Hone In: December 2019
In this edition of Hone In we examine current market conditions in advance of what can be a volatile time of the year. We look closely at why Intellectual Property Insurance should be an integral part of your risk transfer strategy, take a snapshot view of the Life Sciences industry and discuss some of the insurance trends we are seeing globally.
The general insurance market – an outlook to 2020, lessons from history, and the ongoing business impact of a bushfire.
With 2019 quickly drawing to a close and the lens shifting to 2020, the next 12 months will again pose a test for customers purchasing insurance. Top line premium growth will continue to take a back seat as the market continues to focus on improved bottom line underwriting profitability.
Underwriters continue to be very risk selective on both renewal and new business and are still prepared to walk away if things don’t stack up.
We have witnessed a number of instances where the incumbent insurer has elected not to renew due to changes to underwriting guidelines – even in long standing client/insurer relationships. As a result of this stance, there has been a greater reliance to obtain terms through overseas markets such as London and Singapore. Unfortunately, these traditional markets are in the midst of their own remedial action, with the aim of restoring profitability after several years of significant losses, especially at Lloyds.
What is the impact of these circumstances?
Whilst allowing brokers to obtain capacity to place risks, there have been significant hikes in premium spends. We expect this to continue into 2020 and beyond.
For local insurers, 2019 saw the third full 12-month cycle of underwriting remediation, with no real signs of this altering in 2020. As outlined in our August edition of Hone In, hard market cycles tend to exist for up to 5 cycles before material and consistent shifts are witnessed.
If history is any indicator, we anticipate the peak to occur towards the end of 2021.
Faced with further flatlining investment returns, underwriting profitability remains a key metric of overall business performance. In 2020, insurers will continue to apply stringent underwriting principals set by management guidelines and will include pricing adequacy, restrictions on certain aspects of coverage and increased excesses. High hazard property, Professional Indemnity, natural catastrophe risks and residential strata risks with aluminium composite panel (ACP) construction will remain a challenge as the availability of insurer capacity continues to diminish.
While risks will be viewed on a case-by-case basis, the need for customers to differentiate their exposure from their peers will ensure they are seen in the very best light by the market, resulting in the most favourable terms available.
With summer almost upon us, we enter a volatile time of the year. Bushfires in multiple states have already seen insurers place embargoes on new business within regional areas of New South Wales. Coupled with the ongoing impact of cyclones and tropical storms in Northern Queensland this results in the market taking corrective action required to limit exposure from losses/claims.
Can a business survive without protecting the very core of its existence…. its own Intellectual Property? From Trademarks to Trade Secrets, your IP is a vital part of your company’s growth strategy.
Have you considered risk transfer solutions to protect your company’s IP? Not doing so can leave you exposed to time-consuming litigation, which in many cases could be costly and self-funded. Recent statistics from the United States of America indicate that the the average cost of IP Litigation sits at around USD $1million.
Intellectual Property Insurance and the benefits of a standalone IP policy are often overlooked in the shadow of Professional Indemnity Insurance and Directors & Officers Liability Insurance which cover IP infringement from a defensive standpoint, but may have limitations. For example, they often have limited IP coverage excluding patents and claims originating from the United States of America.
Conversely, a standalone IP policy can include a number of additional coverage highlights, such as:
Patent and IP infringement liability: the defence of patent and all other IP infringement claims being brought against you, including legal costs, damages, settlements and counterclaims.
Contractual indemnities cover: this vital cover enables business by allowing smaller companies to agree and meet the contractual indemnities required by their customers.
Pursuit of infringers: companies spend a great deal of time, energy and money developing their intellectual property. We believe this significant investment should be protected and therefore offer cover for the costs associated with enforcing rights if someone infringes a valid right and it has a commercial impact.
Loss of profit cover: cover for loss of profits can be critical for small and medium-sized businesses with only a single or a small handful of product lines. In the event that you lose an infringement case and it results in an injunction against you, this policy can cover for your resulting loss of profits for up to 12 months.
Loss of IP cover: investment in intellectual property costs a great deal. If a right is invalidated as a consequence of infringement action, this policy can repay that investment by allowing your company to move onto the next project.
If you’d like to better understand whether standalone Intellectual Property cover may suit your business, we suggest reaching out to your broker. We can help explore the benefits within your current risk landscape. For more specific information you can contact Daniel Reid.
Through collaboration and conversations with our peers in the Worldwide Broker Network we have the unique opportunity to learn in-depth about insurance trends across the globe.
What we are witnessing is increased premiums for Directors & Officers, Liability of Public Companies, Limited markets for unsprinklered EPS locations and the tough PI Lloyds market.
In working with new clients with global business activities, we have discovered instances where we have found that clients with multinational risks may not be covered correctly in certain regions. A recent example is a client with exposure in the Middle East. An initial analysis of the insurance program found particular exposures were not covered under the global policy placed in Australia. We were able to engage our partner brokers in the Middle East to bind local policies in that region to ensure the correct insurance program was in place.
It is important to ensure you have the right support when considering business across different jurisdictions. Talk to your broker early, ensure you have transparent and holistic conversations, and utilise their international knowledge base to get clear and accurate advice, so your business can continue to evolve and grow across the globe.
Industry Snapshot – Life Sciences
From coverage to claims, we understand the bespoke challenges faced by biotech, life science and pharmaceutical companies. As you manage complex regulatory requirements and unique market conditions, we will draw on our knowledge of your key risks to create tailored solutions that support your vision.