INSURANCE INDUSTRY : EXPLORING THE OPTION OF REPUTATION RISKS

INSURANCE INDUSTRY : EXPLORING THE OPTION OF REPUTATION RISKS

Companies operating in today’s complex and fast changing business environment are exposed to an increasingly diverse set of risks. For many, these risks can be divided into three distinct categories -operational, financial, and business- with different individuals in the company being responsible for each one. However, one which has continued to cry for cover within and beyond our clime is image or reputation risk. We are definitely in an epoch when image matters above all things. This underscores the popular aphorism that image is everything. Whether as an individual or corporate institution, image projection and protection has remained a valued endeavour that must be factored into decisions of individuals or organizations. Image or reputation, as some prefer to call it, comprises three fundamental elements, namely; personality which has to do with the character and ethos of the organization guiding its operational behavior; identity, which is the totality of what you or your organization says or wants to be seen as; and perception which denotes how stakeholders view your company or impression that they hold about the organization.

A company’s reputation is important because it affects the ways by which various stakeholders behave towards it. This applies in equal measure to employees, investors, customers and the general public and influences such key issues as employee retention, customer satisfaction, customer’s loyalty and investor relations. Organisations that will have sustainable existence needed to constantly realize that reputation is built in the realm of the mind as a set of memories, perceptions and opinions that sit in your stakeholders’ consciousness.

In spite of the crucial place of reputation mantra, it is most regretful that different stakeholders prioritize corporate reputation in a different order. For example, not surprising, investors believe that financial performance is by far the most important characteristics followed by quality of management. For customers, however, the quality of services and products, together with customer service are the highest priorities.

Accountancy practices do not allow many companies to put a financial value on their own corporate reputation in the balance sheet. They treat the inclusion of individual product brand value or Director’s reputation with a wave of the hand in their financial calculus. Contrariwise, PR pundits have continued to hold the views that a company’s reputation conservatively constitutes between 66 and 100 per cent of its annual revenues.

The question that may be agitating for answer therefore is; how can a company’s reputation be at a risk? The answer is simple. Although a single occurrence or event-on its own-may rarely threaten a business reputation. More often than not, it is an event followed by poor management of the consequences that jeopardize corporate reputation. Events that sound reputation alarms include fraud, marketing  fiasco, hostile take-over; loss of regulatory approval, etcetera. But how does the insurance industry mitigate reputation risks? Traditionally, there are traditional types of risks underwritten by the industry namely occupational risks such as property damage and employers liability. In such cases, quantifying the immediate losses involved is straightforward. For property it is a case of establishing the value of the property and in liability, losses are defined by the courts. Additional losses such as the increased cost working, following an event, are often covered under insurance policies. What is not covered is the impact on the company’s reputation.

Of the various types of risks, reputation risk is perhaps the hardest for insurers to tackle. The reason is because reputation is essentially an intangible asset that accountants and specialist firms are still struggling to quantity in monetary terms. Because of this, very little cover has been available to companies that want to protect themselves against damage to their intangible assets, brand value, reputation and future income these will generate. Although insurance may respond to the immediate losses resulting from product failure –sure as recall costs and third party claims- it has not traditionally provided an effective method of protecting a brand.

Given the unstable nature of the Nigerian society and economy coupled with its attendant negative impact on corporate existence, the insurance industry must begin to think about how to make itself relevant in providing covers for this emerging risk. It is a known fact that traditional insurance offers no protection for reputation, despite the fact that research had shown adverse publicity to be directors’ greatest fear. For instance, the nation’s financial services sector of which the banking sector is a principal arm had recently witnessed terrific summersaults, leading to the closure or merger of some banks, while their high profile managers of yesterday find themselves in the nadir of social significance. The same goes for other companies in other sectors of the economy whose image ratings in the general and stock market had nosedived considerably, with negative impact on the fortunes of the companies and the individuals involved.    

As part of the increasing desire to grow the insurance industry in Nigeria, it has become apposite for the industry to critically view and address its mind to this area of risk. To avail itself of help on how to go about this, the industry need to engage the services or input of specialist consultants and PR practitioners that would assist with scientific identification of image risks and proactive action needed to soften its impact. This would no doubt be another avenue for growing the Nigeria insurance market in order to bolster its direly needed contribution to the nation’s Gross Domestic Product.

Tope Adaramola is

Assistant Director of PR,

Nigerian Council of Registered Insurance Brokers

  topejanet2000@yahoo.com