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    Willis: Insurance Industry Response to Reputational Risk is Inadequate

    London, UK, February 21, 2012 — A staggering 95 percent of major corporations have suffered at least one major reputational crisis in the last 20 years, but of these events, less than 10 percent are insurable, said Phil Ellis from Willis Group Holdings (NYSE: WSH), the global insurance broker. Speaking at a seminar on emerging risks in London last week, the CEO of Willis Global Solutions Consulting Group called for the insurance industry to innovate rapidly to address the glaring gap that exists for reputational risk cover.

    Presenting at the Risk Frontiers conference, Ellis said that his team had developed a number of ways to measure falls in reputation. Ellis’ research into the performance of 600 publicly-held companies has found that major firms suffer a significant reversal of fortune once every seven years. Furthermore, 19 out of 20 companies suffered at least one such reversal over the 20-year time span of the research.

    Ellis said that the reasons behind these reversals are widespread and impossible to predict, ranging from the aftermath of 9/11, to sudden obsolescence of technology, rumour of product contamination, failed international expansion, fraud and M&A activity.

    “About 50 percent of the events we researched had to do with problems with the company’s business strategy or model; 15 percent were from lawsuits; 10 percent were due to M&A problems; notably, until 2011 natural catastrophes were not a factor in these reputation crises,” Ellis told the audience at London’s Grange City Hotel.

    Focusing on the lack of viable insurance solutions for reputational risk, Ellis explained that: “Our industry deals with protection against named perils – a storm, a fire, an explosion, piracy, a war, etc – some of these or a combination may damage a company’s reputation, but usually they do not. In fact, based on our own research, less than 10% of major reputation-damaging events are due to an insurable, peril-related event.”

    “As a result, our standard insurance products aren’t designed to help out when reputation is damaged, except when a policy against a peril, like product recall, coincides with a fall in reputation. But even then the sums paid are not enough to turn the heads of any reputation stakeholder,” he continued.

    Ellis went on to say that when it comes to reputation cover, clients want immediate payment from their insurance policies, with no or few exclusions and very high limits, and that the solution should be priced significantly below the cost of capital. “Insurers have so far not shown any real interest in responding to these needs, and so we’re looking increasingly towards capital markets for answers.”

    “A worrying 80 percent of a company’s leading risks, of which reputation is just one, are uninsurable with today’s products,” said Ellis. “The insurance industry itself is facing a fall in its own reputation for not keeping up with new and emerging risks, and we have a long way to go in order to improve our relevance and standing in corporate risk finance and management.”

    Willis Group Holdings plc is a leading global insurance broker. Through its subsidiaries, Willis develops and delivers professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries, with a global team of approximately 17,000 employees serving clients in virtually every part of the world. Additional information on Willis may be found at www.willis.com.

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