Mary Guzman already has helped develop a new insurance coverage once in her career.

Now, she’s leading the charge of another.

In the early 2000s, when she worked as a regional practice leader at Marsh & McLennan Companies, Guzman flew across the country, teaching companies about cyber risk and why it wasn’t covered by existing insurance. It was challenging. Not as challenging, though, as her current effort: launching Crown Jewel Insurance, a company that bills itself as the world’s first trade secret insurer.

“Very few people understood cyber risk at the time,” Guzman said. “Very few people understand trade secrets. And so, to say that we’re coming in, covering something that most people didn’t even realize was an inherent risk, is a hard thing to do.”

But she sees the potential.

Guzman worked as a broker for more than 25 years. The common threads of her path during that stretch were the professional liability and errors and omissions spheres, and near the end, she focused almost exclusively on cyber and intellectual property risks. Intangible risks that don’t fit well into existing forms of insurance piqued her interest.

She could explain to clients that cyber policies covered losses stemming from leaked personally identifiable information and protected health information and that markets had become comfortable with business interruption losses resulting from attacks that sent systems offline.

But what about innovation assets that drive competitive advantages? What if an employee discloses that information? What if hackers steal it?

Guzman didn’t have an answer. For several years, she and senior leaders in the cyber insurance sphere tried to get markets to pick up the exposure in cyber policies. The markets didn’t budge.

“We cover trade secrets like they are buildings, essentially.”

Mary Guzman, Crown Jewel Insurance

Guzman listened to the underwriters’ pushback. She heard that the valuation was misunderstood, and she began planning. Crown Jewel Insurance was officially formed in early 2021. After careful planning, the company (a Lloyd’s coverholder) is now writing and binding insurance.

“I just see it as a massive opportunity,” Guzman said, noting that “trillions and trillions” of dollars of assets could qualify as trade secrets, and none of them are currently insured to their actual values.

Examples of trade secrets that Crown Jewel insures include algorithms, designs, business processes, recipes and formulas. Everything that can make a company “different and better than your competition,” Guzman explained. “And none of that is being insured right now. So, the opportunity is staggering once we can get this thing to take off, and once we get sort of a grassroots movement on the carrier side to understand and want to write this.”

Essentially, Crown Jewel’s primary product, Crown Jewel Protector, covers the first-party loss of the value of a trade secret as an asset and provides the crisis management expenses a company would incur to try to figure out what happened and stop the bleeding. In follow-up correspondence, Guzman explained that Crown Jewel Insurance pays out a pre-agreed amount if it is not successful “in stopping the bleeding/putting the genie back in the bottle with an injunction or other method that would prevent them from using the asset.”

Crown Jewel defines trade secrets broadly, but they must meet certain criteria to qualify for coverage. They must be independently developed, not known in the industry, inherently valuable to organizations and have reasonable protections in place. Trade secrets must pass a six-factor test established by the American Law Institute.

The Google search algorithm, for example, is a trade secret, and so is just about everything in a company’s R&D pipeline. Once brokers contact Crown Jewel, Guzman and her team help identify these secrets and verify they qualify for coverage. Crown Jewel then examines the potential insured’s information security policies, procedures and legal protections.

A panel of law firms, security firms and experienced valuation firms assists with this process. Underwriting culminates in the independent valuation of secrets. In addition to providing the fair market value of misappropriated trade secrets, Crown Jewel also helps clients ascertain the source and scope of the loss and stop the bleeding using trade secret attorneys and forensics services teams.

Establishing credibility was key to Crown Jewel’s creation. Guzman believes the independent valuation of trade secrets by outside firms, combined with the storage of their metadata on blockchain technology, demonstrates this focus.

“That’s the way that we were able to convince the market that this could be done profitably,” Guzman said. “A lot of companies aren’t doing some of these steps yet themselves. I hope that three to five years from now, this will be the method that people follow—or something close to it.”

Cyber policies might cover some of the crisis management expenses if the theft is through a breach as opposed to just former employees or vendors behaving badly, but cyber policies do not cover the value of IP or the cost of R&D the insured expended to develop its innovation and know-how, Guzman said.

“That’s what is so different about this,” she shared in a follow-up email. “We cover trade secrets like they are buildings, essentially.”

In addition to Crown Jewel Protector, Crown Jewel offers a standalone crisis management response product and a product that offers crisis management and reimburses the expenses incurred for R&D and product development.

Intellectual property insurance products are similar, but the market’s products are almost exclusively liability products, Guzman explained. They’ll cover organizations if they’re alleged to have infringed on someone else’s intellectual property, but they don’t cover an organization’s own product development and asset values. Meanwhile, the cyber market does cover stolen corporate confidential information, she said, but it excludes the future value of any asset and excludes the value of intellectual property, too.

“There are other people who’ve got some products that address components of this,” Guzman said, “but just nobody has done it quite the way we have.”

Feedback from brokers has been positive. Guzman has been told her offerings are timely and important. The SEC’s new cyber disclosure rule and the FTC’s potential ban on non-compete clauses are raising awareness and causing consternation for brokers and clients, she said. Guzman explained that if the FTC bans non-competes at the federal level, then all companies will need to amend the way they protect their trade secrets when employees leave, and that the new SEC rule requires companies to share what they’re doing to protect material that could have an impact to earnings if breached.

When asked about AI, Guzman said she believes trade secret protection will be “almost exclusively the only IP protection that can be garnered for artificial intelligence.” She explained that the output generated from AI tools will likely be challenged to garner other types of IP protection, namely either patent or trademark, because the courts appear to be saying the inventor has to be “human” for either of those to apply.

“I think the No. 1 thing that companies [and] people need to realize is that if they have an excellent idea and an innovation asset that is going well and they think has a lot of opportunity, that patents are not the only way to protect that asset,” Guzman said. “And I think a lot of companies and inventors and creators believe that if you don’t have a patent for something, then it’s not valuable. And that could not be further from the truth.”

She believes that creators and inventors—and the companies they work for—desperately need to be incentivized to keep creating and inventing, and that protecting research and development findings is crucial as experts work to solve massive environmental and social problems.

“People are going to have to feel like, ‘If we’re going to put the time and energy into developing something, we need to be able to protect it,'” Guzman said. “And so, I feel very passionately that, as an industry, we owe it to ourselves and owe it to the world, really, to solve for this problem.”