ACE Study: Reputation the Hardest Risk to Manage

Ninety-two percent of companies believe that reputational risk is the most challenging category of risk to manage, according to a major new study from ACE Group conducted across 15 countries within its EMEA (Europe, Middle East and Africa) region.

ACE’s report, “Reputation at Risk,”is the latest in its series of EMEA Risk Briefings examining new and emerging risks. It reveals that while 81 percent of companies in the survey see reputation as their most significant asset, most of them admit that they struggle to protect it and identifies a number of key reasons why companies in the region often find reputational risk challenging to manage:

• 77 percent of companies find it difficult to quantify the financial impact of reputational risk on their business, making it harder to measure than traditional, more tangible risks.
• 68 percent of companies believe information and advice about how to manage reputational risk is hard to find, compounding the sense of uncertainty and confusion about how best to manage it.
• 66 percent of companies feel inadequately covered for reputational risk from an insurance perspective.
• 56 percent of companies say social media has greatly exacerbated the potential for reputational risk to affect their business.

The report also proposes a number of solutions to adopt, including:

• Companies need a clear framework for managing reputational risk. Effective management of “traditional risks” will help avoid reputational events, and management teams need to put in place a culture and instill a risk appetite across the company that will reduce the potential for crises to emerge in the first place. In addition, taking a multi-disciplinary approach that involves the CEO, PR specialists and other business leaders will also help to build the broader perspective that is necessary for identifying and managing less obvious reputational risks.
• Companies should work harder at measuring how their reputation is perceived. Understanding perceptions of key stakeholders, their interplay and their impact on corporate reputation, is essential for tracking and managing reputational risk effectively. Companies must ensure that they are collecting an “outside-in” perspective to complement their own internal perspective.
• Companies should sharpen up their crisis management plans to keep pace with today’s faster-moving world.ACE research suggests that many companies may be over-confident in their abilities to respond to a crisis. Regular review and testing – including the incorporation of social media scenarios – will allow a faster response when disaster strikes.
• The insurance market can do more to help companies manage reputational risk.This includes the provision of more holistic options that include crisis response assistance. It also includes helping companies to take a ‘reputational lens’ to more traditional risks to evaluate the reputational consequences in each case.

“Reputational risk can be difficult to predict. However, some clear pointers emerged from our research as to the source of companies’ key worries. One of these is the globalization of business, with complex supply chains, expansion into new markets and the challenge of maintaining consistent standards across multiple borders all giving cause for concern,” said Andrew Kendrick, President, ACE European Group. “The other noticeable theme is regulation. Post-crisis, compliance has taken on a new importance and businesses of all shapes and sizes are more keenly aware of its relationship to their corporate reputation.”

“Insurance is not a panacea for the fast-evolving world of reputational risk. Nevertheless, I believe there is much that insurers and brokers can do collectively to help their clients. This includes the evolution of new more holistic insurance solutions that involve the input of crisis and PR specialists. More generally, professional risk engineering can help to improve risk management processes and governance, allowing clients to manage the more ‘traditional risks’ better and reducing the likelihood of a reputational event in the first place.”

The research for ACE was carried out between April and June 2013 by Longitude Research, who spoke to 650 risk managers, CROs, CFOs, COOs and other executives responsible for buying insurance from companies in 15 countries with turnover of over $250 million.

Topics Risk Management