The pandemic has led to an ‘opportunity for brokers to work with clients to protect their intangible assets, which increasingly are at the heart of [a] company’s worth’
The Covid-19 pandemic has seen firms of all sizes re-examine the value of their business. In turn, this has driven greater understanding of the need for intellectual property (IP) cover, with insurers and brokers racing to make the most of a huge uptick in demand.
The rapid move to remote working has seen business leaders place the value of their operations in their staff and the IP of the product or service they deliver, rather than the premises they occupy.
IP insurance typically covers legal defence costs and damages, or settlement awards for policyholders accused of IP infringement.
A common reason, therefore, for purchasing this type of insurance is to cover contractual obligations to indemnify customers or licensees in relation to IP infringement claims. For broker Gallagher, this is an important consideration because “the costs involved in IP claims can be very significant and, in some cases, prevent businesses from trading”.
The insurance may also cover the legal costs associated with pursuing parties infringing on the policyholder’s own IP.
Meeting growing demand
Madeleine Brown, intellectual property team leader at insurer CFC, said the rapid increase in demand for IP cover has left brokers looking for both products and speed of service.
However, prior to the pandemic, the complexity of IP cover saw it being viewed as unattractive for brokers, given the length of time it has often taken to generate quotes.
“In the past, it was time consuming,” explained Brown. “We saw fees charged even before we got to the quotation stage. There would then be the need for information to generate an initial quote, which would take some days only for that quote to be indicative.
“If the client was interested, then more information would be required and another wait for a final quote to be calculated and returned to the broker.”
Now, however, “the pandemic has shown [that] for SMEs, IP is now a real business enabler”, Brown added.
“We have been able to reduce times and use technology to limit the level of information needed,” she continued.
“It allows clients to receive terms quickly and go through a more streamlined proposal form.
“For the higher end, higher scale covers, there remains complexity - but that is inherent in the risks as they increase in scale.”
The ability to value IP risk has been an issue for insurers and clients alike, but recent months have seen SMEs recognising the need to have this specific cover, as contracts with bigger firms often come with a requirement for indemnity.
“The cover only really proves its worth when litigation starts,” added Brown. “For many firms, the question remains as to how you do business with larger companies and how do you protect your IP?
“For SMEs, there is a real need to get IP protection right and there is now an opportunity for brokers to work with their clients to protect their intangible assets, which increasingly are at the heart of [a] company’s worth.”
The message has not been lost on brokers to quickly look to exploit the opportunities that IP has created during the pandemic.
This month, Erik Alsegard joined Gallagher as IP director. In this role, he has been tasked with creating a new operating unit that will target the broker’s existing client base.
Alsegard said: “My two favourite topics are insurance and IP. Due to its intangible nature, IP risk is a very real but often uninsured exposure that can significantly impact firms and it’s important that businesses have access to specialist advice on this complex area.”
In May, Aon announced the creation of a new underwriting platform that would deliver the world’s largest known delegated capacity for intellectual property liability risks.
This builds on the broker’s development in 2018 of an insurance facility for IP infringement liability exposures, backed by several Lloyd’s syndicates and led by Tokio Marine Kiln (TMK).
The broker’s IP MGA launched with an IP liability solution, featuring a primary limit of indemnity of up to $100m (£72m).
Lewis Lee, global head of IP solutions at Aon, said: “Considering the current economic environment, the importance of managing the value creation opportunity afforded by IP and the downside risk mitigation of IP has never been higher - the timing of Aon’s IP MGA could not be better for our clients.”
Some underwriters, meanwhile, have been looking to access niche areas of the IP market – for example, Munich Re subsidiary Bell and Clements developing a product for the legal profession.
Last month it launched an intellectual property legal professional liability (IPLPL) product specifically designed for law firms of all sizes with 65% or more of their revenue derived from the practice of intellectual property (IP) law.
“The legal market is ever evolving and launching a modular coverage IP product that addresses vital needs for the sector is important and expansive to what is currently available in standard offerings,” explained Nick Ash, chief executive of Bell and Clements.
He agreed with Brown that the key to success in the IP insurance market is the ability to remove the complexity and shorten the underwriting process.
“Our product, combined with a specialised distribution approach and a simplified quote and bind system augmented by real-time data, helps to bring the policyholders closer to the carrier. As a result, the entire user experience is much more streamlined,” he said.
Mimicking cyber’s trajectory
Brown added: “IP is now following in the footsteps of cyber cover and a rapid rise in demand from clients has been driven by the pandemic. Brokers need to get ahead of demand.
“The complexity has been a challenge for brokers in the past in terms of getting IP cover to the client, but there is a now a clear recognition of the need to protect your IP.
“We now have greater levels of data, which has aided the creation of products.
“While prices are not rapidly hardening, it is more a case of rising volumes which have delivered a lot of potential opportunities for brokers.”