Luxury brands face liability protection gap

The latest survey into luxury brands from Willis Towers Watson has highlighted a key disconnect between risks and insurance cover.

Over 50 percent of brands surveyed outlined D&O liability as one of the top risks to financial success, which may indicate that luxury brand directors are feeling exposed at a time of increasing uncertainty and scrutiny, yet only 37 percent actually had obtained D&O coverage.

Similarly, business travel and environmental risks also rank highly, but very few have specific insurance for these.

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. Other key findings from the survey include:

• Governance tops the list of ESG concerns. Almost 70% listed board composition and audit committee structure among their top five environmental, social and governance (ESG) risks, followed by biodiversity, climate change and deforestation (52%), and water management and water scarcity (50%).
• ESG risks are starting to be addressed by luxury brands. 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.
• Reputation is key, but the risks are difficult to manage. 75% of our respondents said reputation is critical to a luxury brands success, but 72% think it is more difficult to manage than other risks.
• 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.
• The shift to online sales may be peaking. 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.
• Digital will continue to grow as a business enabler. 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%.
• The pandemic still looms large in people’s thinking. 50% named 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.

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.”