The game of risk
Life science start-ups are faced with a deluge of demands on limited human and financial resources, so if the insurance industry lends a hand with simple and for the most part economical one-size-fits-all package for life science companies, what’s not to like, asks life science insurance expert, Ian Thomson, RKH Healthcare.
Insurance packages offer an easy and straightforward option, designed to be hassle-free. For small businesses and start-ups they are often an efficient and effective solution. Package policies save time, but for life science companies they’re rarely the right answer for long.
I would argue that insurance losses should be seen as an inevitable cost of doing business in pharmaceutical and life science industries and companies need to start getting to grips with the issues they are likely to face, the earlier the better. Once a business has matured beyond pure product development, begun commercialising its first product or is expanding its territorial footprint, these are the signs that a different approach is required. It’s obvious really, insurance needs to grow in step with the business and insurance cover need to provide the support that best aligns to the business and its direction, but in reality this rarely happens and this is also when the limitations of package policies become more obvious.
The effects of an ill-fitting insurance package policy will be magnified as soon as a company expands beyond its home country and seeks to establish roots in other territories – in life sciences particularly, no company is safe from litigation. Legal costs and expenses can eat into the low limits under package policies leaving very little left for payment of actual claims: legal defence costs are often a silent drain that can leave a business unprotected when a claim needs to be paid. Going international uncovers numerous other risks not protected by package policies such as political risks, trade credit and environmental liabilities. Just at the same point when flexibility of policy wordings such as definition of reinstatement begin to matter much more, package policies find it difficult to deliver.
In my experience, there are also common issues around supplier or customer coverage, limits associated with bottlenecks and constraints that need to be targeted through contingent business interruption cover limits that match the revenue dependency on those key suppliers. Growing complexity is an inevitable part of a growing business, but it’s unlikely that the problems companies face haven’t been faced and solved by others. That’s where a specialist can add real value.
Up to a certain stage in a company’s development, insurance can and should have a relatively low profile. But as a business grows the benefits of a close relationship with a specialist insurer, one with an in-depth knowledge of the life science industry, become evident. These relationships are developed over years and enable future-planned protection of the business through special wordings tailored, not only to the life science arena but also to particular companies’ plans and product portfolios. Insurance limits accurately reflect the company’s exposures as well as expertise in local compliance and technical support to risk management are features of a more specialist approach. I have over 27 years experience in life sciences and now work as a specialist insurance intermediary advising life science companies. I get really excited about meeting a prospect or client because of what I learn about their business. Their ambition and their anxieties around risk all set my creative juices running! Unless you are prepared to listen and learn, how can you identify the right insurance arrangements, ones that will fit into their business plans and will provide pro-active support and protection to them as they grow?
For some companies, having such relationships with an insurer can seem out of reach as they have neither the will nor resource of an internal life science sector insurance expert. Such hurdles can be overcome by experts who act as ‘virtual’ insurance and risk managers and provide consultancy services on renewals, insurance procurement exercises and reviews. They use their knowledge and expertise to ensure businesses are adequately covered against risk, both immediate and future.
For growing life science companies insurance and risk management cannot be an afterthought, or even a one-size-fits-all package solution – they are an integral part of operations and planning.