ACE study details risk agenda for EU luxury goods firms

Luxury goods companies believe that they face greater reputational risk than those in other industries, according to a new report published 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

Some 75 percent of senior risk executives from the industry sample stated that reputation is their company’s greatest asset and 80 percent 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, says:

“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

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.

Business travel

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

More than 70 percent 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.