Case Study : The Actuarial Control Cycle, Reputation Risk

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Reputation Risk According to the Understanding Actuarial Management – The Actuarial Control Cycle, reputation risk is defined as the risk that negative publicity, whether true or not, causes a decline in the customer base, costly litigation and revenue deductions. The importance of reputation risk has grabbed attention of many world renowned companies and emerged as the top business risk in recent years. Case Study 1 – Toyota 2009-2010 Recalls Crisis On 28th August 2009, there was a highly publicizes fatal crash of Toyota Lexus which took the lives of four people in the US and the cause of the accidents was the stuck accelerator pedal which trapped by the floor mat. Consequently, Toyota recalled 3.8 million vehicles which affected by the floor mat issues on 2nd November 2009. However, Toyota’s recall was not ended yet. Toyota recalled 2.3 million vehicles due to another accelerator pedal problem on 21st January 2010 which Toyota claimed the recall was unrelated to the November 2009 recall. Impacts to Toyota’s key stakeholders Customers – Millions of customers were affected by the recalls. Furthermore, they would face more difficulty selling the used vehicles in the future as the potential buyers might worry about the safety issue. Shareholders – After the incident, Toyota’s share price fell around 20% in the one year period. Moreover, there were at least three lawsuits filed by Toyota investors as they accused Toyota gave false initial assurances that the unintended

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