limit or deter altogether the reputational tornadoes wreaking havoc in the corporate and financial sectors.

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Stop Mitigating Risk. Start Conquering It Like These 2018 Risk All Stars

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

Advertisement




But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

Advertisement




Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

____________________

Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]