Better analysis of reputational losses means captives can play bigger role
A captive can play a big role in reimbursing an organisation for any damage to its reputation, and this form of risk transfer should be viewed as an efficient way of funding the reputational risk of companies long term.
This is according to John Kelly, managing partner at Hanover Stone Partners, who suggests this is possible with the backing of data from specialty broker and advisor Steel City Re. The firm has built a database based on analysis of 7,500 publicly traded companies over 15 years, looking at how different stakeholders in those companies have reacted to events.
Kelly spoke at a panel at the Vermont Captive Insurance Association (VCIA) annual conference in Burlington, Vermont, which is taking place this week. He has been working with Peter Gerkin, co-founder and senior vice president of Steel City Re for the past two years.
“This product is innovative because for the first time it was introduced reputational risk can now be measured, quantified, insured, self-insured through a captive, monitored and proactively mitigated for publicly trade companies,” said Kelly.
Reputation-linked losses have increased by 461 percent over the past five years, according to Steel City Re analysis of reputation-related losses for the approximate 7,500 companies between 2011 to 2016.
Furthermore, broker Aon had previously ranked damage to reputation as the biggest risk for global organisations.
Steel City Re measures reputation risk through sales volume, cycle time, pricing, HR costs, cost of credit, credit protection, investor behaviour and regulatory behaviour.
Kelly suggested the value of the product is the on-going monitoring of the data, as Steel City Re tells the captive how the different stakeholders are reacting.
He continued: “Steel City Re brings credibility to the subject of reputational risk. I am aware of a number of companies in New York who put reputational risk into their captive without any credible data. They were advised to do so by an accounting firm that will remain nameless.”
Steel City Re offers proprietary solutions for protecting companies, directors and officers against reputational risk, and is an overseas specialty broker and advisor to syndicates comprising of various underwriters at Lloyd’s and various insurance companies led by Tokio Marine Kiln.