Brokers should be warning their SME clients that smaller companies are now as susceptible as large companies to reputational risk due to the rise of the internet, according to insurer Catlin.

“Reputational risk has always existed, but business is probably more concerned with it now than they have been for 10 to 15 years,” Legal Counsel and Claims Manager Steve Gibbs told a panel discussion at a Catlin-hosted seminar in Sydney last week.

“That has to have something to do with the rise of internet media and social media and the 24-hour news cycle.”

Mr Gibbs says companies now may have only hours to respond to a reputational risk crisis instead of days or weeks, and if they don’t respond quickly they can sometimes be hit with secondary issues such as criticism in the media.

“Hospitality is a good example. You have websites such as TripAdvisor and UrbanSpoon, and if you have a bad night at a restaurant several customers can get onto a website and complain and hammer you with a bad review.”

In a 2009 case, United Airlines damaged a guitar which had been checked in as baggage by musician Steve Carroll. When the airline failed to respond immediately to his complaint, he recorded a song called United Breaks Guitars, which received 5 million views on YouTube and additional publicity from news programs.

As a result of the incident involving a $3000 guitar, United’s market capitalisation dropped by $200 million.

Mr Gibbs says companies must identify potential risks and have a plan of action.

Catlin Singapore director Steve Lardner told the seminar social media can shift customer sentiment overnight.

This had occurred in the case of the collapse of the textile factory in Bangladesh, which resulted in a consumer backlash against Western clothing companies that were employing cheap labour in the country.

“It’s important for brokers to have discussions now with clients on reputational risk, rather than after the event,” he said.