Journal of Intellectual Property Rights Vol 17, March 2012, pp 152-156

Insurance : Indian Scenario

Rahul Sinha† Life Corporation of India, Mahrajganj Branch, Uttar Pradesh 273 303, India

Received 5 August 2011, revised 8 December 2011

The importance of intellectual property is well recognized in various industries but the Indian insurance industry has not yet opened its door to intellectual property. Whereas insurance companies world-wide are patenting various aspects of insurance products, the Indian insurance industry finds excuse in the argument that the Patents Act in India does not allow insurance products to be patented. The paper explores various forms of intellectual property, with special emphasis on patents, which can be used to protect insurance methods and products. It attempts to undo the misconceptions about patenting insurance products and suggests by example, that insurance products can be protected under computer programs category.

Keywords: Intellectual property, insurance , insurance industry, computer program

Insurance is a contract that pledges payment of an intellectual property can do in promoting competition, amount on the happening of the event insured against. else some kind of protection would definitely have The Indian insurance industry dates back to ancient been sought for by insurance companies to protect times and finds mention in the writings of Manu their innovative products. IRDA being a regulator, the (Manusmrithi), Yagnavalkya (Dharmasastra) and responsibility to encourage the insurers to build Kautilya (Arthasastra).1 These ancient texts describe innovative products and effectively protect them, pooling of resources that could be re-distributed in squarely falls on its shoulders. Innovation is a key times of calamities, such as fire, floods, epidemics component in insurance market, be it through and famine. Life insurance business in India started in designing completely new products, or re-engineering the year 1818 and the general insurance business is existing products. Focus on innovation indirectly more than 160 years old. At present, the products benefits conventional classes of business and brings in offered by Indian insurance companies can broadly be more business with better and more stable results. divided into three categories, namely, life insurance, Importantly, it brings higher satisfaction to customers. general insurance and health insurance. Despite the The Indian insurance industry has long been serving long duration of the existence of the insurance millions of people. Now, they have the onus of industry and the wide range of products offered by protecting their intellectual property, as it will them, no Indian insurance company has tried to encourage them to produce more advanced products. protect the innovative products designed by them. The The Indian liberalized insurance market presently has constitution of Insurance Regulatory and 24 general insurance companies, including the ECGC Development Authority (IRDA) in 1999 and the and Agriculture Insurance Corporation of India, and subsequent opening of the insurance sector for private 24 life insurance companies which are yet to companies, following the recommendations of the understand that their business shall be complemented Malhotra Committee, have not brought about any by intellectual property. major changes in this aspect. One of the various objectives of IRDA is to promote competition among Intellectual Property in the Insurance Sector insurance companies, so as to enhance customer Intellectual property (IP) is no longer an unfamiliar satisfaction through increased consumer choice and term, but for the Indian insurance industry. While the lower premiums. It seems that IRDA, too, like the economic benefits of a strong IP are well-known and, Indian insurance companies, is unaware of what beyond any doubt; strong IP promotes innovation, ______forms an important part of a company’s portfolio and †Email: [email protected] helps in acquisitions and mergers. But, the Indian SINHA: INSURANCE PATENTS: INDIAN SCENARIO 153

insurance industry appears to be oblivious to the offensive instrument, which aids the insured fight above facts. As compared to the US insurance against a patent infringing company. This is also industry, where the number of patents has increased called the ‘patent enforcement insurance’ or many fold after the State Street case2, there has been ‘offensive patent insurance’. In this case, the insurer no increase in patenting activity in the Indian pays a portion of the legal expenses incurred by the insurance sector. The Indian insurance industry, in insured company. general, has never placed much value on ingenuity or Insurance patent on the other hand is patenting an . insurance product. It is just another kind of patent obtained for an insurance product. Insurance patents Forms of IP Protection largely comprise of business method patents. A patent, by definition, is an exclusive right Patenting insurance policies and other financial granted by the government to make, use or sell the vehicles is a growing trend world-wide. Insurers, patented products. In other words, none other than the investment bankers and money managers patent patent holder can manufacture or market the patented aspects of policies and their administration, pricing product. This in itself appears to be a sort of and underwriting, as well as innovative financial insurance. A patent is the best form of IP to protect products and services. A patent can be obtained in insurance products. various areas of insurance, like reversionary annuity, Copyrights protect the expression of ideas rather loan repayments in the event of disability, better than the idea itself. Although obtaining a copyright is methods to market insurance products, methods for less stringent than a patent, it is advisable to obtain a insurance underwriting, new methods of calculating patent rather than a copyright for an insurance product premium, etc. Such a trend could transform the Indian because the claims are well defined in a patent. insurance industry, which has traditionally been a Trademarks identify the source of the goods or ‘follow-the-leader’ market. services, rather than the goods or services themselves. Both patent insurance and insurance patents are A trademark is any word, name, symbol, sound, etc. largely unknown in India; the latter will be described that one uses in commerce to identify and distinguish more in detail in this paper. one’s goods from that of others. For instance ‘LIC’ is synonymous with and the trademark of Life Insurance Dearth of Patents in the Indian Insurance Industry Corporation of India. A trademark (or service mark) is The reason cited by the Indian insurance companies ideal to generate goodwill to the supplier. for lack of patents is that patenting insurance products Trade secrets are similar to patents in the type of is not allowed by the Patents Act of India. But material covered, but only last so long as the material nowhere in the Patents Act 1970, or its various or concept is secret. A trade secret is a formula, amendments, is there a reference to insurance pattern, device or compilation of information used in products as being non-patentable subject matter. The business that gives one an opportunity to get an edge companies cite Section 3(k) of the Patents Act, which over competitors. Trade secrets can be of unlimited prescribes that ‘a mathematical or business method or duration but their essence is secrecy. a computer program per se or algorithms’ are not patentable. In the world of insurance, innovation Patent Insurance vs Insurance Patent leading to a patentable invention almost always Patent insurance is an insurance policy provided by involves what is called a ‘business method.’ A insurance companies to protect or insure a patent. business method is an abstract idea of a new or better Patent insurance is of two types: ‘patent liability way to do business. But, an abstract idea alone is not insurance’ and ‘patent pursuance insurance’. Patent patentable. Typically in the insurance industry, the liability insurance is a defensive instrument, which abstract idea is made practical as a computer helps the insured fight an infringement lawsuit filed implemented business method. Nevertheless, patents by a rival company. It is also called ‘patent cannot be filed under business method category in infringement defence insurance’. In this case, the India as the Patents Act does not recognize business insurance company pays a part of the legal expenses methods as invention. The only option left for incurred and/or the damages imposed. Patent insurance companies is to file the patents under the pursuance insurance, on the other hand, is an computer programs category. Needless to say, 154 J INTELLEC PROP RIGHTS, MARCH 2012

patenting of computer programs per se is not allowed, Instruments paid a staggering US$ 395 million to but their application may be patented and hence the acquire Amati Communications, a small California computer implemented business method can be based company founded by Prof Cioffi at Stanford patented under the application category of computer University. The figure surprised many, as it appeared programs. Since most of the innovations in the extremely high, given Amati Communication’s insurance sector involve computer programs, this may annual sales and financial situation. Why did a large be a viable solution for patenting insurance products, semiconductor company pay such a high price for a yet it must be clarified that insurance patents need not small Silicon Valley start-up? The answer was simple. be necessarily associated with a computer. Amati Communications held 25 key patents on digital subscriber line (DSL) technology, which Texas Computer Programs and Insurance Patent Instruments considered crucial for entering the DSL There is considerable ambiguity regarding market. The 25 patents covered some important areas patenting of computer programs under the of next-generation modem technology which have in India. According to Section 2(1)(j) of the Patents been adopted by the American National Standards Act, an ‘invention means a new product or process Institute as the standards for DSL. Owning Amati involving an inventive step and capable of industrial Telecommunication’s patents allowed Texas application’. The new process ought to include Instruments to acquire a leading position in the new software processes, if it is new, involves an inventive technology as well as promising profits from licensing step and capable of industrial application. the technology to other firms. Significantly, the Patents (Amendment) Act, 2005 The most apt example for the insurance companies does not define a mathematical / business method, a is the patent no 221272 (ref. 3) granted by the Indian computer program per se or an algorithm. Thus, there . The patent was issued for a is wide scope for development of new insurance computerized system and method of performing products and improvement of existing products. For insurability analysis. The invention relates generally example, improved method of underwriting, a new to insurance underwriting and, particularly, to a method for evaluating claims, inflation provisions in computerized system that gathers underwriting annuity related policies, etc. could be insurance information, evaluates risk, and produces a point-of- product innovations. sale decision on a client’s insurability. Automated The business of insurance involves the projection underwriting systems ask for personal details needed of the outcome of stochastic processes, of future to make underwriting decisions. A risk assessment contingent events, such as: interview begins with questions designed to prompt the applicant to disclose pertinent conditions. These -Claims development (for general/property and questions are the same as the questions printed on a casualty insurance) traditional insurance application form. Depending on -Mortality/morbidity (for life and health insurance) the answers to the opening questions, known -Investment returns (for all types of insurance) and automated systems prompt the disclosure of further -Investment contracts information about various conditions. Often, each In addition, insurance involves asymmetric risk. As condition disclosed by an applicant will have a set of a result, actuarial estimates can be enhanced in many associated perceptive question which are designed to cases by the use of stochastic modelling. In insurance, gather further specific details in a controlled manner. the process or method of developing a product can be The applicant’s characteristics and his or her answers patented through smart drafting of the claims. There is to previous questions determine the order in which extensive use of software and calculations in questions are asked in the assessment. For each designing an insurance policy. A software program applicant, questioning continues until an underwriting that merely manipulates numbers will not fulfill the decision can be made. Conventional underwriting, criteria, but if the resulting numbers can including automated underwriting using such an make a useful product then the software does qualify interactive risk assessment questionnaire, yields an for a patent. The importance of a patent based underwriting decision for various conditions based on business transaction is well evidenced in the detailed information about each disclosed condition. It following case where in November 1997, Texas is also known to refer complex cases to manual SINHA: INSURANCE PATENTS: INDIAN SCENARIO 155

underwriting. The system thus reduces the time span processing of data and because that processing between proposal submitted and its acceptance. amounted to a method of doing business. An appeals Insurance patents need not be merely software or court overturned the decision and held that algorithms. In United States, Progressive Insurance, based on mathematical algorithms, formulas, or for example, recently patented its ‘pay as you go’ auto calculations can be patented so long as they produce a insurance invention. The patent describes logical steps ‘useful, concrete and tangible result.’ The court also to determine the insurance cost for a vehicle based on held that business methods were patentable, the operator profile and monitored driving expanding the definition of what can be protected to characteristics. The invention uses a computerized include new business methods. The ruling gave GPS plus cell phone system to monitor driving innovators a new tool to enhance their value, and characteristics. Since this is the first method to small companies who pioneer new business models implement a ‘pay as you go’ auto insurance product, can now conduct business on an equal footing with Progressive Insurance has been able to claim competitors many times their size. exclusive right to any method of insuring a vehicle Interest in patenting insurance products or concepts that incorporates all its steps, irrespective of whether has been continuously growing in US.4 Insurance or not a computer or any other specific piece of related patents in US are patented under subclass 4 of equipment is used to carry it out. class 705 reserved for insurance business methods, which are described as computer implemented US Case Studies systems or methods. These methods include processes Innovative business processes could not be for writing insurance policies, processing insurance patented in the US until 1998. The patent-protection claims, marketing insurance, and ways of structuring landscape changed radically in 1998 after a federal or packaging insurance products so as to produce new court struck down a decade old doctrine that held that and useful results, such as insurance at reduced cost, business methods and processes fall outside the reduced or spreading of risk, tailoring benefits to purview of the US patent system. The 1998 decision specific needs or claim exposures. also held that nearly all inventions implemented by a computer software program were potentially What can the Indian Government do? patentable so long as they produced a useful, Section 3, Clause (k) of the Indian Patents Act concrete, and tangible result. The case involved two stipulates that ‘a computer program per se,’ (besides Boston-based companies: State Street Bank and Trust, certain other restrictions) shall not be an invention. the largest mutual fund data processing organization Since India is a party to the TRIPS Agreement, it in the United States, and Signature Financial Group should provide equal protection accorded in other (SFG), a small firm that had developed a system for countries in line with the purpose of paragraph 1 of implementing an investment structure for the Article 27 of TRIPS Agreement, which provides that administration and accounting of mutual funds, which ‘any inventions, whether products or processes, in all allowed mutual fund companies to pool assets in an fields of technology’ shall be patentable subject- investment portfolio, providing economies of scale matter. The onus rests on the government to modify with regard to cost. When licensing negotiations the Patents Act so that business methods become broke down, State Street filed suit claiming SFG’s patentable subject-matter; thereby encouraging the patent was invalid. Visa and MasterCard, filing friend insurance industry to innovate. Moreover, there is a of the court briefs, backed State Street. The financial lack of complete clarity in the Patents Act regarding services community claimed SFG’s new model was a patenting of software and computer programs. Hence, threat to its operational freedom. But the software the government of India should make necessary companies argued that they needed the creative modifications in the Patents Act to clear the cloud of latitude to protect innovation. Without patent confusion and promote innovation. protection, they claimed it would be difficult to finance the development of new products, concepts Conclusion and technology. The trial court agreed with State As technology advances in leaps and bounds, the Street, holding the patent invalid because the business world including insurance business, takes invention involved software for the mathematical rapid strides. New product development requires 156 J INTELLEC PROP RIGHTS, MARCH 2012

investment of manpower and capital and there is intellectual property in product development. The always a need to ensure that the fruits of development rules have to change if the insurance companies want go as far and as long as possible to maximize return to offer to their customers innovative products at on investment. Innovations need to be protected at lower premiums and increase their market share in the any cost and the current laws or regulations should highly competitive business they are in. The insurance not come in the way of innovative spirit. In the highly sector is a colossal one and is growing at a rate of 15- regulated insurance industry, companies might resort 20 per cent and if it is to continue at this rate, then the to the idea of insurance development labs which shall insurers and their agents must be prepared to succeed focus only on developing insurance products. With and be profitable in a new environment, in which the establishment of insurance development labs, an intellectual property will be protected by more than insurance company might become a pure product just the traditional trademark or a copyright. manufacturer by getting rid of its product development function and costs and buying or References licensing products from others. This already has 1 History of insurance, http://www.irda.gov.in (1 July 2011). happened in the pharmaceutical industry where pure 2 State Street Bank and Trust Company v Signature Financial product development companies are playing a wider Group Inc, 149 F 3d 1368 (Fed Cir 1998). 3 Snell David L, Wehrman Susan L, Indian Pat no 221272 role in the drug discovery process. It is well known (to RGA Technology Partners, Inc), 1 August 2008. that a patent adds value to an invention. It is for 4 Tom Bakos, Patenting Insurance, http://www.contingencies. Indian insurance companies to stop neglecting org/julaug02/patent.pdf (15 July 2011).