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INTELLECTUAL PROPERTY LIABILITY INSURANCE
The rise of digitization and innovation has led to a dramatic shift in the value of businesses from tangible to intangible assets, and the need to protect those assets is growing.
With some 85%, or $21 trillion of the value of the S&P 500, represented by intangible assets, businesses are looking to better understand and quantify the value of their intellectual property, from patents to trademark rights, copyright and trade secrets, said Nicholas Chmielewski, chief broking officer for IP solutions at Aon PLC.
A growing frequency of intellectual property-related litigation, alleging things like patent infringement or trade secret misappropriation, has also created a challenge for businesses, he said.
As a result, Aon developed a range of intellectual property tools to help businesses mitigate the risk, better protect the value of their business and indemnify them in the event of a lawsuit.
In the past, there were only four or five managing general agencies or insurers providing intellectual property coverage on a stand-alone basis, Mr. Chmielewski said.
“The marketplace capacity was $75 million, and those insurers had narrow appetites, so we saw a lot of declinations. A lot of clients were getting quotes for $5 million or $10 million when they wanted $30 million or $40 million of coverage,” he said.
“One of our goals when we launched our facility was to (provide) a large-limit catastrophic solution that incorporated a larger number of insurers to help build out the marketplace,” he said.
Lack of data was another challenge, so Aon developed a predictive model with 50,000-plus data points, he said.
“A lot of this underwriting was done with a finger-in-the-air type of approach. We put together a predictive model that considered 20 years of litigation data … With this information, we can quickly run an algorithm that provides an output of potential frequency and severity exposure and average total expected annual loss,” Mr. Chmielewski said.
That information went to a rater, developed by lead insurer Tokio Marine Kiln Group Ltd., which enables decisions to be made on a timely basis, he said.
As insurers have become more familiar with the class of business, their participation has expanded, and seven Lloyd’s of London insurers now participate in the $118.5 million intellectual property insurance facility, he said.
The data component gives clients “a greater degree of finality around their exposures so they can make more informed purchasing decisions when they evaluate coverage,” Mr. Chmielewski said.
Launched 10 years ago, the Business Insurance Innovation Awards recognize innovative new products and services designed for professional risk managers.