Intellectual Property is far too under-insured

Aon’s Financial Impact of Intellectual Property and Cyber Assets Report for 2020 shows how dreadfully under-insured companies are for intellectual property related losses.

The report shows that PP&E (Property Plant and Equipment) is insured at a rate of 61% for losses, with the remaining losses being self-insured. In contrast, only about 15% of information assets are insured for loss, with the remaining losses being self-insured.

The interesting thing is that “Information Assets” (which include patents, trademarks, copyrights, and other IP assets) is every bit as valuable to companies as their Property Plant and Equipment:

Why do companies insure themselves for “normal” potential losses, but not IP-related losses?

Mostly because IP-related insurance is in its infancy. IP-related insurance has been sold in two types of insurance: “cyber insurance” and patent insurance.

Cyber insurance covers losses in information technology. Think data breaches, ransomware, hackers, and the like. These types of problems are very disruptive and have legal ramifications. Companies that store personally-identifiable information (PII) have to comply with local laws on how to store these data. On top of that, there are exposures to negligence and the harm that comes when data are released without authorization.

Cyber risks are immediate and hard. A cyber attack can be front page news, which can damage a company’s hard-earned reputation.

Patent, trademark, and copyright insurance is a different animal. Patent lawsuits are slower moving beasts, which may propagate through the court system for years, and sometimes decades. The judgments in patent cases can top $1B, and there are numerous patent cases every year that are in the hundreds of millions of dollars.

The costs of these lawsuits is typically between $700,000 and $4,000,000 – just in attorney’s fees and litigation costs. This does not include any judgments that you might pay if you lose a patent lawsuit.

With patent and other information assets being largely under-insured for many companies, it stands to reason that a company who has the foresight to insure these assets has a huge competitive advantage.