Reputational risk connected to increased regulation

Insurance companies interested in reducing regulation need to take a hard look at their reputational risks, according to Scott Newquist, the managing director of the consulting firm Perception Partners.

Speaking at a seminar organized by the Insurance Bureau of Canada (IBC), Newquist said “experience has shown us over the past 10 years that what causes regulation is a decline in reputation.

“Reputation is a function of whether you meet the expectations of your stakeholders. If you don’t meet the expectations of those stakeholders, no matter how ridiculous those expectations might be, your reputation is going to decline.

“And when your reputation declines, and you can’t meet the expectations of your stakeholders, regulators have no choice but to act.”

Newquist noted “reputation is what people think about you, it has very little to do with reality.” Nevertheless, he added, companies must take the public’s expectations into account, even when they appear to be exaggerated or unrealistic.

When expectations part with reality, he said, the key is for companies to be able to change people’s expectations so that they are more reasonable.

“What is true of the United States over the last five years is this,” he said. “What was accepted and legal yesterday is probably unacceptable to people but still legal today. And tomorrow it will be unacceptable and illegal, because the regulators will have to change their rules [to meet the public’s changing expectations].”