Reputational risk
The risk of harm to the opinion third parties hold of a company, an intangible asset that insurance cannot indemnify directly.
On April 23, 1991, Gerald Ratner told the Institute of Directors that some of his jewelry chain's products were "total crap." The group lost about 500 million pounds in market value without a single asset being damaged. Reputational risk is the risk that the trust customers, employees, investors and the public place in a company erodes. It resists insurance for three reasons: reputation is intangible, it lives in the minds of third parties and outside the company, and it can barely be measured. You cannot indemnify an opinion the way you rebuild a warehouse, because no amount of money makes the public believe again. The risk is also largely endogenous. It often stems from the company's own conduct or its handling of a crisis, which runs straight into moral hazard. Existing policies therefore cover only the echo of the harm, crisis-management costs or a share-price drop through a parametric index. Their real value lies more in prevention and service than in risk transfer.
Textbook case: a doctored video targeting an executive triggers a viral crisis; the reputation policy pays for the PR firm and the advisers, but cannot guarantee that the lost trust comes back.
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