Protecting your client’s reputation

A factory collapse in Bangladesh illustrates how catastrophes anywhere in the world can negatively affect your client’s brand. What options are available for making sure your clients’ business reputations are protected?

Reputational risk is a very tough exposure for brokers to work out with their clients, since very few insurance product solutions are available to cover the risk.

“Insurance policies are available that try to deal with brand protection and remediation, and they  and can also respond in some way to the financial impact as well,” said Justin MacGregor of Avec Insurance Managers Inc. “But they remain challenged since damage to reputation or brand is so hard to predict and quantify and possibly even harder to repair.”

Available policies include CrisisShield, offered by IronPro, and Reputation Guard, sold by AIG. Insurance products such as these typically cover crisis communications costs that a company might incur as a result of some sort of damaging public relations incident occurring.

Such costs could include hiring a PR firm; coaching executives on how to respond to the crisis; waging a social media campaign to deal with negative press and publicity; and hiring someone to monitor what people are saying about the company’s brand in the marketplace.

“Very few” companies have prepared a communications strategy in anticipation of a disaster affecting the company, said Michael Loeters of BFL Canada. A broker’s value comes in advising corporate clients to be aware of potential damage to their brands. (continued.)


“Most companies are very reactive, probably for two reasons,” said Loeters. “One is that they think it’s never going to happen to them. And in my view, if it did happen to them, they have a false sense of security that they are going to be able to handle it.”

Many organizations just shut the communications down. “They don’t say anything, which is the absolute worst thing they could do, as opposed to getting ahead of it,” Loeters said.

Time, for example, reported online that international clothing and garment companies provided varied responses to news of factories in the Rena Plaza building collapsing in Bangladesh. The disaster killed more than 600 people and exposed concerns about working conditions in the factories housed in the collapsed plaza.

Some companies such as Loblaws Inc., which owns the Joe Fresh clothing line, acknowledged production at the plant and promised compensation. Others, such as Benetton, said none of the factories were authorized suppliers, although Time reported that Benetton labels had been found in the rubble.

One reason why it is difficult to insure the reputation of a brand name is because of the difficulty in determining its value, brokers say. Also, public response to a crisis is very difficult to predict.

“The quantum of the actual financial loss sustained can be impossible to forecast and the real outcomes will often be found to be totally arbitrary in size and impact, based largely on the unpredictable emotional reaction to the event by those stakeholders who can influence the business of the company,” said MacGregor. “Traditionally these stakeholders would have been customers. However, the impact and behavior of public commentary or opinion circulated by the internet can be equally damaging and unpredictable in their influence and impact on customers and public opinion.”

Loeters said brokers should be advising their clients to have a communications plan prepared in advance of a crisis. This can be done at renewal, as well as when brokers can think of how a current global crisis might be analogous to a client’s situation.

“I would say for the majority of people, it’s really a risk management solution, which is having a crisis communications plan in place to respond to these things,” said Loeters. He said a communications plan should call on broker clients to ask the following questions:

•    If a crisis occurs, to whom do we direct the press?
•    Do we have someone who is proactively trying to monitor these situations, so we have some kind of early detection of these problems?
•    Do we have situations that occur that maybe haven’t yet been publicized?
•    Do we have a mechanism internally that allows us to identify things that might be damaging if they become public?
•    Do we know how we would respond to that if a damaging event did become public?

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