Intellectual property (IP) is an area of risk that is underinsured and one that presents interesting opportunities for agents and brokers, according to Erik Alsegard, Intellectual Property practice leader for CFC Underwriting.
IP risk is growing and so too will the insurance market, Alsegard says. He sees the growth rate mirroring that of the cyber insurance market as IP continues to rise in significance. "The opportunity is ripe for the picking," he says.
Just as brokers who got in early on the cyber craze are seeing momentum today, so will those who get in early on IP insurance, Alsegard predicts. "Like any other emerging class of insurance, the product and pricing may evolve some over time as we adjust to client needs and demands, but the standalone cover that is available today is robust," he says.
IP is a broad term used to describe the legal rights arising out of intangible creations and assets, like a product or process, a piece of software, a brand or even a customer database.
In this interview with Insurance Journal's Andrea Wells, Alsegard discusses his views on the evolving IP insurance market and how it compares to that of the cyber market.
Is IP insurance the new cyber?
First, and perhaps obviously, both cyber and intellectual property insurance are concerned with intangible assets. As we all know, intangible assets like IP have become an increasingly important factor on a company's balance sheet with regard to its overall value.
As a market, cyber insurance is around 20 years old. IP insurance has also been around that long, if not a bit longer. It makes sense that these two lines would emerge together as we see businesses move online, adopt technology, and thrive on ideas and data as much or more than they have on tangible assets like machinery or buildings.
Another similarity between cyber insurance and IP insurance is that they're both emerging risks that are sector-agnostic. Most businesses, of most sizes, in most industries, will have an intellectual property risk whether they realize this or not. The same, of course, is true for cyber.
Finally, as with cyber risk, SMEs [Small to Medium Enterprise] are also disproportionately impacted by intellectual property risk. SMEs are easier targets for patent trolls or large competitors looking to stifle competition. They likely don't have the in-house resources, legal or financial, to combat these threats, or easily recover from them, and they probably don't believe that intellectual property is a real exposure for them because the stories they hear in the news -- if they hear any at all, most get settled out of court -- involve big companies that don't look like them. These are all similar tropes heard in the cyber insurance world.
Is IP insurance difficult to sell to commercial insureds or prospects?
IP insurance doesn't have to be complicated to sell. An easy way to start the conversation with clients is to ask about their contractual obligations, or simply if the company holds any IP. Brokers should start with their clients in sectors like manufacturing, technology, energy, consumer or automotive goods. Sometimes just bringing up the topic of IP can set a broker apart.
What are some of the challenges to growing the market?
There's a lot of education to do. There is a certain lack of knowledge and awareness about IP. First of all, there needs to be an understanding of what intellectual property is and then of course to understand the risk; then they can get into insurance. There's this need in some sectors to develop all of that. ... Insurance brokers sometimes need education at that level, as well. If you look at cyber, for example as a comparison, cyber is in the news quite a lot. There's been a focus on cyber and perhaps there needs to be a focus on intellectual property at the same time. Because the two products are obviously both part of the intangible economy of the modern economy that we're living in right now.
There are some companies that don't think they have the risks, just like some companies won't believe there's a risk of a cyber event. For example, we may sometimes hear that a company doesn't think that they could be infringing on someone else's IP because they have a patent themselves. That's not at all necessarily how it works in the real world.
A company could still be infringing if they have a patent for the IP?
Yes. Here are two examples. One would be where they have a patent, let's say on the core technology of a company, they have a patent for that, but they might add components to the product before it's actually ready to sell. They may forget that someone else may have a patent on those components. Let's simply say you add a lid to something. Probably there's someone who has a patent for the lid or the packaging. You may also have a situation where two companies actually have overlapping patents and then you get a claim for infringement.
What types of coverage are available in the market for intellectual property risks?
There are different types of coverage in the market. There might be some coverage for, let's say, the value in an organization's IP. We offer, for example, a component of enforcement coverage for that. That's what we tend to focus on and what most of the market tends to focus on -- the IP infringement risk. .... For us, the infringement defense coverage is really the key but that is of course the great unknown. You never know when you will actually get a claim on the IP infringement defense side. For most sectors, patent risk is very much alive, and navigational infringement of patents can obviously be quite possibly and potentially disruptive to business. There are legal costs, settlements, damages covered by that.
Another aspect where perhaps you might see a value to the business, but also risk, is called contracts with customers. For us, that's very often the reason why people buy this insurance. They have contractual obligations to indemnify customers for infringement claims. ...
The main driver for clients tends to be the patent infringement risk, which is why we host most of our clients on the standalone IP [policy]. ... There's certainly a risk in copyrights, trademarks and other intellectual property as well.
Businesses may think they have coverage elsewhere. Is there some IP related coverage outside of stand-alone policies?
Oh yes, sure. There is definitely some intellectual property coverage available in other policies in the market. From CFC and other markets, media policies, etc. So what's really important is that brokers and clients alike understand the risks first and then look at the coverage to make sure they have what they need. .... Standalone IP insurance would obviously cover what may often be excluded in other policies. So, it's important to really take the time to understand what they believe the risk is.
Are there particular industries worth targeting for IP insurance growth?
I think small and medium sized companies have a lot of exposure. People will assume that, for example, software and technology have a high risk. And that's certainly not wrong, but we also see new business coming in a lot from just general manufacturing of consumer goods. .... And the energy sector is another where we see a fair amount. Then there will be "pockets" in other sectors where there's a lot of innovation coming out ... a lot of competition and where people have to innovate to survive.