COVID-19 and Reputation: Customer Payouts

Covid-19 has thrown into sharp focus the need for every business to balance the demands of different stakeholders. From SMEs to corporate giants, decisions have had to be made over how best to support employees, and whether they can afford to keep staff on. Listed companies have had to weigh up whether to pay out dividends to shareholders or retain cash in the business. Many of the choices made during this Existential Phase in the pandemic’s progress are rooted in business priorities, but most of them will also have a powerful, if potentially unlooked for, effect on a company’s reputation.

And for no stakeholder group is this more true than customers. When not directed at the minutiae of lockdown restrictions and who may have broken them, the media cycle has revolved around the ability of businesses to fulfil their obligations to clients and consumers. Certain sectors have faced particularly challenging choices between servicing customers, and staying afloat. The travel, entertainment and insurance industries have been decimated by the effects of Covid-19 on, respectively, the movement of people, public gatherings, and business interruption claims.

For holiday and entertainment organisations, the cancellation of events, restriction of travel and closure of holiday destinations has meant an immediate, devastating drop in revenue. At the same time, consumers are understandably expecting to be reimbursed for bookings made before the virus hit. Due to the former, the funds for the latter may simply not be available.

Family holiday company TUI has been criticised for offering vouchers instead of cash refunds, and for failing to refund cancelled holidays in a timely manner. In order to keep money in the business, customers are also being encouraged to postpone paid-for trips instead of asking for their money back. Meanwhile, bookings company Ticketmaster initially decided not to refund tickets for events that have been postponed rather than cancelled. But following legal action, the company changed its policy, offering a 30-day refund window following the announcement of new dates if ticketholders could not attend.

Business interruption insurance might have been expected to help travel and entertainment businesses to cover the cost of cancellations, but the insurance sector is also struggling. The accumulation of critical payouts owed to policyholders could be sufficient to put many insurers out of business. But failure to do so threatens the continuation of their SME clients who don’t have the resources to ride out the crisis. Non-payment by Hiscox, Aviva and RSA has resulted in lawsuits being brought by consortiums of small businesses who have received no support in return for their premiums.

At a time when customers’ finances are stretched tight, companies that fail to pay out on policies or refund bookings can expect a reputational backlash, at least in the medium-term. More than three-quarters of insurance brokers surveyed by Insurance Times believe that the sector’s reputation has already been badly damaged by its response to the pandemic. But if these companies pay out and go bankrupt, then their other stakeholders – employees, shareholders, suppliers, and communities – will suffer, and so too will their long-term reputation.

These decisions are not getting any easier as the effects of Covid-19 continue to be felt. Reputation is a balancing act between remaining a viable business that stakeholders can reply upon, and honouring the claims made by clients. A reputation for doing right by its customers is little use to a company that is forced to stop trading. And a company that has stayed in business at the expense of its customers may find it has far fewer in the future.