assuring reputational value rims nyc november 20, 2014
TRANSCRIPT
ASSURING REPUTATIONAL VALUE
RIMS NYCNOVEMBER 20, 2014
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EXPECTATIONS, VALUE, RISK & PROTECTION
In a market system based upon trust, reputation has significant economic value
ALAN GREENSPANOCTOBER 2008
Image Source: The Australian, 22 Sept 2012
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SPEAKERS
ANDREA BONIME-BLANCCEO GEC RISK ADVISORY
NIR KOSSOVSKYCEO STEEL CITY RE
TY SAGALOWPRESIDENT INNOVATION INSURANCE GROUP
PETER GERKEN MODERATORSTEEL CITY RE
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AGENDA
• WHY NOW?– THE AGE OF HYPER TRANSPARENCY-ANDREA
• FREQUENCY AND SEVERITY– MEASURING REPUTATIONAL VALUE-NIR
• RISK TRANSFER– THE INSURANCE MARKET RESPONSE-TY
• RISK UNDERWRITING– UNDERWRITING REPUTATION RISK-NIR
• FINAL THOUGHTS/Q&A
© GEC Risk Advisory LLC 2014. All Rights Reserved. Confidential & Proprietary Information.
“Reputation risk is an amplifier risk that layers on or attaches to other risks – especially ESG risks – adding negative or
positive implications to the materiality, duration or expansion of the other risks on the affected organization, person,
product or service.”
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REPUTATION RISK IN THE AGE OF HYPER-TRANSPARENCY I:WHAT IS IT AND WHY IS IT HAPPENING NOW?
Source: Andrea Bonime-Blanc. The Reputation Risk Handbook.
© GEC Risk Advisory LLC 2014. All Rights Reserved. Confidential & Proprietary Information.
6Sources: Nir Kossovsky. Reputation, the Stock Market and You
REPUTATION RISK IN THE AGE OF HYPER-TRANSPARENCY II:WHY SHOULD COMPANIES CARE?
REPUTATION RISK IS ABOUT MEETING, EXCEEDING OR FAILING STAKEHOLDER EXPECTATIONS
© GEC Risk Advisory LLC 2014. All Rights Reserved. Confidential & Proprietary Information.
Source: Deloitte, Exploring Strategic Risk, 2013. 7
REPUTATION RISK:IT’S THE #1 STRATEGIC RISK TODAY
© GEC Risk Advisory LLC 2014. All Rights Reserved. Confidential & Proprietary Information.
SOME SURVIVED…
…SOME DID NOT…
REPUTATION RISK…GONE WRONG I
order
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© GEC Risk Advisory LLC 2014. All Rights Reserved. Confidential & Proprietary Information.
…AND OTHERS ARE UNDER THE MICROSCOPE…
REPUTATION RISK…GONE WRONG II
order
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© GEC Risk Advisory LLC 2014. All Rights Reserved. Confidential & Proprietary Information.
MANAGING REPUTATION RISK:CREATING THE RIGHT PROGRAMS, PROCESSES AND CONTROLS
ETHICS &COMPLIANCE
RISK
BUSINESS PROCESS
IMPROVEMENT
AUDIT
QUALITY
CORPORATERESPONSIBILITY
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INNOVATION
© GEC Risk Advisory LLC 2014. All Rights Reserved. Confidential & Proprietary Information.
SOURCE: Andrea Bonime-Blanc. The Reputation Risk Handbook. Oxford, UK: DŌ Sustainability (2014). 11
MITIGATINGREPUTATIONRISKANDBUILDINGREPUTATION RESILIENCE
THIS IS WHERE THEREPUTATION RISK
EQUATION TAKES PLACE
© GEC Risk Advisory LLC 2014. All Rights Reserved. Confidential & Proprietary Information.
Achieving “Effectiveness”
Is about Organizational
Integrity & Resilience
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BUILDING ORGANIZATIONAL INTEGRITY & RESILIENCE
TYPOLOGY OF ORGANIZATIONAL INTEGRITY & RESILIENCE
SOURCE: Andrea Bonime-Blanc. The Reputation Risk Handbook. Oxford, UK: DŌ Sustainability (2014).
BUILD A RESILIENT HIGH INTEGRITYORGANIZATION
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Central Theorem of Reputation Value Measurement
I used to listen to what people say; now I watch what they do.
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Model:Behavioral economics
Big data:Signature extraction
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Agent
GM’s woes; Ford Pinto history; liability; compensation funds; Ken Feinberg
Information
Stakeholder(Customer)
Stakeholder(Creditor)
Company(GM)
Stakeholder(Analysts)
Action Payoff
Price, volume, cycle time
Cost of credit
Managerial decisions
Expectations of the above
Tangible/Intangible car ownership
Expected return on capital
Cash flow; balance sheet protection
Personal professional rewards
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CompanyBehaviorG/R/CEthicsInnovationQualitySafetySustainabilitySecurity
CustomerExpectation
Equity Inv.Expectation
Credit Inv.Expectation
SupplierExpectation
AnalystExpectation
CustomerExpectation
Equity Inv.Expectation
Credit Inv.Expectation
SupplierExpectation
AnalystExpectation
Visible Action
Revenue
Costs
Multiple
Predictions
Behavior S
ignatures
Revenue
Costs
Multiple
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2004“they say”
2014“they do”
Qualitative Quantitative
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Indexing: Indication of Value
RVM RankUnit Gerken Percentile
Joining method Geometric Arithmetic
Range Generally –1.0 ≤ x ≤ 2.5 0.0000 ≤ x ≤ 1.0000Median 0.4301 (23 August 2012) 0.5001
Primary use Volatility and risk Relative value
RVM
…volatility and risk
Rank
…relative value
Managerial Controls
Investment Portfolios
Insurance Pricing
Insurance Triggers
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Early 1990’s: D&O “Crisis Management” endorsements
1995: Private Securities Reform Act’s stock “bounce back” provision.
1999: AIG incorporate “crisis management” into its new “Y2k” policy.
Early 2000’s: P&C industry expands crisis management endorsement
Mid 2000’s: Standalone “crisis management” policies are contemplated
Late 2000’s: Klin’s reputation insurance (2009); Zurich’s revised Product Recall policy adds $35M in crisis management cover
Crisis Management: Not So New
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2011: Zurich launches “Brand Assurance” with limit of $100M for crisis management expenses
2011: AIG launches ReputationGuard Policy for middle market with $25 million in public relations
2012: Munich Re launches “Reputation Risk Cover”, $100 million in loss value insurance
2012: BMS launches “Reputation Harm Insurance” offering “protection loss” – $25m
Reputation Insurance Today
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2012: Steel City Re in conjunction with Kiln Syndicate launches “Reputation Value Insurance” with limits up to $100M offering insurance for “Covered Loss” based on a defined and objective reputation value index formula.
2013/2014: Crisis Management provisions routinely added to P&C products with limits of $50-$200k (e.g. Ironshore, Navigator)
Reputation Insurance Today
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Today’s Types of Policies and Coverages
Preparation services
• Example: Steel City Re
Immediate Pre-Crisis and Crisis Management Expense Reimbursement
• Example: Zurich, AIG, Ironshore, Navigator
Financial Loss over
• Munich Re• BMS• Steel City/Kiln
Issues to Consider in Choosing the Right Product for You
Product Coverage Public Relations Expenses or Financial Loss Recover
Pre-Crisis advisory/guidance
Maximum Limit of Liability
$50,000 to $200,000$25 million or $100 million
Financial Reimbursement
Class business interruption loss formula? (historically has disputes)
“survey approach”Formula approach
Crisis Events Named Peril vs. “All Risk”
Crisis Mgt Firm Who chooses?
Can be a good fit for placing reputation insurance policy Effective and tax advantaged manner of retaining and
managing risk, especially for large corporations Access to (lower) reinsurance costs Potential underwriting profit kept “in house” Flexibility coverage to meet insured needs Rate aligned with individual loss experience Better control over claims Works especially well with Steel City Re product
A word about captives
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Loss gates
Loss
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Tactical Benefits Strategic Benefits
Objective Standardized Indications of Reputation Value
Reputation insights Retroactive D&O protection
Reputation controls Forward D&O protection
Reduced D&O risk transfer costs
3rd party risk screening
3rd party risk transferTransparent stakeholder appreciation
Transparent loss adjustment
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“Warranty on Governance”
Central Theorem of Reputation Risk Underwriting
I used to listen to what people say; now I watch what they do.
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Underwriting Reputation Risk
• Culture
• Mission
• Leadership
• Resources
• Strategy
• Controls & Risk Management
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Pillars of Governance
Underwriting Reputation Risk
How a company
effects oversight
and operational
control over the
critical business
processes that
underpin reputation.
• How is that control monitored?
• How are discrepancies managed?
• How is the validity of monitoring affirmed?
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FINAL THOUGHTS – Q&A
ANDREA BONIME-BLANCCEO GEC RISK ADVISORY
NIR KOSSOVSKYCEO STEEL CITY RE
TY SAGALOWPRESIDENT INNOVATION INSURANCE GROUP
PETER GERKEN MODERATORSTEEL CITY RE
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CONTACT INFORMATION
• [email protected]; – www.gecrisk.com; 917-848-4448
• [email protected]– www.steelcityre.com; 412-877-0537
• [email protected]– www.innovationinsurancegroup.com; 212-909-2244
• [email protected]– www.steelcityre.com; 917-821-2836
EXTRA & UNUSED SLIDES
RIMS NYCNOVEMBER 20, 2014
© GEC Risk Advisory LLC 2014. All Rights Reserved. Confidential & Proprietary Information.©GEC Risk Advisory LLC 2014. All Rights Reserved. Confidential & Proprietary Information.
Reputation Risk in the Age of Hyper-TransparencyAndrea Bonime-Blanc, JD/PhD
CEO, GEC Risk Advisory LLC
RIMS NY MeetingYale Club, New York City – November 20, 2014
© GEC Risk Advisory LLC 2014. All Rights Reserved. Confidential & Proprietary Information.
THE BUSINESS CASE FOR REPUTATION RISK MANAGEMENT
SOURCE: Andrea Bonime-Blanc. The Reputation Risk Handbook. Oxford, UK: DŌ Sustainability (2014). 35