Charities don’t have to look far to see the devastating impact that any sort of damage to their reputations can have.
Oxfam revealed in June that it plans to make £16m savings and lay off 100 staff in response to the loss of income caused by sexual misconduct allegations in Haiti. It has also withdrawn from bidding for multimillion-pound contracts awarded by the Department for International Development.
Save the Children, which has been dealing with allegations of misconduct and harassment by former senior staff, has also withdrawn from DfID bidding.
Charities, with their altruistic missions, are particularly vulnerable to criticism when things go wrong. In the social media era, damage can spread like wildfire and shred reputations in hours, sometimes because of hearsay or rumour rather than fact. Many organisations are therefore considering how insurance can help.
Abuse, cyber problems and fraud are the three "primary triggers" of reputational risk, according to Wendy Cotton, technical line manager of social welfare at the insurance company Markel UK.
"Reputational risk is such an important factor for clients in the third sector that it’s part of our standard cover," says Cotton.
The cyber element of the cover includes data breaches, such as hacking and failure to protect personal information. It also covers the costs of getting systems up and running again and provides advice on statutory reporting duties to organisations such as the Information Commissioner’s Office.
Although fraud cover can protect against theft, a charity and its trustees can also face adverse publicity. Markel’s trustee liability cover includes £25,000-worth of PR crisis management, which helps organisations deal not only with the media but also with stakeholders, such as funding bodies and local authorities, as well as the Charity Commission, which can get overlooked in the chaos of a crisis.
Major donors increasingly want to see evidence of risk management as a condition of funding in the first place.
In the era of fake news and social media, perception is reality. An allegation gets made and things erupt fastAngus Roy, charity director, Ecclesiastical Insurance Group
PR expertise is particularly useful for smaller charities that lack the skills or staff to respond professionally and rapidly when, for example, a finance director is accused of theft or vulnerable service users’ personal details are inadvertently shared. It is therefore the number one requirement for many charities seeking reputational cover.
"In the era of fake news and social media, perception is reality," says Angus Roy, charity director at the Ecclesiastical Insurance Group. "An allegation gets made and things erupt fast. It’s like a monster. Such incidents are difficult to stop, but you have to be prepared to deal with them."
Roy says such concerns have led to an "increased focus" on reputational risk insurance in the past few years. Ecclesiastical offers it as a bolt-on to its traditional charity insurance products. Its cover includes a crisis management advice line that offers 24-hour legal and PR support.
The few, not the many
Roy says the sector’s reputation is suffering for the actions of the few rather than the many. He says the Charity Commission’s five-year strategy, published in October, sends out a "strong message" about the need to maintain public trust – something insurance can help achieve. "A charity’s reputation is fundamental to its success," he says.
The commission guidance Charities and Risk Management (CC26) reinforces this message by saying trustees "should regularly review and assess the risks faced by their charity in all areas of its work and plan for the management of those risks".
The guidance includes a risk-management model outlining what charities should do to prepare.
Roy says uncertainty rather than cost deters some charities from purchasing insurance.
"A lot of people understand there is a risk, but feel a bit overwhelmed and don’t know where to go for help."
There are some bespoke, stand-alone policies for reputational risk, but they are generally too niche and expensive for most charities.
Gordon Wilmott, head of charities at Zurich, which has 14,000 charity clients, agrees that for most charity clients the main issue is short-term crisis management, which it includes as standard in its policies.
Wilmott says many voluntary organisations went into a mild panic this year when the General Data Protection Regulation became law, prompting them to check if their policies covered reputational harm.
"They were worried they would inadvertently break the law," he says.
Some insurers advise charity clients about managing risk.
"We are having more conversations with clients about good risk-management practice to ensure that, if an event does happen, they know what to do," says Wilmott, who gives the example of pro-bono workshops on planning for crises.
Besides abuse, cyber and fraud, crises can also be triggered by events as diverse as fire and flood, poor governance and the disgrace of a celebrity endorser.
Ethical investment can also be a minefield, as the Church Commissioners for England discovered this year when Justin Welby, the Archbishop of Canterbury, criticised the online retailer Amazon for "leeching off the taxpayer", only for it to emerge that the church had shares in the company. The fallout did little for the church’s reputation.
Simon Hickman, chief executive of the broker Access Insurance, says reputational risk is in some ways a misnomer because it mainly boils down to crisis PR. "To extend a policy to include PR protection in a crisis typically costs £30 to £50 for up to £25,000 or £30,000 of cover," he says.
The Charity Governance Code reinforces the serious nature of risk management by saying trustees must "identify and assess risks and opportunities for the organisation and decide how best to deal with them" and review the approach "at least every year".
Organisations should at least consider what could go wrong and share a short written crisis plan across the organisation, identifying spokespeople who can quickly ascertain facts in the event of an emergency and, if necessary, issue holding statements to the press. Failing to respond quickly can imply guilt or secrecy and leaves space for others to comment.
But even the best-laid plans are not always enough to survive a maelstrom. As Wilmott says, charities "don’t know what they don’t know". This is when insurance can be invaluable.
"Crises are rare, but charities are concerned and are managing it with insurance," says Wilmott.