Lloyd’s flags huge growth in ‘valuable intangible asset’ of reputational risk

Insurers and brokers are urged to embrace the opportunity of complex reputational risk by going beyond the one-size-fits-all approach. Intelligent Insurer reports.

Rising reputational risk represents an opportunity for insurers and brokers to move beyond traditional risk indemnity and crisis management, according to a report by Lloyd’s of London.

In the report, titled “Safeguarding reputation–Are you prepared to protect your reputation?” published in partnership with KPMG, Lloyd’s examined the role of the global re/insurance industry in providing risk transfer and how it can help global businesses adapt to the increasingly complex reputational risk landscape.

As the risk profiles of businesses continue to evolve faster than ever, the report found that corporate brand and reputation accounts for 25.3 percent of the market capitalisation of the world’s leading equity market indices, such as the Nasdaq and FTSE. Globally, this was equal to $16.77 trillion of value for shareholders in the first quarter of 2019.

It urged businesses to stay resilient and ensure that safeguarding their reputation is made a central part of their risk management strategy.

The Lloyd’s report highlighted the crucial role of insurance in mitigating market value loss by providing cover for multiple losses from legal costs. By looking at the risk transfer solutions available today, the report assessed how risk indemnity will be increasingly bolstered by additional bespoke services that help organisations assess their risks, build resilience, and provide support after a crisis.

Pandemic impacts

This year’s COVID-19 pandemic has played a role in raising awareness, as it has hit businesses’ financial, commercial and operational resilience. In turn, this has increased the likelihood of adverse reputational events, forcing organisations to think more carefully about the way they protect this intangible asset.

The report said organisations can proactively take steps to protect their reputation by enhancing their brand, preventing adverse events, limiting damage and rebuilding reputation after an incident.

Trevor Maynard, Lloyd’s head of innovation, said: “The Lloyd’s market already provides cover for reputational risks and is developing new products to help mitigate these risks and organisations’ exposure to them.

“We expect new products will measure more nuanced triggers and be tailored to specific industries and companies’ needs.”

Paul Merrey, KPMG UK

“Insurers have an opportunity to become true end-to-end reputational risk management partners, moving well beyond traditional risk indemnity and the usual crisis management support. There are huge growth opportunities for insurers and brokers to help organisations transform their reputation management.”

Paul Merrey, head of commercial & specialty insurance at KPMG UK, added: “The reputational risks facing organisations are becoming increasingly complex, and a ‘one-size-fits-all’ approach to protection simply won’t work.

“Insurers can play a key role in supporting businesses, although to be truly effective we expect new products will measure more nuanced triggers and be tailored to specific industries and companies’ needs.

“Just as cyber insurance has become a core offering to reflect a changed risk landscape, we anticipate that reputation products will become a staple within the insurance industry in the next five years.”

Going to Brussels

In the same week the report was published, the UK High Court greenlighted Lloyd’s Brexit business transfer to Lloyd’s Brussels, the market’s post-Brexit subsidiary. The approval came ahead of the UK’s scheduled exit from the EU at the end of the year.

The London-centred market launched Lloyd’s Insurance Company SA (Lloyd’s Europe) to secure access to the EU market after the UK’s departure from the EU, which would have otherwise been hit by the loss of passporting rights. The High Court approval of Lloyd’s Brexit transfer ensures continuity of cover for policyholders.

Read more here and here

Image: Shutterstock / QQ7

Sign up to the Intelligent Insurer newsletter

Take a trial subscription