By taking an innovative approach,  Kiln and Lockton are offering highly bespoke cover for risks that typically fall outside the scope of traditional cover, yet are high on the list of concerns for many organisations.

Changing risk landscape

Companies have long feared physical risks like a major fire or an earthquake, but today boards are just as likely to worry about potential threats to their reputation or brand, the loss of intellectual property (IP) or severe disruption to their supply chain or computer network.

While physical risks are still a real threat, complex, interconnected and intangible risks increasingly feature in the list of concerns. For example, public scrutiny of company tax, the loss of customers, cyber risks, rising commodity prices and increasing regulation were the top five risks in Lloyd’s latest Global Risk Index, a survey of over 500 global senior business leaders.

“As insurers we see much more emphasis on intangible risks, such as brand, IP, supply chain or cyber exposures – these are the risks that are becoming more of an issue for risk managers and their boards, ” says Tom Hoad Enterprise Risk Underwriter at Kiln, which created the cover in partnership with Lockton.

Top of the list for many companies is reputational and brand risk, although cyber, IP and supply chain exposures are also high priority, explains Ben Beeson of insurance broker Lockton. However, traditional insurance won’t cover all, or any, of these types of risks, he says.

“There are gaps in what traditional insurance can cover in evolving areas of risk, or risks that are traditionally difficult for insurers, such as a company’s brand, IP or data, ” said Beeson.

Fresh approach

While traditional insurance typically pays the cost of damage to physical property, the Intangible Risks Insurance Program focuses on profits lost from an intangible risk, for example, adverse publicity caused by a product recall or a data breach.

“Our approach is to look at the income that could be lost. Fundamentally we are looking at a company’s enterprise risk management and what may stop it achieving its corporate objectives, ” explains Hoad.

The broking and underwriting process is very consultative and cover is tailored to the specific needs of each client, he adds: “We sit down with the broker and the client to get a look and feel of the business continuity plans and other procedures that are in place to mitigate the impact to the business.”

Once triggered, the policy would pay the difference between a company’s potential and actual income over a pre-defined indemnity period. The trigger could, for example, be adverse publicity, patent infringement, disruption to a supply chain from a political risk or physical damage from a cyber-attack.

Many aspects of the cover from Kiln are unique, according to Beeson. For example, he identifies Kiln as the only insurer to cover loss of income from the loss of IP, or to insure damage caused by a cyber-attack on SCADA systems, the automated and computerised control systems that help run power stations, oil pipelines and the like, he says.

Demand for innovation

The cover is already generating plenty of interest, in particular from consumer companies with big brands, for example luxury goods, or IP, such as pharmaceutical. There is also plenty of interest from energy and utilities companies in covering cyber exposures.

Policies have been sold, but the product is still in its infancy. “There is demand, but as with any new concept it takes time to raise awareness and educate potential clients, ” says Beeson.

Finding solutions to insuring intangible risks presents an opportunity for the insurance industry, according to Beeson and Hoad.

As the value of companies shifts toward brand and IP, insurers are likely to begin to focus more on intangible risks, predicts Hoad.

“This is where business is headed so it is only natural that insurers should also move. Lloyd’s is leading the charge in this area – not only Kiln, but Lloyd’s is well placed to meet this bespoke insurance need, ” he says.