Reputation insurance sees traction

Stakeholders and regulators scrutinising companies making ESG-related policy commitments are leading to more interest in insurance designed to cover such risks: Steel City Re.

Emboldened company stakeholders and regulators scrutinising the disclosure and accountability of companies making environmental, social, and corporate governance (ESG)-related policy commitments are gaining traction—leading to more interest in insurance designed to cover such risks.

Reputation risk insurance, quietly on the scene for over 20 years, is gaining a boost from the dynamics at work, says the chief executive officer of parametric reputation risk insurer Steel City Re, Nir Kossovsky.

The truly explosive factor—rising risk awareness—is not born of corporate culture or business logic; it’s rooted in outright fear. “Boards have become acutely aware of the personal threats to their own integrity and viability,” Kossovsky said.

The tell-tale signs of “acute” fear: compliance officers and general counsel are taking over from risk officers. “The issue has grown in importance when it falls into counsel’s lap.”

Stakeholder activism built it. ESG has pushed firms into uncounted commitments, be it net zero carbon emissions by 2050, or nearer-term diversity and inclusion (D&I) targets. History can judge if targets are hit, but any stakeholder can turn litigant to claim value lost.

“The expectations and the value that accrues from a credible plan—that is reputation,” Kossovsky said.

Compliance is making it stick. Disclosure requirements are building up daily throughout 2022 in US Department of Justice updates to corporate criminal enforcement and individual accountability policies, plus Securities and Exchange Commission updates on disclosure rules.

“The higher push from regulators has stimulated a bit of tunnel vision.”
Nir Kossovsky, Steel City Re

“That collectively produces a significant mass of issues that have attracted the attention of board members and senior leadership and the corporate risk apparatus,” Kossovsky said.

Open a newspaper any given day for proof. The latest: a deluge of action against Wells Fargo on reports that D&I targets were feigned in recruitment.

“Sued by regulators, class action suits, this week a derivative suit: this is the usual cascade, the pile-on of regulators and litigators that arise from ESG-linked reputation risk,” he explained.

“The higher push from regulators has stimulated a bit of tunnel vision, not on the risk, but on the response,” Kossovsky said. “Optimising for regulators does not necessarily produce the best results for customers, employees or investors.”

The same explosive ingredients also muddle models. The mix of active stakeholders, regulators and ESG commitments adds as much uncertainty to frequency and severity projections as it adds dynamism to risk awareness.

“With the frequency and severity of losses as they are becoming, this is not the traditional world of insurance with well-developed models and minor regular adjustments,” Kossovsky concluded.

Main image: Shutterstock / GLF Media