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How COVID-19 Impacts IP Insurance Risks


Key Takeaways

Matt McKenna Scale Underwriting
Matt McKenna

Underwriting Manager

Intellectual property (IP) is not only crucial to most companies; it’s essential. Consider trade secrets, such as the Coca-Cola recipe or KFC’s secret ingredient. When the universe dropped the COVID-19 pandemic in our laps, it shook up most businesses’ daily operations to the core — which only increased IP vulnerabilities. In this post, we dive into the new intellectual property insurance risks companies face amid the pandemic and how to mitigate those unique exposures. 

Was IP at Stake Pre-Pandemic?


Patents, copyrights, trade secrets, trademarks, and data rights all make up what we call intellectual property. So it only makes sense that IP was essential to most businesses, even before COVID-19 hit our shores. Historically, IP has held significant value. US patent litigation costs an average of $20-$36 billion annually, to put its value in perspective. On average, over 145 security breaches occurred in 2019 alone. 

Sources: Accenture

Even with IP up on its pedestal, many insurance carriers have had a tough time keeping up with the ever-changing vulnerabilities. Cybercriminals are becoming increasingly sophisticated with multi-tiered attacks, which places the risks of IP theft on shaky ground. In the past, very few insurance carriers offered IP insurance solutions because of the murky, uncharted waters. 

How Has COVID-19 Disrupted the Market?

The impact of COVID-19 has swept across the globe, sending employees home to work remotely or to wait for the storm to pass. As imagined, this has shifted most company’s daily operations — but it’s impacted their risks, too. 

IP Litigation

Since “coronavirus” has become a household name, there’s been an increase in IP litigation. It comes as no surprise that operating companies are now forced to find other avenues of revenue, making up for the dip in cash flow. 

And the shortfalls aren’t only impacting one industry. Non-practicing entities (NPE) — individuals or companies who hold patents with no intention of developing them — are searching for more revenue streams, as well. Patent litigation is often the route NPEs have taken, and COVID-19 has only increased the traffic on this low road. 

Remote Work 

Amid the pandemic, companies must consider the traditional in-office work environment as unsafe. So, they’re sending employees home to work in a makeshift home office, at a kitchen table, or from the comfort of a bed. The “virtual work environment” is the new norm, per se. 

Strangely enough, this approach isn’t all wrong. Employee engagement is up, but plenty of people are still incredibly worried about their jobs, among other things. In short, IP security is currently first priority on the minds of very few employees.

Source: JoshBersin.com

In tandem with the distraction of remote work, companies are having to lay off many of their employees to survive the economic downturn. As in any series of layoffs, people are less than thrilled. What’s more, is that this unfortunate situation increases the risk of trade secret theft from resentful employees.

How Are Executives Responding?

In any complicated or shaky situation, the key to surviving and thriving is understanding the challenges completely. Many corporations are adept at protecting their valuable assets in any economic climate, including their IP. Executives are on the move to confront the new challenges, and here are a few trending responses. 

Recognizing that IP Litigation is on the Rise

Quick-thinking executives are watching the movement surrounding IP litigation. More and more cases are popping up, peppering the nation with trade secret cases across multiple industries. Some of the harder-hit markets include IT, consumer products, and healthcare. COVID-19 will only cause an uptick in IP litigation.

Source: iam-media.com

Accurately Identifying “Crown Jewels”

Knowing what constitutes intellectual property isn’t always straightforward. When it comes to trade secrets, for example, all are confidential, and yet, not all sensitive information is a trade secret. An ongoing theme among executives is the challenge of identifying what’s “crown jewel” level and what’s not. COVID-19 has lit a fire under many leaders to know what IP supports their business’s value.

Taking Reasonable Measures to Protect IP

Once executives have correctly identified a company’s IP, the next step is to safeguard it. This approach means taking reasonable measures to keep the IP a secret. Some common strategies are informing employees of any IP, storing IP on a password-protected computer, requiring employees or third parties to sign non-disclosure agreements, and keeping IP under lock. 

Rallying the Team to Respond

Lastly, executives aren’t the only individuals responsible for protecting a company’s IP. And they’re letting this truth sink in by recruiting the troops. Employees are being informed of the valuable assets at stake whenever they log in to their work computers. With sophisticated cybercriminals on the loose, employees are offered more training to combat cyber threats and attacks. 

How Will New IP Priorities Impact Insurance?

We’ve witnessed an uptick in claims activity in 2020 already, particularly in trade secret misappropriation claims. Sadly, because of COVID-19 and its specific impact, it’s unlikely that this trend will slow down anytime soon. 

Evolving Coverage

In response to new market coverage needs, insurers are evolving their policies. One particular strategy is narrowing exclusions, such as IP Rights, Loss Mitigation, and more. It’s worth noting that more insurers are interested in taking on substantial complex risks. Thus, more insurance carriers are offering IP plans now, as well. Other insurers are merely adopting more coverage options, including:

  • NPE & Competitor litigation
  • Contractual Indemnity
  • Trade Secret Theft
  • Enforcement Business Interruption
  • Royalty Protection

Rethinking Retentions

In the realm of retention level insurance, carriers are not only working on narrowing exclusions but also delving into the intricacies of retentions. These retention levels are a crucial aspect of the insurance landscape, and their availability can fluctuate considerably. The specific levels often hinge on factors such as industry classification, company size, and the presence of unique risks. While minimum retentions typically stand at $100,000, it’s worth noting that higher levels are frequently accessible for certain coverage options.

As you might expect, pricing trends tend to follow orders from underwriters and the amount of data available to them. The more IP information we collect across the board, the better prices we’ll see. As a result, premium rates have reflected a decline in recent years. 

The COVID-19 crisis hasn’t changed this pricing trend yet, as rates have held steady. Nevertheless, coverage continues to improve amid the pandemic, and we expect it to continue improving afterward and beyond. 

Understanding the details of what coverage your company needs can be a confusing process. Founder Shield specializes in knowing the risks your industry faces to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you. 

Want to know more about IP insurance? Talk to us! You can contact us at ​info@foundershield.com​ or create an account ​here​ to get started on a quote. 

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