Protecting your brand in times of crisis

A reputation and brand are among the most valuable assets of a company. They define the company and help it stand out in a crowded marketplace.

And, as observed by Paul Schiavone, the London-based global chief underwriting officer special lines, Zurich General Insurance at Zurich Financial Services, brands are becoming even more important in today's world of tight credit and bank funding.

"Banks, for example, are now also lending based on the intangible assets of companies, one of which is brand. In an uncertain world, a strong brand gives a sense of comfort."

But many years of happily spending on public relations executives, marketing managers and advertising gurus to strengthen and maximise a brand or reputation can be undone very quickly.

As Warren Buffett once observed: "It takes 20 years to build a reputation and five minutes to ruin it." This is even more true today.

Almost daily, we read about unexpected reputation and brand tarnishing events in the newspapers - from executive scandals, rogue traders and fraud to product recalls and malfunctions, online security breaches or IT system collapses and environmental or safety accidents. And, with the rise and rise of social media, it can take just one disgruntled customer or just one tweet, Facebook posting or blog tirade to spark a brand crisis.

"What used to be called the 24 hour media cycle is now the 24 second social media cycle," says Ian Davidson, Aon Risk Solutions' placement director for crisis management. "As a result, negative as well as positive comments can spread with huge virility in a very short period of time."

The costs to companies can be huge, including lost revenue, customers voting with their feet, compensation payouts, litigation, clean up expenses, dented staff morale and a lower share price. The costs of managing the crisis can also be staggering. BP, for example, is believed to have spent around $300 million on a combination of advertising, lobbying and PR towards restoring its reputation in the wake of the Deepwater Horizon oil spill in the Gulf of Mexico.

Thus it's not surprising that brand and image has retained its ranking as businesses' most important risk concern for the fifth consecutive year in the Aon 2011/2012 Australasian risk survey. It has also come up tops in seven out of the past 10 surveys.

According to Davidson, brand and reputation risk is really an effect risk as opposed to a causal risk - that is, it will typically be triggered by another event or risk which then has a knock on effect on the company's brand and image.

Increasingly, companies expect a brand or reputation damaging event to occur even though some don't prepare for it. Indeed, Burson Marsteller & Penn Schoen Berlan's 2011 Crisis Preparedness Survey found that while 79 per cent of business decision makers expect a crisis within 12 months, only 54 per cent had a crisis management plan in place.

Given these findings, Schiavone says the time was right to develop a product around brand and reputation and thus Zurich began working with Aon and WPP, a world leader in marketing communications services, a year ago to develop a new insurance risk transfer offering and to really understand what it was that companies needed.

Since then, Munich Re and Chartis have released their own policies which are also available through Aon.

Davidson says all three offerings provide different alternatives for clients to transfer some of the losses that can result with these risks. "The Zurich policy and the Chartis policy provide strong pre-crisis escalation assistance to the Insured. They have a strong focus on planning, prevention and the mitigation of risks. The Munich Re policy is unique in that it will reimburse the client for loss of gross profit."

The new products recognise that companies cannot be too prepared for a crisis and will need far more than a manual on the shelf to deal with it. Not being able to forecast exactly what could hit them, companies need to anticipate different scenarios and even "Black Swan" events, put in place flexible processes and protocols to tackle them and conduct simulations for different circumstances. They also need to recognise that most crises require attention within the first 24 to 48 hours of a threat emerging.

As a result, the Zurich and the Chartis policies offer access to world-class reputation and crisis communications professionals before, during and after a reputation damaging event as well as coverage for costs associated with avoiding or minimising the potential effects of negative publicity.

"There's enough anecdotal evidence to show that companies that haven't done the planning and preparation before an incident, or who don't respond fast enough when they first become aware of an incident, will not do as well those that do," says Davidson.

So, for example, after taking out cover under the Zurich policy, crisis communication consultants from WPP will come in and do a brand and reputation threat analysis, review a company's plans and processes, provide advice on how it can plug up its weak spots and provide training and preparation for its board and executive team. And, once it becomes aware of a threat against its brand, they will step in immediately to help it manage the situation before it escalates into a full blown crisis. After the event, the team will also work with the company to help restore its brand.

According to Schiavone, the product covers whatever the company needs to restore its brand including public relations, media relations, advertising and even political relations.

He expects different companies to buy it for different reasons. "Some will like the fact that there is cash ready for a crisis which they don't have to suddenly find from somewhere else. Others will like the pre-crisis assistance and the access provided to a top communications firm.

And some will be attracted to the fact that there is money available to restore the brand after the crisis because it's very hard to make a funding case to the board or CEO when the crisis has fallen off the front pages of newspapers."

For those taking out the Chartis policy, similar reputation and crisis communications services will be offered by Burson-Marsteller and Porter Novelli.

"Even if you have your own internal or external consultants whom you are happy with, having recognised crisis communications consultants available to do a review and help with preparation and to provide a second opinion at the insurer's expense is always attractive," says Davidson.

Each of the insurers takes a different approach in the cover it offers. All three policies offer a broad and flexible cover.

Zurich's policy, for example, responds to 20 insured events although clients may have additional events that aren't included. In contrast, rather than define insured events, Chartis' policy simply refers to a reputation threat or attack - the publication of anything that could be perceived by stakeholders as a material breach of trust and could have a material effect on the brand.

Munich Re offers financial loss cover which Davidson hopes will be extended to the other policies.

"All of the wordings are quite technical and require a fair degree of analysis to ensure it is suitable for a particular client, its size, what it is trying to achieve and whether it is covered elsewhere for a certain risk," says Davidson.

However, he adds: "These are new and emerging products and we are still working with insurers to further enhance the coverage."

 

 

For more information please contact:

Jason Disborough
Chief Commercial Officer
Aon Risk Solutions
t: + 61 7 3223 7558
jason.disborough@aon.com

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