A new report from Aon plc and the Ponemon Institute has found that property, plant, and equipment (“PP&E”) has 60 percent insurance coverage versus only 16 percent for certain intangible assets. This coverage differential contrasted with the average potential loss to certain intangible assets of $1.08 billion compared with $795 million in losses to PP&E.
“One of our key findings is that threats to a company's intangible assets are not in proper balance with that company's insurance protection,” said Lewis Lee, global head and chief executive officer of Aon's intellectual property business. “Understanding how to properly value, exploit, and insure intangible assets is exponentially heightened in the digital era. Intangible assets are a board of director level issue.”
The study, which has been conducted every other year since 2015, surveyed more than 2,300 organizations representing different industries and geographies across the globe, targeting individuals involved in their company's intellectual property, cyber risk, and enterprise risk management activities. One of the key tenets of this year's study was the comparison of insurance coverage for traditional tangible assets (PP&E) to the coverage of intangible assets, including cyber liability, as well as intellectual property such as patents, trade secrets, copyrights, proprietary information, and know-how.
Respondents valued intangible assets only slightly higher than PP&E at $1.15 billion and $1.03 billion, respectively. Yet, the new study found that the average potential loss if intangible assets were stolen or destroyed was 36 percent more than if PP&E were damaged or destroyed.
The 2019 study also revealed, however, an increase of 33 percent in the protection of potential loss of information assets versus an increase of only nine percent for PP&E between 2015 and 2019. This indicated that organizations have begun to recognize the value of intangible assets as well as the significant risks surrounding loss of those assets – and that they were working to increase the protection of intangible assets.
“While few companies have trade secret theft insurance policies or patent liability policies, organizations, by better understanding intangible versus tangible asset coverage, are better equipped to make informed decisions regarding strategy, valuation, and risk transfer with respect to IP and other intangible assets,” added Mr. Lee. “Aon's intellectual property solutions group has developed quantifiable analytics and modeling that may increase the market cap of organizations while informing suggested limits and scope of intellectual property insurance coverage.”
The report also found:
- Twenty-eight percent of respondents reported that their company experienced a material IP event in the past two years.
- Most incidents involved infringements of, or challenges to, the company's IP (69 percent) or the company's alleged infringement of third-party IP (31 percent). Most of these incidents involved trade secrets (42 percent), copyrights (26 percent), and patents (24 percent).
- More than one-third of respondents said that they believed no disclosure of a material loss to information assets was required.
- Forty-four percent of respondents said their company would disclose a material loss to PP&E or information assets that was not covered by insurance as a footnote disclosure in the financial statement.
- As a complement to a cyber risk policy, respondents said that few companies had a trade secret theft insurance policy and/or a patent infringement liability policy.
- Only 24 percent of respondents said they had a trade secret theft insurance policy and a similar percentage of respondents (30 percent) had an intellectual property liability policy. However, there was significant interest in purchasing such policies.
- Of the 37 percent of respondents who said their policy covered a challenge to their company's IP assets, 34 percent said the policy covered third-party infringement of their company's IP assets and 33 percent said it covered an allegation that their company was infringing third-party IP rights. More than one-third of respondents said the policy did not cover IP events.
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].