Every year, thousands of ambitious people start businesses. This represents a great opportunity for you, their brokers, to offer new insurance products to cover previously unnoticed or uncovered risk. Business owners know they must buy standard property insurance to protect against certain operational risks (e.g., fire, storm, theft). Depending on their business location, they may even need flood or earthquake insurance. Operational risk coverage like this is pretty standard; we all understand that unplanned losses are a very real possibility over a business' lifetime.
As time marches on and our world continues to evolve, new trends are revealing additional operational risks — just as devastating as others — that now merit consideration.
The example of cyber risk coverage
Take cyber risk, for example. Twenty years ago, cyber risk insurance was shrugged off as a nice-to-have — a luxury. Companies perhaps acknowledged breach risk as a distant possibility, and you may have had a hard time convincing your clients to purchase a policy that insures against it.
That's changed over the past few years. An increase in online transactions has opened the floodgates to a growing number of breaches; for proof, we need look no further than the news. Compromised brands have sustained financial losses and damaged reputations. And because of this, cyber risk insurance is now more in demand, widely available, and easier for brokers to sell.
Is patent litigation worth insuring against?
Patent risk and litigation insurance has followed a comparable trajectory. Like cyber risk, patent risk has spiked in recent years, thanks to the sharp rise in technology. Over the past few decades, the U.S. Patent and Trademark Office has issued millions of technology patents — many of which are similar to, or otherwise overlap with, one another in some way. And therein lies the risk: It's nearly impossible to keep up with who got the patent first and on what; many patent holders, therefore, can claim infringement. As a result, any business that makes, uses, or sells technology is a target for patent litigation — whether a restaurant, car dealership, software company, or bookstore.
For all of these companies, litigation is almost always unexpected. Even the smallest of companies can find themselves entangled in as many as three patent suits a year, with costs potentially as high as $2 million for each case. Bigger companies often experience more cases and higher price tags.
Smaller businesses don't have the time or resources to defend themselves, making patent litigation risk potentially devastating. And patent litigation can be a significant distraction for larger companies, taking up executive time and costing the company much more than legal fees and settlement costs. Through the predictability of an annual premium, patent litigation insurance adds a layer of certainty for any company with regard to its patent risk. All business owners should consider insuring against this relatively new form of operating risk.
Conclusion
With business ownership comes an incredible opportunity for success — but not without operational risk. As technology continues to evolve and become central to businesses in a multitude of ways, the definition of "operational risk" must be expanded to include emerging risks in a new world.
Patent risk, for one, isn't a passing trend: There will always be the next "smart" refrigerator or self-driving car technology to spur interest in patent monetization and, eventually, patent litigation. Keeping your clients aware of and educated about all types of operational risk — including patent risk — will be in their best interest in the long run.
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