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Intellectual property amps up the risk factor

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Intellectual property

Intellectual property and the associated risks are gaining attention as global economies and company valuations shift toward intangible assets.

High-profile patent clashes among international technology giants illustrate the potential for costly litigation and judgments, which can include injunctions.

To help cover the changing exposures of companies operating in these new economies, intellectual property insurance coverage may be set to grow as brokers and insurers put more resources into the area and interest in such coverage appears to be increasing, according to industry sources.

Brokers especially are gearing up to reach out and school clients on intellectual property in an intangible asset economy.

“We’ve become a global, innovation-driven economy,” said Lewis Lee, Chicago-based CEO of Aon PLC’s intellectual property solutions group, which formed in mid-2018 and has grown to about 60 people. “Markets have rotated from tangible to intangible assets.” “The value in modern organizations is wrapped up in intangible assets,” said Matthew Hogg, intellectual property specialist for Liberty Specialty Markets, a London-based unit of Liberty Mutual Insurance Co.

Last year, Aon launched a $100 million facility with Tokio Marine Kiln Insurance Ltd. while Liberty Specialty Markets brought to market a new product aimed at contract liability and offering limits of up to $15 million.

There are now some “very positive signs” that the market for intellectual property cover is set to grow, said Kimberly Cauthorn, intellectual property leader for Willis Towers Watson PLC in London.

“The proof will be in the pudding in the next 36 months in where growth will be with this product,” Mr. Hogg said.

Increased interest in the coverage is in part coming from technology companies, said Julie Hawkinson, a partner with Clyde & Co US LLP in Los Angeles.

“The increased demand has caused insurers to start thinking about different ways they can insure this type of risk,” Ms. Hawkinson said.

Historically, commercial buyers have been slow to embrace intellectual property coverage due to its complexity and price, but that may be changing, experts say.

Intellectual property “as an umbrella term has not been a product that our client base has been able to get their arms around, for a variety of reasons,” including limitation in the scope of coverage and an expensive price point, said Jack Flug, managing director in Marsh USA Inc.’s FINPRO practice in New York.

Mr. Flug added, however, that Marsh has seen an uptick in inquiries in the area over the past year or so.

“It is a subject which has maybe scared people a little bit and they would say, ‘that is the domain of the legal department, not the risk management department,’” Mr. Hogg said.

Intellectual property coverage can be a complex product, according to Susan Hiteshew, a member of the Risk & Insurance Management Society Inc.’s board of directors and senior director of insurance for the Americas with Marriott International Inc.

“In procuring intellectual property insurance, the determining factor is generally the scope and materiality of the asset you’re looking to protect,” she said. “For example, patent insurance for a large company with an extensive number of intellectual property exposures globally could be quite tough.”

Willis Towers Watson issued a report on intellectual property litigation risk in July.

“The primary audience for that report is risk managers, because IP is one of those areas where the risk managers, because they don’t see much coverage for it, they don’t think about it as much and they assume the lawyers in the business are taking care of those risks,” Ms. Cauthorn said.

And brokers are showing more interest in intellectual property coverage, Liberty Specialty Market’s Mr. Hogg said.

Interest for intellectual property coverage comes from all industries, said Jason Sandler, vice president in Marsh USA’s FINPRO practice in New York. “Now, even traditionally tangible-asset focused industries realize the importance of intangibles.”

“Looking at the market, $50 million is a figure that makes sense in terms of limits,” for the coverage, Mr. Flug said.

“I think for the majority of clients, our $100 million facility adequately addresses 80% of the marketplace,” said Nick Chmielewski, head of intellectual property broking for Aon’s intellectual property solutions group in Chicago.

“The challenge is for some of the larger organizations. You’ve seen damage awards in excess of $1 billion.” Aon has seen a mix from a client perspective, according to Mr. Chmielewski.

“We’ve seen banks interested in buying this solution,” as well as technology and financial services companies, he said.

There are also lower limits in the marketplace, according to Ms. Hawkinson.

“It’s not uncommon for me to see stand-alone intellectual property insurance offering limit of liability anywhere from $500,000 to $1 million,” Ms. Hawkinson said.

Midsize software companies which are being required to provide intellectual property indemnity to their customers is where Willis Towers Watson is placing the most coverage, Ms. Cauthorn said. But many others are buying as well, including “everything from niche manufacturing to consulting firms,” she said.

 

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