Brokers and their prospects are getting the drift: Patent riskcan be a very real and devastating threat for all types ofcompanies, and patent litigation insurance is a critical failsafe. Itis, in fact, as important as any other business insurance— and well worth adding to a P&C productportfolio.

But what should the savvy broker and client look for in a patentinsurance product? What sets a top-tier product apart from itscompetition?

Simple: an actuarial approach to assessing risk based on harddata.

More data = better risk assessment — and a morecustomized policy

As with any type of insurance, one size does not fit all. Healthinsurance premiums, for example, take into account a wide range offactors and details outside the typical sex, age, height andweight.

Similarly, a company's patent insurance premium shouldn't bebased solely on its size, industry and number of customers. Eachbusiness' needs are different, after all, and customers should payonly for the risks they're likely to face — nothing more, nothingless.

In order to accurately quantify patent risk, insurers need todig deeper. Many insurers seek additional information from apotential client, like:

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      • Type of technology made, used or sold.
      • History of patent litigation for the company and itspeers.
      • Company business dynamics, including plans for growth duringthe policy period.

On top of all of this, the truly essential element is cost. Aquality insurer will incorporate key historical data points fromexisting customers relating to the typical cost of patent licenses,litigation and settlements.

Few insurers have access to this kind of cost data, which isfundamental to calculating a company's projected losses. Insurersthat look at all of these data elements can create a much morenuanced and detailed risk profile. Armed with this wealth ofdetailed information, insurers can better quantify and assess acompany's risk and tailor a patent insurance policy to meet thelevel of protection that company wants and needs.

The human element

While data may be the lifeblood of the insurance industry, it'sequally important for an insurer to use specialized experts tointerpret and analyze that data and put it into context. After all,you would expect health insurers to seek the expertise of doctorswhen pricing health care policies, or auto insurers to involvepeople who understand automobiles and driving when pricing autopolicies.

The same is true for patent insurers. Any provider can use anautomated system to spit out a policy price based on a handful ofdetails. However, quality providers should have true in-housepatent experts who can correctly interpret the collected data— the company's information, thetechnologies at issue, and the litigation landscape— and draw meaningfulconnections.  Only then can they fully understand thenature of a company's complex patent risk and design a policy tomatch.

Think ahead

A business' chances for success can be hurt by any number ofissues that may arise. The threat of patent infringement litigationa real risk.  Don't be blindsided by a lawsuit beforelooking at patent insurance. And don't settle for a provider thatcan't — or won't— gather the detailed data needed tocustomize and properly price a policy.

When it's time to buy a patent insurance policy or add it toyour portfolio, make sure you work with a provider that has theright expertise, platform and data insights to give each businessprecisely the coverage it needs. Only then can you manage patentrisk with confidence.

See also:

The changing face of operationalrisk

Patent risk for business owners: common,costly — and insurable