Soft insurables - protecting intellectual assets - Company Business and Marketing - Brief Article

Protecting a company's intellectual assets can be costly -- especially if they must be defended in court. But an emerging line of insurance may curb those costs, as well as free up some cash on a company's balance sheet. Some big players -- including AIG, Chubb and Lloyd's -- have started marketing policies to cover court costs and damages resulting from disputes over intellectual property -- including software.

In the past, these products weren't very attractive, says Norm Jacobi, vice president and manager of broker services at the San Jose, Calif., offices of J&H Strategic Risk Consulting. According to Jacobi, many policies had high retentions, meaning much of the risk was shouldered by the policy holder. Co-payments and premiums were also steep and coverage was limited. Insurers now recognize that this is a bigger market than they realized, notes Jacobi, especially among technology firms. "They understand that if they come to the table with a good product, it will have wider acceptance than it has had in the past," he says.

Jacobi notes that today's policies for intellectual property have lower retentions, higher limits ($25 million to $100 million), less onerous exclusions, and no co-payments. A market epiphany isn't the only reason insurers have warmed to IP insurance. The hard reality is that the casualty insurance market has been languishing for 10 years. If the market were hard and insurers were getting enough from their traditional lines, says Jacobi, they wouldn't be as creative with non-traditional products.

Emerging policies also cover patent infringements and misappropriation of trade secrets which, in the past, haven't been available for software companies at all, observes Jacobi. "The key issue is patents, especially software patents, because until a very short time ago, it was unclear whether software could be patented," he adds.

In addition to protecting a company from intellectual property risks, new insurance products can be used to improve a business's picture of financial health, according to Jim Cashion, president of Emerald Surplus Lines, an insurer in Bryan, Texas. Cashion says that if a company has to borrow money to defend or protect one of its patents, the insurance could be used as collateral for the loan. He says his insurance frees companies from having to tie up assets to back the loan.

Another leveraging strategy for the insurance is to use it to reduce the size of a contingency fund. For example, says Cashion, it's not unusual to have $2 million to $3 million tied up in a contingency fund to pursue infringement lawsuits. For $200,000 -- the price of a policy -- the company can free up $800,000 to $1.8 million for other uses, claims Cashion. "You've basically boosted the assets of the company by buying the insurance," he says.

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