Assessing the Risks of Insuring Reputation Risk

Reputation risk is becoming increasingly important, especially with the rapidly growing influence of social media, heightened scrutiny on reputation risk by banking and insurance regulators, and reputations impact on organizational value. Insurers have responded to this development only recently by offering new reputation risk insurance solutions. The aim of this paper is to present the first detailed academic analysis of these new insurance policies, including examination of the risks insurers face in offering such coverage. We also offer a conceptualization of reputation risk in an insurance and risk management context with focus on exposures, perils, and hazards. Our analysis indicates that loss identification and measurement generate the greatest challenges to insurers in providing reputation risk coverage. Lack of experience as well as the complexity of the chain of reputation risk events related to reputation insurance coverage present insurers with significant challenges in making this a viable line of business.