Where does your reputation fit into your risk-management plan?

By Michael J. Mika

Reputation is an asset.

While the statement may be an obvious one, Peter Gerken, Senior Vice President, Steel City Re, said corporate leaders need to be prepared to respond should their company be subject of negative publicity from social media or company mistakes.

“Reputational risk is in the age of hyper-transparency,” he said, referring to the ease of publishing comments about everything online that can influence others.

Gerken, whose Pittsburgh-based company specializes in reputational assurance, was one of several speakers who discussed benefits and changes facing the captive insurance industry earlier this month at the Delaware Captive Insurance Association’s annual Fall Forum held at Chase Center on the Riverfront.

Gerken and John J. Kelly, a managing partner at Hanover Stone Partners LLC, spoke during a panel discussion about innovative ways to manage captive insurance and reputational risks.

“You can’t prevent everything bad from happening,” Gerken said, “ but you need to have organizational integrity in place to deal with the after-effects.”

Corporate reputation is the sum of stakeholder expectations of corporate performance.  Damage usually begins with an adverse operational event in which stakeholders deem management culpable.  The costs of their disappointment destroy value by creating disloyal customers, creditors and disengaged employees.

Recent examples include Target’s data breach last year, and the Duke Energy spill, both of which not only generated media coverage, but also changes in operations, and in Target’s case a new CEO.

Failure to have plans in place to deal with adverse events or missed expectations, can wreck a company’s income statement, damage reputation and stain the personal reputations of the executives and board members.

A key benefit of reputational risk management strategy is the ability to show markets, stockholders and customers that the company has sufficient controls in place to qualify the firm as an insurable risk. The control can include using financial protocol as well as business continuity and crisis management plans that are part of the corporate culture.

The risk of reputational damage can now by monitored, reviewed for financial damage and managed effectively if you have your plans in place, Kelly said.

Big data analytics now available allow companies to measure on a real-time basis, reputation and creative controls they can use to help lessen the D&O (Directors and Officers’ Liability) risks, which reduce balance sheet volatility and increase value.

A major benefit of a stated reputational plan can be a reduction of up to 40 percent of any fines that may be imposed as a result.

Delaware Insurance Commissioner Karen Weldin Stewart also spoke during the forum. “Thank you for bringing your captives to Delaware,” the commissioner said. “Not only do we have state law that understands your business, we have a state legislature that understands it too.”

Captive insurer AWI Inc. a subsidiary of American Water, was recognized during the meeting as Delaware’s 1,000th Captive. Delaware’s captive industry has grown from very modest beginnings into one of the leaders in the captive world, with Delaware ranked No. 3.