A Risk Management Perspective
The global economy has undergone a remarkable transformation in recent decades. Driven by rapid and widespread digitalization, business operations are evolving. Where the value of a business once consisted of tangible assets of property, plant and equipment, it’s now heavily focused on intangible assets such as patents, copyrights and software. Today, intangibles, in the form of intellectual property (IP) and goodwill, comprise 90 percent of the value of the S&P 5001. This value, however, is rarely reflected in an organization’s annual report and accounts.
Despite the growing importance of IP to the true corporate balance sheet, organizations continue to overlook the protection of their intangible assets, with only 17 percent of the value of intangible assets insured against potential loss2. This risk management oversight stems from a lack of understanding about the business-critical role of intangible assets, such as IP.
For example, organizations wouldn’t put up a building and not insure it against fire, flood or wind, yet many businesses are spending millions on developing IP to support their products, services and, ultimately, their bottom line, but then not investing in insurance or risk transfer.
Growing Risk of Intellectual Property
A significant part of an organization’s intangible assets comes in the form of IP, which includes patents, trademarks, copyrights, domain names and trade secrets. Patent applications over the last few decades demonstrate the explosion in IP. It took more than a century for the U.S. Patent and Trademark Office to record its millionth patent, but just three years, from 2015 to 2018, to go from 9 million to 10 million. Given this increase, the problem for most organizations is twofold: How do they protect their own IP? And how do they protect themselves from allegations of IP infringement from third parties? Failure either way can lead to significant financial losses, business interruption and reputational damage.