Luxury goods companies believe that they face greater reputational risk than those in other industries, according to a report published today by ACE Group in Europe. Following a survey with a concentrated sample of 45 European luxury goods firms and a series of in-depth expert interviews, the report also concludes that environmental, business travel and directors and officers liability (D&O) are three emerging risks for the industry to watch.
Reputation the hardest risk to manage
Some 75% of senior risk executives from the industry sample state that reputation is their company’s greatest asset and 80% agree that reputational risk is the most difficult individual risk category to manage. Almost six in ten respondents report that globalisation has increased the interdependency of risks they face and rank lack of risk management tools and processes, insufficient budget and lack of management time as well as human resources and skills as the greatest barriers to effective management of reputational risk.
Olivier Roussel, Director, Major & International Accounts for ACE in France said:
“Despite a recent slowdown, growth of the luxury goods industry has been impressive. However, with growth has come new exposure and unexpected risks. In our globalised world events do not respect neat categories. Today’s risk challenges demand a cross-disciplinary approach. A factory fire in India or China can set off a chain of events leading to financial loss and personal liability for individual directors, as well as significant brand damage. These risks have been exacerbated by social media and the 24/7 news cycle. This scale of the threats demands highly sophisticated risk management.”
The ‘Big Three’ risks
According to ACE’s industry sample, the three emerging risk categories most likely to cause luxury goods companies significant financial impact over the next two years could be environmental, business travel and D&O liability.
Environmental risk tops list of potential threats for luxury good companies
More than seven out of ten respondents agree that their customers and shareholders are taking environmental risk more seriously. Companies must demonstrate that they are taking the right steps to manage environmental risk exposures. Key areas of concern are air pollution, the destruction of habitats and protected species and water scarcity.
Nicolas Givelet, Environmental Engineering Manager for ACE in Continental Europe said:
“Many European luxury goods companies have invested heavily in the world’s emerging consumer markets over recent years. Expanding or opening a new market typically means acquiring new property, which may have an unknown environmental history. It is very important then that companies undertake strict due diligence on assets, and evaluate the current and future environmental regulatory regime.”
Business travel risk is growing for luxury goods firms
More than nine in ten respondents say that, despite the development of new technologies such as videoconferencing, their company’s reliance on business travel remains as high as ever. At the same time, luxury goods firms are expanding into new markets, particularly Asia, Latin America and the Middle East. As European employees spend more time and effort building business relationships in these less familiar markets, they face an increasing volume and complexity of travel risks.
Management liability risk high on the luxury goods corporate risk agenda
More than 70% of the respondents in the survey agree that directors feel increasingly exposed and are placing the company’s D&O insurance arrangements under greater scrutiny. Still in spite of this increased level of scrutiny, around two-thirds of the companies polled say that they do not have a specific D&O policy in place, and do not know if it the risk is covered by another policy.
About the research
ACE has published this research report in collaboration with Longitude Research. The report derives from two primary sources.
A detailed survey was carried out with a concentrated sample of 45 respondents with responsibility for risk management at companies from across the luxury goods sector, with annual revenues ranging from US$250m to well over US$1bn in Europe. Participants spent an average of 20 minutes on the survey. They were not compensated for their participation and ACE was not identified as the research sponsor.
Qualitative interviews were also undertaken with a variety of senior corporate risk managers in the luxury goods industry and others with expertise in the area of reputational risk.
ACE Group is one of the world’s largest multiline property and casualty insurers. With operations in 54 countries, ACE provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance and life insurance to a diverse group of clients. ACE Limited, the parent company of the ACE Group, is listed on the New York Stock Exchange (ACE) and is a component of the S&P 500 index.
- Luxury goods
- risk management
- ACE Group
- business travel
Regional Communications Manager, EMEA
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