Case study: Ergo

The story
In 2010, German insurer Hamburg-Mannheimer International (HMI) became a unit of Ergo, one of Europe’s largest insurance groups. (Ergo itself is owned by insurance group Munich Re). A staple of German advertising lore, HMI featured a long-running advertising campaign featuring a conservative insurance agent “Herr Kaiser” and his trademark greeting “nice to see you”, representing a reliable image of stability and personal attention. After its acquisition, Ergo engaged in an aggressive advertising campaign with the goal to define itself as a consumer brand with a focus on trust, clarity and transparency.

The challenge
In May 2011, the German press discovered and reported that Hamburg-Mannheimer had organised an “incentive trip” of the HMI sales organisation in 2007. The company had rented the famous Gellert Baths – an art deco spa in Budapest, Hungary – and hired several prostitutes. Prostitution is legal in Hungary and Germany. It was also reported that members used cocaine during another trip, though a company spokesmen denied those claims and instead described a “drinking game with salt, tequila and lemon juice”. In addition, HMI had deducted the expenses for the trip from its taxes as a business expense.

A few weeks later, the German press reported that during 2005-06 HMI had overcharged thousands of customers for a state-subsidised retirement product.

The response
The initial company response was slow and defensive. Company spokespeople defended the tax deduction of the Budapest trip as an appropriate business expense and pointed out that the company had received no customer complaints about overcharging. Moreover, it subsequently became known that Ergo’s board had been informed too late and incompletely. As a consequence the German press began to call for the resignation of Ergo CEO Torsten Oletzky amid rising pressure on the company.

Three weeks after the initial report, Ergo released a public statement condemning what happened in Budapest as well as outlining new governance and regulations enacted by the company to prevent future incidents. These measures included the creation of a whistleblowing hotline and the appointment of an external body to monitor operations and conduct regular compliance audits. Additionally, the public statement reinforced the company’s code of conduct (implemented in 2008), which requires employees, managers and board members to conduct themselves in an ethically and socially responsible fashion. Finally, Ergo outlined its plan to create new guidelines for incentive schemes.

Subsequently, Ergo took out a full-page ad which stated: “If people make mistakes, they apologise. When companies make mistakes, they do something about it. We do both.” The company promised to reimburse customers and provide additional benefits.

Key lessons
The reputation of companies is not driven solely by customer experience. Public events can have a significant impact on customer and stakeholder perception. The Budapest event not only led to moral outrage, but created sustained public interest for additional allegations of wrongdoing. Ergo’s leadership appeared unprepared for this corporate crisis and handled it badly. It took weeks for Ergo to take the appropriate steps to address the crisis at hand. During a crisis companies need to focus on maintaining trust with their customers and stakeholders. Transparency, empathy and commitment are key factors here. Moreover, these actions have to be taken immediately to be credible. Management was first dismissive and then acted defensively. Only after weeks did it apologise and commit to fix the problem.

At a more fundamental level the crisis exposed a mismatch between brand positioning and underlying capabilities. While the brand-promise emphasised transparency and trust, the sales culture at HMI was overly aggressive. Moreover, the company lacks a functioning reputation-management capability. Hotlines and codes of conduct are steps in the right direction, but are table stakes for insurance companies. Clear warning signs did not lead to appropriate prevention and preparation strategies, which is further evidence of the lack of appropriate decision and intelligence processes.

Finally, the Budapest trip, which was given the green light by management, did not appear to have raised concerns inside the company – until the crisis hit.
-Financial Times, 27 July 2011