As more companies use intangible property as collateral for loans, an insurance market is emerging that is designed to facilitate business, industry sources say.
While the use of intangible property such as patents, trademarks, copyrights or other trade secrets to back loans is not new, the assets have previously been underinsured by the insurance market, experts say.
Sometimes insurance-linked securities structures are used, insurance coverage kicks in if a borrower neglects a loan and the value of the intellectual property used to guarantee the loan does not cover the lost value.
Aon PLC, which has been trying to grow its intangible insurance business in recent years, placed its first such deal last month.
The coverage structured for Indigo Ag, an agricultural technology company that borrowed over $ 1
"This asset class was deplorably insured in insurance and financial markets," said Lewis Lee, CEO of IP Solutions at Aon PLC, who worked as an intellectual property lawyer before joining the broker.
Other brokers including Marsh LLC are involved
Half of the over 130 people in Aon for Intangible Insurance Groups build a system for the treatment of natural property. language to assess and value intangible assets, Lee said.
Intangible property can be "mapped" to see where it would fit in its market to understand its value once, he said.
Once the assets have been valued at a value, risks can be quantified and insurance coverage created, Lee said. "If you can measure value, people can lend against it."
Aon has more than 20 additional re offers in progress, says Nicholas Chmielewski, head of broker for IP solutions at Aon PLC.
Customer profiles range from companies that have not yet generated revenue but have agreements with companies that generate revenue in the hundreds of millions of dollars, he said.
"Over the past two years, we have received some serious inquiries regarding this type of coverage," said Jason Sandler, vice president of Marsh's FINPRO practice in New York.
The driver for the increased activity, Sandler said, "is basically cheaper debt financing. Insurance-backed valuations of IP assets make it possible for borrowers to obtain loan financing with far less risk for lenders. Less risk should in theory be translated into a lower interest rate and perhaps a larger loan amount.
More generally, the market for intellectual property rights of all kinds has increased.
"We have seen a massive rise in Aon of intellectual property insurers," Chmielewski said, adding that historically only a handful of clients have purchased IP protection. Police bills have gone from the individual numbers to "close in 100 now", he said
"I think you have more people buying it", says Kim Cauthorn, chief operating officer of PIUS, who previously worked in intangible insurance at Willis Towers Watson PLC.
PIUS focuses on loans between 5 and 25 million dollars according to Joe Agiato, CEO of PIUS. These tend to be technology-based companies that see an "upward trend" in product introduction, but not startups.
"Coverage is particularly attractive to growth companies at an early stage who otherwise do not have sufficient tangible assets to lend as collateral to obtain affordable debt financing," says Sandler of Marsh, who works with PIUS and discusses with other lenders. intellectual property rights, said Agiato. "We have been doing this for about three and a half years and have completed a number of successful transactions," he said.
outstanding amount at the time of default, Cauthorn said.If a borrower is unable to pay his debt, not necessarily due to an impairment of the intellectual property right, the coverage is triggered.
The value of the intangible property is evaluated within the framework of what it would be worth if had to make money on it, "which not n necessarily means sold ", says Agiato. "The revenue generation can be done in one of several ways," including licensing and royalty.