Risk management: reputations in the line of fire

Organisations across the globe are heading towards a barrage of reputational risks in a world held to ransom by the pandemic, climate change, political turmoil and digital disruption.

The aftermath of the 2008 recession accelerated public interest and criticism in corporate reputation as the world was stifled by inadequate corporate decisions. Now, as company directors and shareholders are held solely responsible for much more than financial performance, re/insurers are thinking more seriously about the social, economic and environmental impact of their decisions.

However, research suggests that such diligence is not widely mirrored in risk management and strategic targets. How can the industry guard itself more proactively against soaring scrutiny, and better manage additional risk?

Risk management now stands at the forefront of corporate reputation as organisations grapple with complexities that were not previously considered.

This was one of the key points from a panel discussion titled “Risk management: is it time to reset re/insurers’ corporate responsibilities?”. The discussion took place on Intelligent Insurer’s Re/insurance Lounge, an online platform where interviews and panel discussions are available on demand.

The event featured Penni Nelson, RIMS board director and assistant vice president, risk management at Hillwood, a Perot Company; Julia Graham, deputy CEO and technical director at Airmic; and Howard Kunreuther, co-director, Risk Management and Decision Processes Centre at the Wharton School, University of Pennsylvania.

Corporate reputation has changed enormously over the last decade, according to Graham, who said that risk management has a key role to play in this transformation.

“Reputation is top of mind for our risk management members and the companies they work for, and I am pleased to say that we have seen them rise to the challenge as adversity has presented itself.

“However, there does not seem to be integrated accountability for reputation in many organisations when it comes to management and ownership,” she noted.

Nelson added that the role of corporate responsibility has grown exponentially in the US market due to litigation. “It is now vital that risk management becomes a priority, because organisational leaders are being forced to look at many issues that they may not previously have paid enough attention to,” she observed.

Risk has no barriers

Kunreuther added that the re/insurance industry has no choice but to re-evaluate itself and how it covers catastrophic events. “The pandemic has challenged the reputation of the industry, which is now being forced to consider what it will and will not cover—and why.

“Many companies around the world are having to look again at the kind of products they offer.”

He said that the insurance industry has certain necessary limitations and that it may be worthwhile creating more awareness with clients as to what its role and responsibility might be.

“The reputation of the re/insurance industry may be enhanced when people understand the limits of what it can provide,” he said. He added that in some cases there may be a greater need for public sector input to supplement what the industry cannot provide.

Graham said the re/insurance industry was not set up to support the type of systemic risks that the globe is witnessing today, such as massive floods, fires and cyber risks. “That’s to say nothing of a global pandemic which has touched on all risks.

COVID-19 has demonstrated that risk does not have barriers around it, and that an unforeseeable event can impact everything,” she said.

Nelson added that there are considerable risks for corporate reputation if risk management is not brought to the fore of all organisations, but that there may be new possibilities as well.

“Risk management presents an opportunity to do something entrepreneurial,” she said.

Kunreuther observed that, traditionally, the insurance sector was all about being prepared.

“It is perhaps time to start thinking in terms of catastrophic and other inconceivable events. No-one has looked at this before and it may present a real opportunity for the industry as well,” he concluded.

To view the full Re/insurance Lounge session  click here.