When cyber-attacks and social media controversies can cause more financial impact than physical damage, is it time for businesses to take another look at the risks they insure?
Technologies such as artificial intelligence are transforming how businesses operate – and their risk profiles. Recent research by Aviva showed that businesses were 67% more likely to have experienced a cyber incident than a physical theft. Yet only 17% had a cyber insurance policy, and the same proportion said they are unaware that cyber insurance exists1.
Similarly, in the last year we've seen numerous examples of companies suffering large losses as a result of controversies, often amplified and exacerbated by social media. Yet, while executives attribute up to 63% of their company's market value to reputation2 , many do not have protection against these threats.
To redress this imbalance and avoid a growing protection gap, companies should reassess their risks and calibrate their insurance to align their spend more closely with their risk registers.
Intangible risks are on the rise
Investment in intangible assets like brands, designs, data and software has grown three times faster over the past 15 years than investment in physical assets like factories and machinery3. This is reshaping the risk landscape for many businesses.
In today's world, you don't need physical damage to inflict heavy losses. Something like a data breach or the fall from grace of a brand ambassador can explode on social media, resulting in a loss of trust in the brand. That can have a huge impact on sales and stock values.
However, the rise of intangibles has not been matched by a shift in how we protect against non-physical risks, which are usually uninsured, increasing the potential for serious exposures.
A fresh approach to insurance
So why are invisible risks, such as reputation, being left behind? In some cases, the insurance market has been behind the curve in developing viable solutions in response to a fast-moving risk landscape. Many businesses take a conservative approach that prioritises physical risks and traditional patterns of risk management. Some may be acting in the belief that property and casualty insurance is mandatory – but, in most countries, only employer's liability is compulsory.
Although the insurance market has been slow to develop solutions for intangibles, new products and services are emerging. For example, WTW can provide clients with access to a reputation crisis insurance solution that also helps with prevention, response and recovery (see below).
It may be time to take another look at what's available and reassess where to place insurance spend to get the best spread of cover against existing and emerging risks.
How to balance tangible and intangible risks
Carry out a thorough risk review: reassess your exposure to both physical and intangible risks across your business, taking account of new technologies and emerging threats. Identify which risks are business critical and where you might need more – or less – protection.
Tailor your insurance cover: buy the insurance that matches your current risk profile. Work with your brokers and insurers to customize cover. In some cases, you may be able to divert spend from your other insurance programs to fund more cover for intangible risks.
Invest in risk mitigation: prevention is sometimes the most effective strategy. Review your cyber security controls, crisis management and compliance programs with intangible threats in mind. Strengthen your procedures to reduce your risks and increase your resilience if an incident does occur.
How we can help
WTW has partnered with some of the global leaders in this field to develop a holistic solution for reputation risk that can prevent a crisis happening and help you recover if an incident does occur.
Prevention: With Polecat we've developed a risk monitoring tool powered by artificial intelligence (AI) that allows you to track live sentiment and get ahead of any brewing story before it hits the headlines. Algorithms synthesize data from online and social media channels into dashboards and risk alerts for relevant media.
Risk quantification: Our Reputational Risk Quantification Model gives you an evidence-based value for the potential reputational damage likely to follow incidents most relevant to your business. This is based on statistical analysis, events data and our experience of reputational risk. The model can also help you map any gaps in mitigation and design a targeted program of reputational risk protection.
Reputational risk benchmarking: Our Reputational Risk Benchmarking Portal provides a picture of your company's resilience against reputation risk. By completing a simple questionnaire, you'll get a report detailing your reputation risk maturity score, benchmarking your approach against some of the world's leading companies, and providing best practice recommendations on how to improve.
Risk transfer: We can provide access to a reputational risk insurance solution offering up to $50 million cover for loss of gross profit as a result of a significant adverse publicity event. Perils covered include damage by association with an affiliated business. Immediate interim payments are available to get through the crisis with support spread over up to 12 months to help you stay afloat in the aftermath.
Response: WTW offers access to experienced crisis communications specialists who have managed crisis situations of all types around the world, from advice on media handling and strategy to leadership statements and speeches.
Rehabilitation: our specialists will work with you over the longer term to develop campaigns and communications to help you turn the tide of public opinion back in your favor.
For more information, please get in touch with our specialists today!
Footnotes
1 One in five businesses have been victims of cyber attack in the last year Return to article undo
2 The state of corporate reputation in 2020: everything matters now Return to article undo
3 World Intellectual Property Organization: World Intangible Investment Highlights Return to article undo
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.