Redefining Clean Tech s Global Risk Featuring Findings From The Chubb 2012 Clean Tech Industry Survey
Introduction About This Report In 2012, Chubb commissioned Hansa/GCR, a national market research firm, to conduct a telephone survey of 268 insurance decision-makers at a broad range of Clean Tech companies throughout the United States and Canada. Chubb had the following goals: Understand how Clean Tech companies define their businesses within the sector. Analyze factors affecting today s Clean Tech companies as they expand rapidly and globally. Identify potential risks affecting Clean Tech companies domestic and international operations. This report includes select findings from the study and additional supporting data from trusted third-party sources. We hope you find the report an engaging and informative resource that helps provide a better understanding of the unique, rapidly changing Clean Tech space. Get To Know Chubb For the past three decades, Chubb has provided a wide range of renewable energy, technology, and manufacturing companies with scalable, future-focused insurance solutions. In 2012, we insured 51% of the U.S.-based Global Cleantech 100, a list of the most innovative and promising Clean Tech companies according to Cleantech Group LLC. With a worldwide network of some 120 offices in 27 countries staffed by more than 10,000 employees, Chubb s global expertise, risk engineering, and claims services help Clean Tech companies keep pace with the velocity of changing risks.
Table Of Contents Executive Summary.... 4 A Fresh View Of A Clean Industry Growing Challenges Risk Takers Missing Risks The Big Risk? Being Reactive An Imperfect World Growth And Risk Trends.... 7 A Growing Industry Is Growing Up What If Affects What Could Be Snared In The Cyber Web Gone Global... 10 Beyond Borders Early And Often Only As Good As The Weakest Link The China Challenge Charting Risky Waters Overseas Decision Drivers... 13 Vision Vs. Hindsight Who Do Clean Tech Companies Trust? Reputation Matters
Executive Summary Executive Summary A Fresh View Of A Clean Industry As part of Chubb s continued commitment to Clean Tech, we commissioned a survey of top Clean Tech insurance decision-makers in the United States and Canada. Our groundbreaking survey offers a new perspective on this rapidly expanding and maturing industry. Growing Challenges Clean Tech is a collection of disparate businesses that are racing to develop unique solutions or apply current methods in innovative ways. In an industry no longer defined by small start-ups, a majority of Clean Tech companies have become commercialized. As entrepreneurs, company executives continue to drive multiple priorities to expand their operations around the world. This all-consuming focus on business growth and the increased complexity of operating in a global market present unique challenges that may threaten a Clean Tech company s viability. See Figure 1. Over The Next 12 Months, Clean Tech Companies Will Invest Their Resources In The Following: Marketing & Sales 27 % 50 % Securing Additional Funding 28 % 52 % Research & Development 24 % 45 % Product Commercialization/ Supply Chain Management 28 % 33 % Global Expansion 9 % 22 % Commercialized Clean Tech Companies Early Stage Clean Tech Companies Figure 1 4
Executive Summary Clean Tech Companies Lack The Following:! 59 % DO NOT HAVE AN UP-TO-DATE BUSINESS RECOVERY PLAN 50 % DO NOT HAVE AN INCIDENCE RESPONSE PLAN FOR CYBER SECURITY BREACHES Figure 2 Risk Takers Missing Risks Clean Tech executives are comfortable with the risks of innovation and working in an industry that demands constant change. However, absorbed in developing their technology, securing funding and driving sales, Clean Tech companies may miss risks that threaten the sustainability of their businesses. At least 50% of companies are not proactively planning for or protecting against such disruptions as weather-related damage or electronic security breaches. See Figure 2. The Big Risk? Being Reactive Although almost half of surveyed executives believe their company has unique risks, they tend to manage those risks reactively rather than proactively. Clean Tech companies often turn to their trusted advisors only when a contract, a board member, or an investor requires insurance. To address these business needs, companies rely on the expertise of their agents or brokers to refer them to a highly reputable insurance carrier. 55% of companies cited requirements as a top motivator for purchasing insurance, while only 25% were motivated by concerns about injury or damage. 5
Executive Summary Clean Tech Companies Surveyed Operate In More Than 60 Countries On Six Continents. 6 SIX COUNTRIES CONTINENTS 3 Of 4 Clean Tech Companies Operate Internationally 59% Conduct International Sales 40% Rely On International Supply Chain 45 % 44 % 53 % OF CLEAN TECH COMPANIES ARE NOT CONCERNED ABOUT COMPLIANCE WITH GLOBAL REGULATIONS OF CLEAN TECH COMPANIES ARE NOT CONCERNED ABOUT SUPPLY CHAIN STABILITY OF CLEAN TECH COMPANIES ARE NOT CONCERNED ABOUT GLOBAL PROTECTION FOR TRAVELING EMPLOYEES Figure 3 An Imperfect World Clean Tech companies, regardless of their stage of development, are exposed to risks all over the world. Nearly three-quarters of the companies surveyed operate internationally, doing business in more than 60 countries on six continents. Though global partnerships and markets present significant opportunities for Clean Tech companies, they also offer complex challenges to individual businesses, including supply chain stability, compliance with global regulations, and protecting employees as they travel. See Figure 3. 6
Growth And Risk Trends Growth And Risk Trends A Growing Industry Is Growing Up Although Clean Tech is often thought of as a young industry dominated by small startups, our survey revealed that many Clean Tech companies are developing into mature, commercialized businesses. Of those surveyed, roughly one-third have been operating for less than five years, while one-quarter have been in business for more than 15 years. As they mature, Clean Tech companies grow into larger businesses. Over half of the companies that have been in business for 15 or more years have more than 25 employees, and 17% have more than 1,000. Over 60% of Clean Tech companies have reached full or limited commercial production, and just one-third are early stage, involved in research and development or prototype and concept testing. See Figure 4. Clean Tech Company Longevity: Clean Tech Company Stage Of Development: 25 % OPERATING MORE THAN 15 YEARS 31 % OPERATING LESS THAN 5 YEARS 44 % OPERATING BETWEEN 5-14 YEARS 62 % FULL OR LIMITED COMMERCIAL PRODUCTION 32 % EARLY STAGE (Prototype, Concept Testing, R&D) Figure 4 6 % OTHER 7
Growth And Risk Trends What If Affects What Could Be Driven by the need to stay on the cutting-edge of new technology and grow their business, Clean Tech companies split their focus across a number of disparate business priorities. However, whether early stage or commercialized, companies continue to invest in ongoing research, securing funding, and promoting business growth. In the next 12 months, early stage companies plan to heavily invest in securing additional funding and continuing their R&D, while commercialized companies plan to invest their resources in a broader range of priorities. As they focus on business development, many Clean Tech companies are not planning for risks that can significantly impact or disrupt their growth. Often, readily available and cost-effective risk transfer solutions that can help Clean Tech companies protect their business are also overlooked. See Figure 5. Clean Tech Companies Have Not Planned For Or Purchased The Following: 59 % 75 % DO NOT HAVE AN UP-TO-DATE BUSINESS RECOVERY PLAN 46 % 50 % 42 % 50 % DO NOT HAVE AN INCIDENCE RESPONSE PLAN FOR CYBER SECURITY BREACHES! Business Income Insurance Contingent Business Income Insurance Cyber Liability Insurance HAVE NOT PURCHASED THE ABOVE Employment Practices Liability Insurance Figure 5 8
Growth And Risk Trends Snared In The Cyber Web About two in five companies experienced a significant electronic data security event in a recent 12-month period, according to the Computer Security Institute. Despite the risk of a data breach, more than half of surveyed Clean Tech companies are not concerned about the challenges of a breach, and three out of four don t purchase insurance to help offset the costs associated with a loss. In 2011, total cost to a company that reported a breach was, on average, $5.5 million, according to the 2011 Cost of a Data Breach: United States report by the Ponemon Institute and Symantec. In addition to the potentially crippling cost of a breach, without a data security and response plan, a Clean Tech company s intellectual property and private customer data are left precariously unprotected. A business recovery plan outlines key steps to take in the event of a disaster and helps a company assess its ability to recover from damages. As part of a business recovery plan, a company can also purchase business income insurance. This insurance helps protect the company from loss of income and extra expenses that result from a slowdown or suspension of operations due to an insured loss. 9
Gone Global Gone Global Beyond Borders Early And Often In the fast-paced world of emerging technology, Clean Tech businesses go global early and often. Clean Tech companies of all sizes, ages, and stages of development have extended their reach worldwide with significant and diverse international supply chains and customers. See Figure 6. Approximately three of four Clean Tech companies operate beyond their home country s borders: Nearly 60% conduct sales internationally. 40% rely on an international supply chain. Clean Tech companies sell to or rely on supply chains from a diverse group of countries around the globe. Survey respondents mentioned about 60 separate countries on six continents. From Early Stage To Fully Commercialized, Clean Tech Companies Operate Globally. Commercialized Companies: Fully Commercialized Companies Companies In Low Rate Production 47 % 54 % 38 % 74 % Early Stage Companies: Companies In Prototype Development 75 % 42 % Companies In Concept Testing/R&D 40 % 23 % Engage In International Sales Rely On An International Supply Chain Figure 6 10
Gone Global Only As Good As The Weakest Link An international supply chain can be a crucial lifeline supporting Clean Tech business viability. However, a significant number of Clean Tech companies that rely on a supply chain do not have a supply chain disruption plan and have not purchased business income insurance that responds to supply chain disruption, commonly known as contingent business income insurance. See Figure 7. As Clean Tech businesses expand globally and rely more on developing countries such as China, an under-managed supply chain increases their vulnerability to delays caused by fire, theft, or more complex issues such as terrorism and natural disasters. However, careful planning can help Clean Tech companies sidestep the consequences of costly delays, stalled research, and revenue setbacks. Clean Tech Companies That Rely On An International Supply Chain: 39 % 29 % 42 %!!! ARE NOT CONCERNED WITH SUPPLY CHAIN STABILITY DO NOT HAVE A SUPPLY CHAIN DISRUPTION PLAN HAVE NOT PURCHASED CONTINGENT BUSINESS INCOME INSURANCE Figure 7 The China Challenge Although Clean Tech companies do business with a variety of countries, China plays an integral role in many of their operations. Nearly half of all Clean Tech companies that rely on a global supply chain name a Chinese business as one supplier. Among those who sell or plan to sell overseas, one in four mentions China as an important market, dwarfing other noted countries. According to a survey* from the US-China Business Council, members cite unfair competition, protectionism, and limits on market access as serious threats to pursuing business opportunities in China. The complexity of normal business processes, such as obtaining a business license, may require more frequent or extended trips to China. 11
Gone Global Charting Risky Waters Overseas Similarly, complex regulations and requirements in other countries pose unique challenges to Clean Tech companies. Operating in countries with distinct legal and geopolitical environments, North American Clean Tech companies must navigate different approaches toward protecting and regulating owned resources and assets, including intellectual property. CASE IN POINT: U.S. MANUFACTURER HELD LIABLE For example, a U.S. LED lighting manufacturer selling parts overseas was found liable for a fire in a German court. Because the company s standard U.S. general liability policy required that the suit be brought in the United States or Canada, the manufacturer s insurer refused to pay for the cost of defense. If the lighting manufacturer had purchased an international general liability policy, the cost of defense would have been paid. Few Clean Tech companies focused on global expansion worry much about the common risks of doing business overseas, including compliance with global regulations, supply chain stability, and protecting employees during international travel. In addition, few companies have the international insurance they need to help them mitigate risks and protect their investments as they build their businesses around the world. Of all Clean Tech companies with some international presence, more than half do not have the insurance they need to do business in foreign countries. Less than half of companies engaged in international sales purchase general liability insurance for exposures outside North America, leaving them at risk to product liability lawsuits overseas. Without international insurance for product liability exposures, product liability lawsuits that occur overseas can leave a company vulnerable to hefty legal costs and potentially uninsured losses. Additionally, 44% do not purchase workers compensation for employees traveling abroad. Traveling overseas on business presents many unfamiliar risks arising from language barriers, jet lag, endemic disease, driving hazards, and terrorism. Without foreign voluntary workers compensation insurance, a Clean Tech company s traveling employees could be left without continuing wages, access to appropriate health care, and proper reimbursement for medical care received. Foreign voluntary workers compensation or employers liability insurance insures against injury, sickness, or death of employees when they travel internationally and helps connect employees with quality medical care overseas 24/7, including repatriation and transportation expenses for injured employees and their families. 12
Decision Drivers Decision Drivers Vision Vs. Hindsight Although 43% of Clean Tech executives believe they are exposed to unique risks, many continue to address their risks reactively, often choosing not to implement proactive solutions. Furthermore, 68% of the executives Chubb surveyed believe they do not need help assessing risk. Our findings show that contract, venture capitalist, or board member requirements outweigh specific concerns over risks as the top motivator for purchasing insurance. See Figure 8. Coinciding with requirements, more than half of Clean Tech companies purchase directors and officers liability insurance to protect their board members. Yet, even as executives purchase this insurance, they may be missing other important opportunities to protect their business. Clean Tech Companies Mentioned The Following Requirements As Motivators: 35 % CONTRACT REQUIREMENTS 19 % CUSTOMER REQUIREMENTS 13 % BANK REQUIREMENTS 13 % VENTURE CAPITALIST OR INVESTOR REQUIREMENTS Figure 8 13
Decision Drivers When It Comes To Insurance, Who Do Clean Tech Executives Rely On? 69 % 20 % 14 % AGENT/BROKER PEER LEGAL ADVISOR 6 % 4 % 3 % ACCOUNTING FIRM BANKER VENTURE CAPITALIST Figure 9 Who Do Clean Tech Companies Trust? Clean Tech companies rely on the expertise of their trusted advisors to help them make business-critical decisions, including insurance purchases. In the insurance selection process, agents and brokers are considered the most important advisors. See Figure 9. A smaller percentage of companies (28%) use online sources to research insurance. Of the companies that use online sources, 72% turn to insurance company, agent, or broker sites to research insurance products and services. 14
Decision Drivers Reputation Matters For Clean Tech companies, reputation is critical in selecting an insurance provider. Companies look for a provider that has a good reputation for claims handling, a strong financial history, and a broad range of quality insurance products and services. See Figure 10. As the Clean Tech industry continues to expand, global partners who can offer proactive guidance and cost-effective risk transfer solutions will help ensure its continued success. What Do Clean Tech Companies Value In An Insurance Carrier? Scope And Quality Of Coverage 70 % Overall Reputation Claims Handling Reputation History Of Financial Strength 59 % 65 % 64 % History Of Industry Expertise A Company They Can Grow With Availability Of Customized Solutions Educational Resources On Specific Business Needs 53 % 53 % 49 % 48 % Can Offer Assistance With Risk Management/ Loss Control 41 % Has Global Reach And Capabilities 35 % Figure 10 15
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