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Businesses and consumers everywhere can relate to how easily our perceptions of a company change due to bad press and incidents. It may be a cyber and privacy data breach, a drastic service outage, the exposure of inappropriate executive behaviour or a failure in corporate responsibility, such as allowing distribution of false or misleading content. Many events trigger a public loss of trust which is very difficult to arrest or reverse.

Mitigating the potential risk of business trust erosion and providing for brand resilience is where reputation insurance can help.

Types of reputational damage

Loss of reputation can arise from tangible failures such as legal breaches, overstating credentials, bad decisions or more abstract reasons to do with brand perception, such as being the subject of social media attacks.

Reputational risk exposures for businesses include:

  • financial irregularities or misconduct
  • environmental concerns
  • data and security breaches, including cyber attacks
  • legal investigations
  • regulatory breaches
  • professional malpractice
  • executive misconduct
  • ethical violations and challenges
  • association with external third parties.

To an extent businesses can protect themselves against these types of risks through internal protocols that enable checking of business activities against approval controls, but reputational damage can be magnified considerably through media, even if the business concerned isn't at fault.

Common impacts of business or corporate reputation damage

The effects of a negative event such as a data breach on business reputation can include:

  • damaged stakeholder confidence
  • regulatory investigation
  • shareholder action
  • loss of partners, suppliers, staff, clients or customers
  • suspension of business activities
  • financial difficulties such as loss of credit.

Real-life examples of brand reputation incidents

Brands that have sustained a loss of public trust include Optus (data breach), Telstra (accidental disclosure of sensitive customer information), Qantas (flight cancellations and lost luggage) and News Corp (illegal bugging and distortion of reported facts), while numerous sources have reported on distrust of digital giants Amazon and Facebook around lack of control of their own sites and user data privacy.

How insurance can help address reputational risks

Some aspects of business crisis management and continuity plans are relevant to reputational damage, and some types of business insurance may also apply. These might include management liability or directors and officers' cover, professional indemnity, business interruption and cyber in the case of a data breach, but the scope and terms may vary from policy to policy so it's worth checking with an insurance broker.

The benefits of reputation insurance

Reputation insurance provides support for the costs involved in addressing many practical issues that arise in a reputation related incident which may include:

  • obtaining legal advice and/or representation
  • engaging public relations and damage control expertise
  • costs involved with replacing leaders or changed business priorities
  • expense of diversion of management/staff time
  • measures to prevent talent flight risk
  • costs associated with involvement of international networks (for multinationals) in damage control in different countries.

How Gallagher can help

Reputation risk can be a blind spot for businesses but a specialist broker can help you recognise potential areas of vulnerability and propose appropriate strategy and levels of insurance cover.

Knowing how to react and having resources to respond is key to damage control where loss of business trust is concerned.

Gallagher has expertise in reputation insurance and related services and support many Australian businesses with protection in this area. We're here to help.

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Disclaimer

Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient's industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers' control.

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