Luxury brands consider D&O greatest risk, but most are not covered

A significant disconnect between risk perception and insurance cover has been highlighted by Willis Towers Watson it its latest survey of the luxury brand sector.

Some 54% of the luxury brands companies surveyed consider D&O liability to be their greatest risk to financial success, but just 37% have D&O cover in place. Business travel and environmental risks also rank highly, and very few have specific insurance for these, either.

Garret Gaughan, head of global markets P/C Hub and Facultative, said: “It is interesting to see the serious disconnect between the risks facing this niche sector and the significant exposure to risk liabilities. We strongly recommend that luxury brands review their risk registers to determine if they are adequately covered for risks such as reputational impact or D&O."

Willis Towers Watson surveyed 100 senior decision makers within luxury retail brands based in Europe, US and Asia to determine the key risks associated with the luxury brands sector. In general, luxury brands are optimistic about the future. Despite global challenges from COVID-19 to trade wars, 70% believe luxury brands will increase in profitability over the next two years. And while almost 40% see the rise of online sales as an opportunity, the vast majority do not see it as a replacement for instore sales in future – 81% predict that online sales, as a proportion of total sales, will stay the same. Luxury brands are embracing tech that enhances the customer experience and facilitates sales – for example, buy-now pay later payment models were named as a top business opportunity by 44% and pay-by-link or other alternative payment methods by 38%.

Governance tops the list of ESG concerns in the sector. Almost 70% listed board composition and audit committee structure among their top five ESG risks, followed by biodiversity, climate change and deforestation (52%) and water management and water scarcity (50%).

Almost two thirds (66%) are implementing a formal process to manage ESG risks, which everyone is trained in. However, very few (4%) are measuring this, suggesting many may not be keeping pace with ESG risks as they change and develop.

The pandemic still looms large in the sector’s thinking. Half of respondents cited health as among the main risks to financial success. When asked about their biggest challenges, 34% cited managing the return to the office, 33% remote working and 30% a shift away from luxury goods and experiences following the pandemic.

Finally, 75% of the respondents to WTW’s survey said reputation is critical to their success, but 72% think it is more difficult to manage than other risks.

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