A recent report has acknowledged that providing protection for intangible assets is one of the biggest challenges facing modern insurers today. Elite Insurance Company Limited, which has been providing legal protection for 11 years, is a thought leader when it comes to such challenges.
Following an annual conference by Airmic, the trade association for insurance buyers and risk managers within companies, a report was produced by Axa Solutions which suggested, ‘the insurance industry was not fit for purpose because traditional insurance could not cope with the emerging risks of intangible asset cover’.
Indeed, an excerpt from Anthony Hilton’s article in the Evening Standard; ‘Insurance will have to change its ways or die’, showed that there had been a monumental rise in intangible assets within the largest businesses of the S&P500 index from 17% just forty years ago to a staggering 84% today.
It is imperative, therefore, that solutions are found to protect such assets which represent huge intellectual and reputational capital and generate a huge amount of GDP.
Intangible legal expenses assets
Ian Coleman, Senior Technical Underwriter at Elite Insurance Company Limited, provides insight from the point of view of commercial legal expenses insurance:
“Insurance is driven by the people who buy it. It relies on enough people being prepared to pay something for certainty that risk can be shared. Business is happy to buy insurance for certain perils; the fear of a rough sea sinking a ship, a fire, flood or tornado.
“However, business does not always apply the same logic and rationale to protecting intangible assets.
“Elite Insurance provides after-the-event (ATE) legal expenses insurance products which facilitate commercial litigation. Commercial litigation itself is fast becoming an asset class, the litigation funding market attests to this.”
Litigation is often necessary to protect an intangible asset; this could be infringement of an intellectual property right, damage to a reputation or goodwill, or being overcharged due to the activities of a cartel, which is a type of legal action Elite are often involved with.
ATE is currently well used and a key feature in civil litigation, while before-the-event (BTE) insurance which is purchased annually is well used in certain areas. However, businesses often fail to consider the law and insuring the costs of using the law to protect intangible assets.
Before-the-event insurance take-up
Many businesses only consider ATE insurance when it is mentioned by a lawyer after a decision has been taken to litigate, rather than in being a factor in deciding beforehand. There are some commercial BTE products on the market that will cover the cost of lawyers protecting intellectual property rights, however, it seems the take up of this insurance is nowhere near the levels expected given the value and importance of intellectual property to most business.
Ian explains how Elite is tackling the market:
“Elite’s focus is on after the event insurance for high value commercial litigation, especially involving competition law infringements. In this space we are constantly, even on a case-by-case basis, facing new challenges, reviewing how we are assessing risk, pricing and delivering the product the client needs.
“As a comparatively new insurance company, Elite’s success stems from innovative leadership who have instilled a culture of being prepared to adapt and change.”
“Perhaps the real challenge for the insurance industry is moving away from traditional approaches and embracing a culture of change to allow development of the techniques and products the market requires.”