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How insurers can effectively manage the risks of social media

Social media presents a great opportunity for insurers to get closer to their customers—but it comes with all sorts of risks.

It’s become a cliché to say that the use of social media is growing rapidly. The point of Accenture’s new white paper, "A Comprehensive Approach to Managing Social Media Risk and Compliance," is that this poses threats for insurers—threats that are growing faster than their risk management capabilities can handle.

Those threats are considerable. Financial institutions have had to shut down social media forums due to unanticipated negative feedback; the stock markets have been buffeted by fraudulent social network postings; businesses have had to change or rescind strategies in response to the force of social media; other businesses have suffered brand damage due to the power of social media to send negative impressions almost instantly around the world.

Much has been written about the reputational risks that social media present to corporations. But underlying these are several other types of serious risk that should be considered:

  • Strategic risk

  • Business risk

  • Regulatory risk

  • Legal risk

  • Market risk

If not effectively mitigated, these risks can lead to serious negative consequences including fraud, intellectual property loss, financial loss, privacy violations and failure to comply with laws and regulations.

When insurers start to evaluate their vulnerabilities to social media risks, they typically encounter a number of organizational weaknesses. To address these weaknesses, Accenture recommends a risk management approach with distinctive activities across governance, processes and systems, and augmented and supported by other activities relating to compliance, culture and leadership and performance management. This will not only mitigate the risk inherent in social media, but can become the value catalyst for realizing the full potential of a social media strategy.

A number of capabilities underpin the governance, processes and systems of effective social media risk management. These include:

  • A focus on leadership and culture change;

  • A social media risk compliance program; and

  • Performance management capabilities to assess effectiveness and progress toward improvement.

To advance their social media risk management capabilities, insurers should focus on five key influence points:

  1. Assess vulnerabilities arising from social media use beyond just reputational risk.

  2. Expand their existing risk governance structures and activities to include social media activity.

  3. Establish advanced social media monitoring tools and technologies.

  4. Enhance their existing performance management capabilities to analyze and act on the metrics delivered from monitoring activities.

  5. Engage in enterprise-wide change management activities to create a more risk-aware culture.

A senior FS executive, interviewed by Accenture, noted that social media can offer considerable advantages to financial institutions. “My advice is to be bold,” he said, advising firms to establish a presence on the most-used social platforms and “think about creating some cool things.”

But with boldness come risks. To mitigate them, and to get more value from a social media strategy, insurers need to institute governance structures, processes and technologies that are unique to the special challenges that accompany this global phenomenon.

Read more: Comprehensive Approach to Managing Social Media Risk.