Residual Value Insurance (RVI) indemnifies an insured against loss which might occur if the sale of a properly maintained asset is less than the insured’s residual value at the point specified in the RVI policy.  RVI is mainly used where new(er) assets with a long economic life are normally leased and RVI provides protection to asset owners and lenders at the end of a leasing or financing period.

Intangible assets that companies may seek to protect against a loss in value include Goodwill, Intellectual Property, Patents, Trademarks, Customer Lists, etc.  Financial institutions may also seek to protect themselves against a loss in value for securities owned such as Senior Life Settlements, Life Policies, Bonds, etc.

For RVI underwriters to consider offering coverage on intangible assets, several criteria would need to be met:

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• Intangible assets can be easily bought and sold
• There is a known secondary market for the intangible assets with are a range of potential buyers
• Intangible asset re-sale values are reasonably predictable
• Intangible asset return conditions can be defined such that underwriters are only assuming residual value risk and not other types of risk which would result in a decline in asset value

Given that intangible assets are not normally leased and that the criteria above regarding secondary market conditions are difficult to meet, RVI is not available on intangible assets.

To protect the value of intangible assets, asset owners would need to consider types of insurance other than residual value insurance.

RVI is designed mainly for Tangible Assets that have a known secondary market such as Transportation (Aircraft, Ships, Trains, Cars, Buses and Trucks), Equipment such as Yellow Goods (diggers, tractors, forklifts etc.), Real Estate.  Renewable energy assets can also be considered.

This post was authored by Nick Hester, Partner, Asset RVI.  Nick has been providing Residual Value Insurance solutions for nearly 30 years.