The balance of power in favour of intangible assets over tangible assets has undergone a momentous shift in recent decades, with the majority of the value of today’s businesses tied up in the intangible – increasing from 32% in 1985 to 90% in 2020 for the S&P 500. And with millions of intellectual property (IP) rights now in existence, businesses of every size and sector are facing a minefield of third-party IP risks.
It’s against this backdrop that Pen Underwriting has rolled out its IP insurance offering in the UK, with the backing of capacity provider Tokio Marine Kiln and plans in place for an international roll-out. Discussing how the product came about, Erik Alsegard (pictured), head of IP at Pen, highlighted how the heightened risks associated with intangible assets and “staggering” number of IP rights which exist in the modern digital economy is creating a real need for insurance support.
“In the present landscape, it's virtually impossible for anyone to guarantee that they're not infringing on something,” he said. “So there is a risk for most companies out there in terms of IP. The brokers we’ve spoken to support our view that there is a real opportunity for growth in this space. Clients also want additional choices. If anything, we probably need more entrants into the IP insurance market to really generate additional competition.”
Although it can cater for businesses of all sizes and most industry sectors, Pen’s new offering has been created with small-to-medium-sized (SME) clients front of mind, he said, not least because these businesses can be disproportionately affected by a claim. The potential costs and time involved with IP disputes can have a significant, if not existential, impact on their operations. As such, the offering needs to be highly adaptable to client needs which is why the team has created a modular proposition with a range of different coverages available.
Sharing some examples of what this might look like in practice, he noted the challenge facing a small company at the receiving end of a lawsuit or claim of IP infringement. It’s not just the potentially catastrophic legal costs they could face that’s the concern, he said, but also the impact of such a claim on their reputation and their customer and supplier relationships.
“Alternatively, if that same business finds that someone is infringing on their own IP rights – let’s say a competitor who’s effectively copying what they’re doing – then they need to be able to take action because otherwise, what was the point in developing those IP rights in the first place? The costs involved in both these types of scenarios can be quite scary for [SMEs].
“In both scenarios, you’ve also got stakeholders that will be paying close attention to the outcomes. You’re not just looking at your own balance sheet, you’re looking at your investors and customers, plus the potential impact on your employees. So, there’s a lot at stake for companies and people when it comes to IP risk.”
This is why IP insurance is so important for small businesses, he said, because it is designed to cover the legal costs and potential damages resulting from IP disputes, not only when it comes to defending claims but also enforcing an insured’s rights. He highlighted some of the ways Pen’s new offering can be tailored to specific IP risks or exposures, with coverage available for infringement liability, contract breach allegations, contractual obligations to indemnify for IP claims, challenges to the insured’s IP rights, and enforcement of the insured’s IP rights against infringers.
Having a modular or ‘adaptable’ coverage allows the policy to cover a multitude of risks, depending on the client's requirements, he said, which is key for a new IP insurance offering. Combine that with Pen’s no-nonsense approach, quick decision-making, simple proposal forms and ease of trade and he believes you have a real differentiator.
Assessing what’s changed in the market since he first began specialising in this area nearly 20 years ago, Alsegard noted that he has seen IP insurance only getting “more interesting and more relevant over time” and that the market has come a long way in terms of how it is educating brokers and the delivery of IP insurance protection at pace.
“What we have developed meets the client's needs for our target audience – which is SMEs, particularly in the UK initially. And I firmly believe that offering choice for brokers in the space is really important,” he said. “Another thing to bear in mind is the need to ‘mind the gap’. Some IP coverages exist in other insurance policies, one example being Pen’s Tech PI policy, and these can be sufficient for some businesses. For others, they may not be.
“The risk could be very significant, for example in relation to patents, which are typically excluded from other policies. Or maybe, a client has a contractual obligation relating to all IP but the existing insurance policy only covers certain parts of IP. So, a key message for clients and brokers is to ‘Mind the Gap’. It’s imperative to understand any gaps in the existing insurance coverages. So, between the existing products that Pen already offers and the addition of this on a tailored basis to effectively cover those gaps, I think we’re offering something very meaningful to the market.”
