Reputational risk: your reputation, our risk

Reputation is an abstract concept. Everyone agrees that it's important; business gurus consistently place reputation near the top of any organisation's assets. At the same time, it's almost impossible to measure. How do you define reputational damage? What is the cost of reputational loss?

Swiss Re Corporate Solutions had to address these questions in response to a request for reputational risk cover. The inquiry came from a company providing manufactured stone, as it was concerned about a potential stigma associated with its products.

The company had become aware of a rise in silicosis, a lung disease caused by silica dust and therefore a stonemason's occupational hazard. Respirators provide protection from the dust but the company couldn't be sure that its customers' employees were using them. In any case, the risk was beyond the company's control, as even unsubstantiated allegations could impact their reputation.

Moreover, in this case the risk exposure was exacerbated by the company's investment in new sales outlets to keep pace with its growing business. In a worst-case scenario, the company could have been financing its expansion at the same time as its business was in decline.

The challenge for Swiss Re Corporate Solutions was to attach an insured value to this company's reputation and arrange for cover to be triggered by a reputational loss event. The first step was to define the risk: negative, silicosis-related media coverage, or to be more precise, the appearance of specific keywords, such as silicosis, in newspaper or magazine articles.

The next stage was to establish the insured sum. We did that by applying our risk modelling expertise based on an analysis of the company's sales history and the extrapolation of future growth. As a result, we were able to present the company with an insured sum commensurate to the risk and clearly connected to their reputational exposure (adverse media coverage).

How secure is your reputation? Do you worry about it? If so, you can share your concerns with us. Designing original insurance solutions is our business, no matter how abstract the risks may seem.