Nigel Farage is back in the news, and whatever your views on his spat with Coutts / NatWest, the tale certainly puts the spotlight back on the challenges of managing reputational risk.

This article explores some of the key risks, the reasons that the reputational risk landscape is more volatile than ever and some of the steps we can take to manage it.

What are the key reputational risk areas?

Reputational risks for insurers take many different forms. The classic risk is failure to meet policyholder expectations, for example through inefficient claims handling or opaque or unclear policy terms. Whether fair or not, insurers in the personal lines and SME space are not particularly well trusted by the public.

However, increasingly insurers are exposed to new sources of reputational risk too. Scandals such as Cambridge Analytica, as well as the introduction of GDPR have moved the dial in terms of the care society expects firms to take with their personal data and how it can be used.

In addition, members of the public are increasingly vocal on a range of ethical issues. These encompass climate change and ESG through to general staff welfare and, more specifically, diversity, equity and inclusion issues.

Why are these risks more topical today?

These risks have always been present to some extent, but their impact has been amplified over the past decade due to a range of societal changes. The rise of the digital era and social media has expanded the reach and speed of customer feedback, allowing grievances to be aired publicly and instantly, with the potential for those claims to “go viral”.

At the same time, heightened customer service expectations, increased cyber threats, and a societal shift towards ethical business practices have painted a wider target on insurers’ backs than ever before.

However, perhaps most challenging for insurers is that there are no easy answers to lots of these questions. Perhaps Coutts’ termination of Farage’s current account was an attempt to minimise the reputational risk that his association with the bank posed. In practice, it’s had the opposite effect, with the media blowback also affecting NatWest.

Firms can end up with similar front page coverage for totally different reasons, which means that the ultimate fallout is hard to predict. The banking current account market is notoriously sticky, so I can’t imagine mass account closures for NatWest. Similarly, when Hiscox hit the front pages over its stance on Covid-19 business interruption claims, the press speculated that the reputational damage could be terminal – two years on, those headlines were clearly overblown. Contrast that with the woes of the CBI, which has been chastened and hugely diminished as a lobbying organisation following its recent scandals.

How to manage reputational risk in a changing landscape?

Managing reputational risk is challenging, but fortunately, insurers are not completely  powerless in the face of these challenges.

The best strategy is clearly to avoid drawing public ire in the first place. The overall risk management framework is key to this because reputational risk can compound so many day-to-day challenges. Having strong operational resilience measures around claims management and policy administration reduces the risk of causing unreasonable policyholder delays, but a strong training programme for customer facing staff is equally important to minimise the number of mis-steps that could go viral on social media.

On ESG, climate change and corporate citizenship, insurers are increasingly walking a tightrope across a culture-war minefield. Key to success here is having a clear culture, vision and values that are embedded in the organisation, as well as ensuring that culture remains appropriately in-step with societal norms.

Managing a crisis

Ultimately, insurers should assume that they will be exposed to reputational damage as well as attempt to avoid it. As such, firms can benefit from scenario planning and practical testing to prepare for potential crises and to help ensure everyone knows their roles.

In the event of a crisis, some key considerations include:

• Putting together a diverse crisis response team that has the best possible chance of seeing the issue and your response from a range of perspectives. Crises can be exacerbated by senior figures acting alone and “putting their foot in it”.
• Responding clearly and quickly, but being open about what you know / don’t know if it’s early stages. Ambiguous responses can be misinterpreted by the media, and a delayed response means the story can run away from you.
• Developing a response that will stick. Media interest is prolonged when a firm’s story shifts or is proved untrue.
• Having a clear media strategy, in terms of who is responsible for monitoring content on, and responding on, various platforms. Choose the distribution channels for your messaging carefully.
• Being open and transparent, and empathic with those affected. Avoid sounding defensive about the issue.
• Recognising when your response should be more than just an apology. For example in 2021, after an in-store incident, Starbucks shut 8000 US stores for a half-day of racial bias training … “Sorry we got it wrong” (rightly) won’t always be enough.

Where next?

Traditionally, reputational risk has been considered a subset of operational risk. In the current environment, insurers need to prioritise reputational risk management and transform it into a strategic opportunity. Insurers who manage to navigate this shifting terrain successfully will be the ones who view reputational risk not merely as a threat, but as a catalyst for improvement and innovation across the whole business.

First published in the August 2023 edition of the Actuarial Post.