Beware a Bad Reputation WHY BUSINESSES MUST ASSESS FOR REPUTATION RISK
H istorically, the purpose of insurance was to protect the physical assets of your business: your building, your merchandise, and even your financial assets from employee liability. Whether you realize it or not, a great deal of your company is built on intangible assets. Two of the most valuable intangible assets upon which every business relies are reputation and brand. Jennifer Livingstone, chief marketing officer at CNA Insurance, defines reputation and brand as follows: “Your reputation is the public’s current perception, while branding is the sum of all perceptions — past, present, and future.” Though reputation and brand are two different things, they are tightly interconnected. Damage to one will undoubtedly harm the other. That’s why the risk to reputation and brand fall under the umbrella term “reputation risk.” Reputation risk is any action that harms your company’s reputation and brand. A recent Global Risk & Confidence Survey from CNA found that reputation risk is a growing intangible threat. Globally, this risk is up 29% from 2018. This threat will continue to grow thanks to the internet and social media. Today’s customers can share negative reviews, experiences, or opinions with the whole world. It takes just one bad review to go viral for a company to feel the results. One of the most publicized examples of reputational risk in recent history involved Wells Fargo. In 2016, the bank was exposed for opening millions of unauthorized bank accounts. Supervisors encouraged and even coerced their retail bankers to open these accounts. Wells Fargo CEO, John Stumpf, was dismissed along with several other company executives, and regulators made the bank pay many fines and penalties. Meanwhile, thousands of customers reduced, suspended, or stopped doing business with Wells Fargo entirely. Years later, Wells Fargo is still struggling to repair their damaged reputation.
In Wells Fargo’s case, their reputational risk was the result of years of unethical practices, but many cases of reputational risk don’t take years to erupt. They’re often
the result of one bad choice or poor comment shared with the public. For example, if the CEO of a tech company makes a flippant comment during an interview about women not being “capable” of working in tech, the customer backlash could damage the whole company’s reputation. It’s also possible that a complete accident can damage a company’s reputation. For example, if hackers gain access to a company’s billing data and get ahold of client payment data, the ensuing fallout and loss of trust can cost the business a great deal. Intangible risks like reputation risk can be hard to measure, but that doesn’t mean businesses don’t feel the cost. A study from Aon and the Ponemon Institute estimated that intangible risks have an average potential loss of over $1 billion. This is even greater than the loss due to tangible risks, valued at $795 million. Despite the clear dangers, many insurance companies are way behind on protecting their clients from these risks. That same Aon/Ponemon study found that only 16% of intangible assets are currently insured. Much like fraud risk, the true cost of reputation risk is hard to calculate. Losses are often greater than initially estimated, and businesses can take years to fully recover, if they ever do. For this reason, when assessing your company’s risk management, take care to include intangible risks in that assessment. Work with your team to develop a plan so you are prepared to overcome any reputation risks. This should include creating a system for quickly and appropriately responding to negative comments about your business on social media.
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