What Are They? How Do You Protect Them? The insurance industry speaks in terms of “books of business” or “expirations” or “customer lists."
Federal and State Courts have ruled that “expirations” are property and, as a body of information that is contained in the files of each individual insurance agent’s accounts, are worthy of protection. In placing a value on an insurance agency, it is the “trade secrets” (i.e. the book of business, customer lists, etc.) that embodies the true value of an agency.
Just how does an insurance agency, or any other service firm, protect their time and resources in developing the knowledge of individual accounts that, if revealed, would benefit a competitor? The answer begins with a properly drafted employment agreement with their employees and producers.
The employment agreement or producer agreement should address the issue of confidentiality of information, in order to prevent a former employee from misappropriating confidential information and using it in an unauthorized manner to the agency’s detriment. Those same agreements must be equitable for both parties. It must balance the agency’s desire to protect its trade secrets and confidential information, and the departing employee’s wish to stay in the business of his/her common calling and use their innate skills in pursuing their insurance career with another employer.
An agency’s employment agreements and producer agreements should also include well crafted non-competition or non-piracy provisions that meet the test of the jurisdiction(s) in which the agency operates. The specific requirements and limitations of such restrictive covenants are not addressed in this article; but are a subject closely related to the protection of trade secrets and confidential information.
What is the “confidential information” or “trade secrets” that should be protected, and how does it play a part in providing the employer a competitive advantage? Some information about any insurance account is available in the public domain, such as the firm’s web site, advertisements and other sources of information. That type of information is generally not confidential information, nor worthy of protection as “trade secrets”.
What Are Trade Secrets?
A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, or a list of customers. A trade secret is a process or device for continuous use in the operation of the business.
When money and time are invested in the development of information and procedures that are not generally known, trade secret protection issues exist. Further, when an effort is made to keep information from competitors, trade secret protection is warranted.
Trade secrets are not limited to secret formulas. In fact, “absolute secrecy” is not a prerequisite…only “substantial secrecy.” The definition of trade secrets is very broad, and may include any of the following:
• Customer or client lists, billing information, customer and client preference information and contact lists.
• Pricing information and marketing plans.
• Computer programs and data compilations.
• Training and service manuals.
• Vendor information.