‘Flat white economy’ stirs schemes brokers

The digital economy has become the UK’s largest economic sector, according to the Centre for Economics and Business Research (CEBR). Catering to the unique risks faced by IT, media and creative businesses – including cyber attacks and intellectual property (IP) theft – presents opportunities in both mainstream and niche insurance.

Dubbed the ‘flat white economy’ due to the popularity of the type of coffee among the trendy digital and creative set that has come to dominate East London over the past decade, the digital sector accounted for 14.4% of gross value added (GVA) and 47% of GVA growth in 2018 (up from 8.7% in 2013). From a GDP growth perspective, the sector grew three times faster than general UK GDP.

Patrick Brice, distribution director at CFC Underwriting, said: “Technology is the fastest growing sector in the UK and there are a number of risks associated with that. It would be easy to offer standard insurance cover to technology companies. Tech firms need to buy insurance for their buildings, employees and equipment.

“But if you think about the risks that really apply to technology companies, such as IP and the specific professional liability exposures they have, that’s when you can start to really innovate.”

The value of intangible assets, including brand, data, IP and other knowledge assets, are particularly high in the flat white economy. According to the Office for National Statistics (ONS), investment in intangible assets has overtaken investment in physical (tangible) assets.

The ONS found the information and communication industry is the most intangible-intensive sector, with intangibles making up over 15% of GVA. Just under half (47%) of intangible investment is protected by IP rights.

Intellectual property risk

“Most of Britain’s businesses are no longer heavy industrial businesses or businesses with tangible fixed assets and machinery,” said Brice. “The vast majority rely on either intellectual property or intellectual capital in their people. A huge risk on every company’s balance sheet is the IP it holds.”

He said that when companies are developing new technology or building new projects they can inadvertently infringe on another company’s IP or could have their own IP infringed on. 

“It’s a risk that most companies don’t assess on a regular basis and certainly don’t think of as something that they could insure,” he said. “Clients may not yet be knocking on brokers’ doors saying, ‘I need intellectual property insurance’ but we think that’s a huge risk for many companies in the UK at the moment.” 

Affinity partnerships are one way that brokers can offer IP products to the flat white economy. 

“Companies that are members of a technology association will all have an IP risk and they all use lawyers to vet their contracts,” said Brice. “So, we’re exploring these sorts of channels as a more relevant way of selling IP insurance. It’s about coming at it from a client perspective and making it easy for them to understand.”

In April, Biba announced it had launched an IP insurance scheme with Opus Underwriting, to offer competitively priced IP insurance to firms with products, brands and know-how to protect from competitor predators and infringers. The cover can also help businesses defend themselves should they inadvertently infringe on other firms’ IP.

Opus Underwriting managing director Sam Bobo said: “The latest government study shows that 70% of a typical company’s value lies in intangible assets. With this package, brokers have an opportunity to consider IP insurance as a future market and GWP generator.”

Bright future

The flat white economy is expected to remain the UK’s largest and most successful sector for the foreseeable future. 

CEBR deputy chairman Douglas McWilliams said: “At a time when the outlook for many other sectors is bleak, this is welcome ray of sunshine.” 

He added: “The biggest Brexit challenge will be availability of skilled labour as migration from the EU slows. 

“But there is little in any of the possible Brexit outcomes to pose much of a challenge as far as markets are concerned – trade down phone lines is unlikely to be held up through customs delays.”