Social media platforms such as Facebook and Twitter are providing companies with new ways to boost their profile and connect with customers. But, as the WikiLeaks scandal proves, Web 2.0 has its risks – and that’s where (re)insurers can help
Web 2.0 is here: the internet is firmly into its second phase of life, dominated by websites that encourage user interaction. Websites such as Facebook, Bebo, Twitter and, in the corporate world, LinkedIn have changed the way individuals and companies alike use the internet.
Despite being less than a decade old, Facebook has more than 600 million users and earlier this year was valued at $65bn. Its success is down to its ability to connect individuals with groups of people they choose and allowing them to communicate quickly and efficiently.
However, with great opportunity comes risk, and it now appears that companies are beginning to recognise the pitfalls associated with social networking. The list of organisations that have fallen foul of social media faux pas includes the Red Cross, Southwest Airlines and Habitat.
In Habitat’s case, it blamed an intern for a marketing campaign that involved adding unrelated tags, such as ‘#iPhone’ and Iranian election contender ‘#Mousavi’, to its Twitter messages to boost exposure. The outcry from the Twitter community was significant, and Habitat was forced to remove the offending ‘tweets’ and make a public apology.
Damage to reputation is just one of many possible outcomes of social networking mistakes. (Re)insurers are starting to wake up to the new liabilities that social media creates and are incorporating it into their cover.
CFC Underwriting says it has developed a comprehensive policy that bridges the gaps between the fields of old media and new technology, which is aimed at authors, publishers, broadcasters and media professional service firms.
“The new breed of social networking sites such as Facebook and Twitter have pushed traditional media companies into new areas – but also represent a unique challenge for insurers,” says CFC Underwriting business development director Graeme Newman.
“The platforms’ rate of growth, coupled with the highly uncertain legal landscape in which they operate and the lack of historical data, has made their risk hard to quantify and even harder to price. As a result, there have been few, if any, viable insurance options,” he adds.
Meanwhile, Chartis says it has improved its directors’ and officers’ policy with an extension to cover threats from social media. The cover focuses on the reputational damage that the mis-use of social media can cause. It will pay for public relations expenses to help either mitigate a crisis that results from a credible threat of a company’s confidential information being posted on a social media website, or manage the reputational damage to a company caused once such disclosures are made.
“The domination of the global news headlines regarding WikiLeaks’ publication of leaked government documents is a vivid illustration of the power of social media,” says Chartis vice-president, financial lines, David Walters. “Although the focus has been on government, there is, however, no room for complacency for business.”
But as with any new area of coverage for (re)insurers, the question is do they understand the risks that they are covering?
Jardine Lloyd Thompson communications, technology and media partner Kip Berkeley-Herring says: “I’m not sure the insurance industry has got its head around what social networking can bring in risk terms, though it is starting to wake up to it. It is good to see organisations recognising that cyber risks should not be looked at in isolation. Social networking is just the modern way of getting into hot water.”
He adds: “It comes down to privacy, fraud and the management of customer data. These are the key areas where social networking can increase the risk a company faces. One concern is the level of disclosure on websites. People leave the sort of information on Facebook they would never dream of broadcasting to strangers in the pub.”
US law firm Goldberg Segalla’s global insurance services group chairman, Dan Gerber, says: “Traditional liability policies may or may not respond to certain social media claims under the advertising injury coverage of the policies. Courts have not yet been asked to fully vet the issue.”
Gerber continues: “The larger question is whether there is complete agreement between cedants and reinsurers as to what is covered under existing policies. It is quite possible that cedants will extend coverage where reinsurers would not. This may lead to disputes over the scope of coverage. Clearly, there is a void here for additional cyber policies and affirmative social media coverage.”
Assessing the true risks
Much of the risk that comes with social networking is that, once information is posted online, it takes on a life of its own.
Lloyd’s chief information security officer Marcus Alldrick explains: “The term ‘viral’ is absolutely accurate, because information can spread so fast and it is global; there are no boundaries. And once it is out there, you cannot remove it.”
And the risk is increasing, as people are not just connected at work and at home now; access to the internet is getting even easier via smartphones and other gadgets. Many organisations are concerned about the pitfalls of allowing staff access to social networking sites, and may even be tempted to ban their use entirely to eliminate the risk. However, most experts agree that this is not a sensible step.
“Banning the use of social media is not a practical way of managing the risk,” Newman says. “If you do that, how will you know what people are saying about your company? The problems just get magnified.”
Instead, a properly thought-out media strategy needs to be implemented as part of an organisation’s corporate governance and staff training. Alldrick says: “Employees need to be authorised to use it and use it properly, being made fully aware of the risks involved, such as the danger of posting something defamatory. At Lloyd’s we highlight cases where the perils have played out.
“You need to bring it to life for your employees. Then you need to monitor their use, but that does not have to be in an intrusive manner.”
It pays to keep up
The risk of an online faux pas becoming a legal matter is a real danger. This area of law is murky, as it struggles to keep pace with the net, and is complicated further by the international nature of the web.
“You are also dealing with multi-jurisdictional issues, and you can be liable in countries where information is downloaded, not where it was published,” Newman says. “We now have the strange phenomenon of Californians jurisdiction-shopping defamation issues in the UK.”
The genie is out of the bottle, and companies must recognise the opportunities as well as the risks, or face being left behind by their competitors.
“We are seeing more and more companies using new media strategies, and it can pay dividends if used properly,” Alldrick says. “You have a massive audience, on a global basis. More and more people are finding that it is quick, cost-effective and efficient.”
Love it or hate it, social media is here to stay, and the (re)insurance industry – like any other – will need to get to grips with the risks it poses to their organisation and their policyholders. GR