Insurance for Life Sciences and Biotech Companies
The biotech and life science sector requires some of the most specialized insurance coverages of any industry, due to the sector’s business model and product development processes. I spoke with John Morel, Vice President at Berkley Life Sciences; and Jerry Middleton, Vice President at Elusys Therapeutics to discuss the intricacies of biotech insurance. Berkley Life Sciences provides property and casualty insurance to life science companies that manufacture and/or sell products regulated by the Food and Drug Administration. Elusys Therapeutics focuses on the development of antibody therapeutics for the treatment of infectious disease.
What insurance coverage does a biotech company usually get?
John: Every company, no matter the industry, needs property, workers’ compensation, general liability, and auto insurance. There are two lines of coverage for a life science company worth noting – products liability and clinical trials liability. Basically, these policies cover losses associated with a third-party claiming to have been injured (1) by the use of the insured’s product; or (2) as a result of the insured’s negligence during the operation of a clinical trial.
Jerry: Regarding the duration of clinical trial coverage, be mindful of the length of the “tail” period when considering overall exposure. Claims can be filed several years after the conclusion of the active stage of a clinical trial. It is important to maintain coverage during the extended reporting period. Also, consider higher coverage limits if you have one policy covering multiple trials. The policy value needs to reflect the total number of subjects involved in the clinical trials and coverage for other parties that you may be asked to include as additional insureds.
Select Types of Insurance
|Property||Protects real property, including lab facilities, contents, equipment and inventory; business income coverage.|
|Liability Coverage||Covers clinical trials and product liability.|
|Errors and Omissions||Pays financial damages from negligence in the design or manufacture of a product or work.|
|Cyber Liability||Covers losses due to data security.|
|Management Liability||Protects against management liability risks.|
|Marine Coverage||Protects inventory shipped via land or water.|
How do you choose an insurance company?
John: Companies could engage an insurance broker who serves life science companies or seek advice from their attorneys, accountants or colleagues. An agent should understand the exposures, life science trends, and policy forms to provide coverage that addresses the company’s specific risks now and going forward.
Jerry: Some of the key considerations in selecting a broker are personal relationships and referrals, the broker’s experience, and his/her assessment of the company’s current structure and coverage gaps. Insurance brokers may also have risk management professionals on staff to help companies mitigate risk.
What’s the danger of having an inadequate risk management process, including inadequate coverage?
Jerry: Insurance is one way to help a company manage risk. A company should also be actively managing risks in parallel with the insurance. A risk management process should focus on 2 main factors: (1) the probability of an adverse event occurring; and (2) the potential impact of that event if it occurs. This lets you determine where the largest risks are and appropriately assign resources to eliminate, avoid or mitigate risks. It also helps determine the type and magnitude of insurance needed.
John: Inadequate insurance coverage can put your entire company at risk, especially smaller companies or those in the clinical trial stage. It could jeopardize your products’ or management reputation, destabilize your workforce, make it difficult to attract employees, rattle investor confidence or hamper funding efforts. Further, an uninsured loss could delay operations that may push back clinical trial dates, delay FDA decisions, impact milestone payments or halt commercialization efforts.
How is premium cost determined?
John: It depends on a number of things, such as the size of the company and stage in the development process. (Overall costs can be controlled if the company is proactive in its overall risk management process.) Other considerations include:
- Exposures – Risks being insured; potential injuries from products.
- Company Practices – Views on compliance, safety and risk management.
- Program Structure – The amount of the deductible and willingness for a company to assume more risk.
- Claims History – The type and amount of past claims against the company.
What are a couple of things a life science company should keep in mind about insurance?
John: First, consider property insurance. If your company depends on other companies for product manufacturing or packaging, look at contingent business interruption insurance. Review all property sub-limits. For example, if your products are temperature sensitive, have adequate limits for change in environmental controls. Second, take the time to gather all of the information needed by the insurance company. The more information you can provide, as early as possible, the better. And get to know your broker and your insurance carrier, and help them to get to know your company.
This information is for general informational purposes only and does not constitute legal or other professional advice or necessarily represent the views of Berkley Life Sciences or Elusys Therapeutics, Inc. Any discussion of insurance is descriptive only. Coverage afforded under any insurance policy issued is subject to the individual terms and conditions of that policy. Not all companies are licensed in all jurisdictions.
Catalyst - Spring 2017