81 percent of organizations identify IP as a top 10 risk, while insurance covers only 16 percent of $1B in potential losses
Insurance coverage doesn't correlate to wide differential between valuation of PP&E compared to intangible assets, new study says...
Aon plc and the Ponemon Institute have released a global 2019 Intangible Assets Financial Statement Impact Comparison Report that 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 CEO of Aon's IP Solutions. "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 is conducted every other year commencing in 2015, surveys 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 2019 study found that the average potential loss if intangible assets are stolen or destroyed was 36 percent more than if PP&E is damaged or destroyed. However, the 2019 study also revealed an increase of 33 percent in the protection of potential loss of information assets versus an increase of only 9 percent for PP&E between 2015 and 2019. This indicates 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 are 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 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."
- 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 believe no disclosure of a material loss to information assets is required.
- Forty-four percent of respondents say their company would disclose a material loss to PP&E or information assets that is not covered by insurance as a footnote disclosure in the financial statement.
- As a complement to a cyber risk policy, few companies have a trade secret theft insurance policy and/or a patent infringement liability policy.
- Only 24 percent of respondents say they have a trade secret theft insurance policy and a similar percentage of respondents (30 percent) have an intellectual property liability policy. However, there is significant interest in purchasing such policies.
- Of the 37 percent of respondents who say their policy covers a challenge to their company's IP assets, 34 percent say the policy covers third-party infringement of their company's IP assets and 33 percent say it covers an allegation that their company is infringing third-party IP rights. More than one-third of respondents say the policy does not cover IP events.
Methodology: There were 2,348 survey respondents from North America, Europe, the Middle East, Africa, Asia Pacific, Japan and Latin America –most involved in their company's intellectual property, cyber risk management and/or enterprise risk management activities.