Airmic and Reputation Institute unveil guide to reputational risk
Written by staff reporter
Airmic has released a step-by-step guide to managing reputational risk and laid the foundations for increased insurance cover for losses incurred as a result of reputational damage, produced in partnership with Reputation Institute.
The report, Defining and Managing Reputational Risk, sets out a structured approach to understanding and mitigating the risk. It argues that reputation is an intangible risk grounded in emotion, but that by breaking down your reputation into measurable components, you can make the intangible tangible.
To this end, it provides a framework for businesses to consider the extent to which an event could reduce people’s trust in seven core areas of business: products / services, innovation, workplace, governance, citizenship, leadership and financial performance.
Reputational risk has consistently come at or near the top of concerns for both risk managers and chief executives, yet only three per cent of risk managers buy insurance cover and just one third say they have “high confidence” in their company’s management of the risk, according to a survey of Airmic members conducted this year.
John Hurrell, chief executive of Airmic, commented: “A company’s reputation is in many ways the most important risk to tackle because it underpins a company’s entire business model – and thereby its licence to operate. At the moment there is not enough understanding of the risk among businesses, risk managers or insurers. Our report aims to remedy this. It represents both a challenge and opportunity for the insurance market.”
Kasper Ulf Nielsen, executive partner at Reputation Institute, who worked closely on the report, stressed the importance of looking at potential risk events through a reputational lens, arguing that the most successful companies constantly monitor how all stakeholders, from customers to financial analysts, perceive the company. “By understanding this perception, organisations can identify the potential reputation risks before they happen and mitigate them before they turn into full blown reputation crises,” he said.
The report notes that availability of insurance cover for reputational risks is currently very limited although a few standalone products are beginning to emerge, and Airmic hopes the guide will lay the groundwork for greater risk transfer options in the future. “Our members have clearly expressed the desire for insurance products in this area and we hope this will support the risk community to have more meaningful conversations with underwriters and to express their needs more clearly,” Hurrell noted.