Global companies face a challenging array of risks from reputation and computer system interruption to disruptions of supply chains or outsourced functions, say insurance broker Lockton and Lloyd’s of London insurer Kiln, which are jointly launching a programme offering cover for so-called ‘uninsurable risks’.
Describing the new product, entitled the ‘Lockton Intangible Risk Policy’, Emily Freeman of Lockton’s privacy and global technology practice in London said: “These big boardroom risks previously fell outside of traditional insurance because the cause of loss was not a physical event or did not result in physical injury or damage to tangible property.
“Rather than focusing on physical buildings or inventory, the policy recognises the real value of reputation, computer networks, and intellectual property as a driver of revenue production and investment value.”
Lockton and Kiln have combined to create a multi-peril insurance policy that can be adapted to meet specific client needs. It is being promoted as addressing key areas of risk that were completely uninsured or only inadequately addressed by traditional insurance. The policy is focused on first-party loss of net income and extra expenses. Insurance capacity to at least US$50m is available through the primary lead underwriter and excess markets.
Key perils in the programme include:
- Reputational Harm: The cause of loss is adverse traditional or social media coverage that drives down revenue or sales. It can be sparked by data breaches, breach of fair labour laws and environmental damage, key person disgrace, loss of certification/accreditation, product safety or quality failure, or other perils agreed with the underwriter.
- Inability to sell products which depend upon Intellectual Property: This peril addresses the income and expense consequences of losing an intellectual property dispute, including the costs of work-arounds and licensing fees.
- Computer Network Failure: Causes of loss include computer attacks, operational or administrative errors, accidental damage to hardware or digital electronic assets, political risks, and terrorism. What is critical about this coverage is that the limits apply not just to internally run systems but includes contingent business interruption and extra expense from outsourcing or cloud services.
- Outsourcing Disruption or Supply Chain Interruption: This coverage is highly tailored to individual clients but can include seizure or nationalisation by governments and political risks to supply chains.
Lockton and Kiln offer clients a customised underwriting process to determine the risks and claims settlement processes in advance. Lockton said that it has already developed customised policies for several global companies under the programme.
“Businesses operating today know that their profits are heavily dependent on intangible factors such as brand, intellectual property, computer networks and supply chains,” said Tom Hoad, an underwriter in the enterprise risk division at Kiln. “This new coverage is a direct response to intense demand from risk managers for insurance innovation in these areas.”
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