Tangible solutions for intangible risks

By Anthony Baldwin, CEO AIG UK 

Investment in intangible assets is growing rapidly, to the point where they have become the predominant source of economic value for global companies. Today, nearly 70% of the total business value for the world’s largest 50 corporations – roughly USD 11 trillion – emanates from intangibles, according to research by Howden.

Despite this, there is still a lack of awareness among the insurance and wider business community of the growing importance of intangibles, as well as the associated risks and how to mitigate against them. In some quarters, there is even uncertainty as to the exact definition of intangibles. Intangible assets, sometimes referred to as ‘knowledge assets’ or ‘intellectual capital’, are those that do not have a physical or financial embodiment. The OECD has classified intangibles into three types: computerised information (such as software and databases); innovative property (such as scientific and non-scientific R&D, copyrights, designs, trademarks); and economic competencies (including brand equity, firm-specific human capital, networks joining people and institutions, organisational know-how that increases enterprise efficiency, and aspects of advertising and marketing).

Investments in tangible assets peaked just before 2008. Since then, investments in intangibles have led the way. Their importance to firms, industries and national economies has been amplified by intensified global competition, ICTs, new business models, and the growing importance of the services sector. However, the global pandemic and resultant economic environment has led to a greater reliance on digital technologies and revealed pre-existing vulnerabilities to an interdependent and interconnected global economy. We have also seen non-physical loss scenarios move from the theoretical to the real world which has caused a marked shift in risk perceptions.

Protecting intangibles will be key to driving economic recovery and preserving resilience. Reputational loss has emerged as a key concern among CEOs: nearly 25 percent of a company’s market value is attributed directly to brand perceptions. Regulatory and public scrutiny of ESG factors will accelerate intangibles’ share of value creation. Management of assets such as a company’s reputation, its IP or data integrity will be increasingly prioritised by executives, many of whom believe their organisations are ill-equipped to manage these risks.

Insurers are uniquely placed to help protect intangible assets. Risk transfer mechanisms can help prevent and minimise the impact of intangible losses, and insurers like AIG are adapting their product offerings to help protect intangible assets. For example, at AIG we partner with clients to assess the impact of climate change adaptation on stranded assets, and we have developed a rigorous ransomware underwriting framework. We are widening our catalogue of ‘response products’ like crisis management for reputational events, and have recently launched a holistic security risk response and resilience solution for companies impacted by a complex security event, which provides a range of consultancy and response services before, during and after an insured event. As demand for cover expands into novel areas, such as influencer liability; we can expect to see a rapid expansion in intangibles’ share of global insurance.

Insurers, brokers and risk managers can work in partnership with business owners to develop risk management strategies which improve intangibles’ resilience. This advisory role is already commonplace in the prevention of physical damage (e.g. flood or fire), where insurance organisations can tap into their vast pools of historic data to draw conclusions about future risks. Underwriters’ expertise is even more important when protecting intangibles, given their complexity and volatility. Over time, this tripartite solution of insurer, broker and client will be able to build and access aggregated data to better assess, quantify and monitor the value of intangible assets – and use this information to standardise cover for intangibles. 

A truly resilient intangible economy cannot rely solely on insurers’ efforts. We need to work closely with brokers, risk managers and business owners to develop a holistic approach to building and protecting the resilience of intangibles as a vital emerging asset class.