Today’s blog was written by our CEO and former M&A banker, Dylan Dryden.
In a world where the value of a company is now 90%+ intangible (like data, code, IP and brand) rather than physical (like plant, property & equipment), it's shocking that just 16% of these "information assets" are insured, according to Aon. In contrast 50%+ of the physical assets are. This makes little sense – the risks are real, insurance benefits clear and coverage available. So why choose to insure the furniture but not the mission-critical assets?
Benefits of insuring IP and intangible assets
Too numerous to list here, the key benefits are valuation, cash flow and protection:
Increase value: through improving financing (lenders more likely to lend and at better terms), getting a higher valuation from investors (lower risk, signalling good management) and improving commercial terms (e.g. licensees).
Cash flow: coverage for the legal costs to defend against alleged infringement (which may be totally unintentional or untrue) or pursue others infringing your IP. Most companies do not have cash reserves to cover these costs should they arise.
Deterrence: potential infringers will stay clear knowing they would be robustly pursued – better steal from the next company.
Types of Cover for Intangible Assets
Traditionally, cover has focused primarily on the pursuit and defence of infringement claims. This ensures that companies have the necessary resources to defend their intellectual property rights and pursue legal action against infringers. Major providers include broker Aon and underwriter Tokio Marine Kiln as well as specialist providers like our friends like Safeguard iP in the UK. While essential, this is incomplete and many risks remain in a company’s most valuable assets. However, there is important innovation happening in the space.
For example, Willis Towers Watson's new Intangible Asset Protection offers comprehensive coverage. This innovative solution goes beyond traditional legal cover, encompassing a wide range of intangible assets, including intellectual property, brand reputation, and data privacy. By providing proactive risk management and financial indemnification, this new approach to insurance empowers companies to safeguard their most valuable assets.
Conclusion: Insuring the Future
In a landscape where 90% of company value is derived from intangible assets, it's imperative to rethink the approach to insurance. While the majority of company value resides in intangibles, only a fraction of these assets are currently insured.
Can boards really justify insuring most of the furniture but little of a company’s most important assets?
Our view is that fiduciary duties are not being adequately discharged. The reason is probably that few companies keep a register of these assets; the fixed asset register in GAAP accounts have only the assets accountants are comfortable with (like PP&E). That’s clearly not a very good reason to risk the key value drivers of your business.
