COVID-19 reinforces intangible assets as analysts urge threat mitigation

Values of companies’ intangible assets could be accelerated as COVID-19 amplifies digital business models.

According to Lloyd’s, the world’s leading specialist insurance and reinsurance market, intangible assets are an increasing proportion of companies’ balance sheets, already accounting for as much as 85 per cent of the total business value across industries according to estimates.

Lloyd said with the acceleration of digital business models, amplified by COVID-19, this value could now increase much further, becoming a major blind-spot for firms not factoring intangible assets into their risk models.

Lloyd’s, in a published report in collaboration with KPMG, urged businesses to pay attention to the new risk landscape that has evolved under COVID-19. Protecting Intangible Assets: Preparing for a New Reality, looks at the increasing value of intangible assets, and the role of risk managers and the insurance industry in protecting them.

The report noted that COVID-19 has disrupted global supply chains and moved the world towards de-globalisation. It has changed working arrangements, businesses’ ability to trade, and consumer behaviours. It has also created a new social contract between businesses and society and has accelerated underlying market trends such as the shift to remote work forces and digital transactions.

The report looks at how COVID-19 has increased companies’ exposure to new risks, many of which implicate the intangible assets held by businesses. With unprecedented scrutiny on firms’ behaviour, reputational issues are just one of many posing a threat to firms’ resilience during the pandemic.

It noted that new ways of working are also presenting their own unique challenges, amplifying the complexity of managing intellectual property and conduct risk amongst a remote workforce.

The report said for businesses to remain resilient – operationally and financially, awareness of what intangible assets are and how they can be protected is critical, and must form a considerable part of their risk management strategy.

In the face of these amplified challenges, Lloyd’s market is developing products to help organisations mitigate their exposure to risk, and the report outlines a range of examples of products already available in the market in response to the risks posed to reputation, human capital and intellectual property. It highlights the vital role the insurance community has to play in helping organisations manage these challenges so that they are better prepared to protect their assets.

Also, Head of Innovation at Lloyd’s, Dr. Trevor Maynard, said: “As an industry we need to recognise that the world has changed and adapt to how it looks now. COVID-19 has changed the risk landscape, exposing companies to new risks and encouraging companies to think about how they now operate. Whilst a range of insurance products already exist to help organisations manage their risks related to reputation, human capital, and intellectual property, it is important that at Lloyd’s we work together with the market to innovate and create new products to help customers mitigate risks and protect themselves from future threats.”

Chief Executive Officer, Lloyd’s Insurance Company and Regional Director, EMEA, Sonja Rottiers, said COVID-19 presents a range of new and critical challenges to businesses across Europe, and brings into focus the impacts on human capital and intellectual property.

“Our new intangible assets report, developed together with KPMG, reveals how businesses can build resilience to be better prepared to protect themselves from these new risks, supported by insurance products already available in Lloyd’s market. As the world’s specialist insurance and reinsurance market, Lloyd’s stands ready to support and respond in what is an evolving risk landscape,” he stated.

Partner, KPMG, Paul Merrey, said: “we move swiftly into the new reality, it’s apparent that many businesses aren’t adequately prepared for it. The key drivers of corporate value are completely different now to in the past, and this shift has only been amplified by COVID-19. Whilst physical assets are still a focus, recognition of what intangible assets are and how much they represent a firm’s value may come as a hard awakening for some organisations. In order to remain resilient and competitive, organisations across all industries must be proactive in finding new ways to enhance their business practices to protect these assets, and this will require a new way of thinking and acting.”