Tuesday, August 4, 2015

Global executives labeled damage to brand and reputation as the number one risk facing companies today in Aon’s 2015 Global Risk Management Survey.



Ex-Subway spokesman Jared Fogle allegedly paid for sex with a minor: a lesson in reputational risk



by Caitlin Bronson | Aug 03, 2015

Allegations that former Subway spokesman Jared Fogle allegedly paid for sex with a minor have underlined the importance of insurance coverage for one of the commercial world’s most dynamic and insidious risks.

The FBI subpoenaed court documents over the weekend in which Fogle told a Subway franchisee via text that he had paid for sex with a 16-year-old girl who advertised herself on Craigslist. The messages date back to 2008, when Fogle allegedly asked the franchisee – with whom he was engaged in a relationship – to advertise herself on Craigslist.

The woman responded, asking if it was the same website where Fogle found the girl with whom he had sex.

“I still can’t believe you only paid $100 for her,” the woman said.

Fogle responded, “It was amazing!”

The franchisee said she reported Fogle’s text to Subway, but the sandwich chain determined it would take no action as Fogle was not technically a company employee. Subway suspended its business relations with Fogle early last month, however, after his home was raided by the FBI in connection to a child pornography investigation.

The chain again underlined its separation with Fogle this weekend.

“About the most recent news story on Jared Fogle, this allegation, if true, is appalling and is contrary to the values of our brand,” Subway posted on Facebook. “As previously stated, we have suspended our relationship with Jared.”

Regardless of his current stance with Subway, Fogle’s fall from grace asks a nuanced question about risk management in the 21st century – can reputational risk ever truly be insured against, and if so, how effectively?

There is no arguing against reputational fallout as an emerging risk. In fact, global executives labeled damage to brand and reputation as the number one risk facing companies today in Aon’s 2015 Global Risk Management Survey.

“A business reputation, particularly the trust placed in the organization by its customers, may be irrevocably blemished due to perceived or actual breaches in its ability to conduct business ethically, securely, or responsibly,” said Loretta Worters of the Insurance Information Institute.

While reputational risk can encompass many things – such as pollution or product recalls – in the case of Subway, the damage is more nebulous. Strong associations between Fogle and the chain dominate the negative narrative, as does the suggestion that Subway executives knew about potential illegal behavior by Fogle.

The case provides a reasoned argument for the purchase of reputational risk insurance coverage – particularly for large companies and well-known brands.

The coverage gives the insured the ability to consult with experts whenever a threat to reputation is identified, or at the first sign of negative publicity. It also connects the insured to experts who can develop a communications strategy and manage the disclosure of sensitive information before it becomes public.

Some coverage options can also provide cover for the cost of communications in response to bad publicity, including television, print and online advertising, as well as the launch of a social media campaign.

The cost of monitoring the brand after negative publicity may also be covered.

Of course, there is only so much an insurance policy can do to diffuse loss due to reputational fallout. According to a global survey conducted by ACE, more than three-quarters of respondents agree that it is difficult to quantify the financial impact of reputational risk on their businesses.

As such, providing sufficient monetary assurance through reputational risk insurance is difficult.

“Nevertheless, we believe there is much that insurers and brokers can do collectively to help their clients,” ACE said. “This could include the evolution of new more holistic insurance solutions that involve the input of crisis and PR specialists. More generally, it should involve professional risk engineering to improve risk management processes and governance.”