LONDON, April 12, 2022 - Aon plc (NYSE: AON), a leading global professional services firm, today published its 2022 Intangible Assets Financial Statement Impact Comparison Report in collaboration with independent researcher Ponemon Institute, which found that businesses continue to undervalue and under-insure intangible assets relative to tangible assets. The study supports a viewpoint that, since 2009, the implied market value of intangible assets at S&P 500 companies increased 255 percent, while the book value of tangible assets only increased 97 percent over the same period1, continuing the trend identified in past study results. According to the report, most businesses (86 percent) recognize that cyber liability and intellectual property (IP) risks rank among the top 10 business risks.
Recognition of evolving risk exposures, however, has not translated to commensurate allocation of resources for insurance coverage: Despite the relatively lower value of tangible assets, property, plant and equipment (PP&E) assets have 58 percent insurance coverage versus only 17 percent for certain intangible assets. This coverage differential, contrasted with the average potential loss to certain intangible assets of $1.2 billion compared with the average potential loss of $839 million to PP&E, is substantial. Compounding this discrepancy is the finding that business disruption - due to the rise in ransomware attacks - has a greater impact on information assets ($321 million) than on PP&E ($143 million).
“The COVID-19 pandemic accelerated the rise of digital assets, providing new cyber and intellectual property opportunities for organizations,” said Kevin Kalinich, global collaboration leader, intangible assets at Aon. “The economies of scale derived from intangible assets often dwarf what can be achieved through tangible assets.”
Key findings include:
- Eighty-four percent of organizations use or intend to use cryptocurrency or Non-Fungible Tokens (NFTs) in 2022. There has been exponential growth in cryptocurrency, while cryptocurrency-based crime hit a record high in 2021.
- The value of information assets continues to increase faster than tangible asset values. The average total value of PP&E is approximately $1,109 million for the companies represented in this research. The average total value of information assets is slightly higher at $1,213 million. Companies estimate the average Probable Maximum Loss (PML) resulting from stolen or destroyed information at approximately $1,152 million. In contrast, the average value of the largest loss that could result from damage or total destruction of PP&E is approximately $839 million.
- Insurance coverage is higher for tangible assets (PP&E) than for intangible assets (information assets). On average, approximately 58 percent of PP&E assets are covered by insurance and approximately 30 percent of PP&E assets are self-insured. While the likelihood of a loss is higher for information assets than for PP&E, only an average of 17 percent of information assets are covered by insurance, while self-insurance is higher for information assets at 60 percent.
- Less than half of organizations are prepared for a cyber or IP “black swan” – an extremely rare and unpredicted yet severe - event. Eighty-six percent of organizations rank cyber liability as a top 10 risk, yet 70 percent still do not purchase cyber insurance coverage.
- Intellectual property in particular is un- or under-insured. In the past two years, 35 percent of respondents say their company experienced a material IP event. The majority of events involved either trade secret rights (41 percent of those who experienced an event), copyright rights (26 percent) and patent rights (25 percent). All losses have increased in frequency.
“As we work with our clients to navigate new challenges and shape better decisions, we are committed to helping create risk transfer solutions,” said Christine Williams, global specialty products leader, Commercial Risk Solutions at Aon. “We are aiming to create not only more holistic cyber solutions, but also a market with new sources of capital to help value and protect intangible assets and intellectual property.”
The 2022 study, the fifth in a series that started in 2015, surveyed 2,381 respondents representing different industries and geographies across the globe to better understand the financial statement impact of losses to tangible property compared to intangible assets. While initially focused on losses relating to cyber, the study’s scope has expanded to include developing digital assets and intellectual property. A better understanding of the relative financial statement impact of these losses will assist organizations in several ways. This includes helping organizations to make better decisions, allocate resources and determine the optimal amount of risk transfer, including insurance, to help mitigate the financial statement impact of intangible asset losses, and potentially increase the value of the underlying intangible assets.
Aon was recently named to Fast Company’s Most Innovative Companies list for its ground-breaking IP solutions. The 2022 Intangible Assets Financial Statement Impact Comparison Report is available here.
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