Life sciences revolution calls for increase in specialist covers
This article was first published in Insurance Day on 5 March 2021: Life sciences revolution calls for increase in specialist covers
New developments in the life sciences sector require the use of bespoke rather than general liability insurance covers if the industry is to manage its exposures properly.
From biochemistry driven by artificial intelligence (AI) to machine learning and digital automation, technology is transforming life sciences, fuelling remarkable growth in this intrinsically innovative sector. But this revolution requires the support of a well-informed specialty insurance market if it is to continue at pace.
To provide a sense of the scale of the potential within life sciences, the AI-enhanced drug discovery market is predicted to see a compound annual growth rate (CAGR) of 52.9% between 2018 and 2025, according to Deloitte. Within the global medical devices market (which was valued at $425.5bn in 2018), it was predicted at the beginning of 2020 there would be more than 200 new applications for gene and cell therapies every year.
And these figures do not factor in the turbo-charging impact Covid-19 has had on a sector that is on the front line of the pandemic response.
Many organisations in life sciences are at the forefront of technology-enabled discoveries that will change the face of healthcare treatment around the world. These include a large concentration of mid-market companies leading the way in the research, development, testing and distribution of pharmaceuticals, medical devices, genomics, diagnostics, skincare and nutraceuticals, which are on a significant growth trajectory.
As in all fast-growing sectors, the risk environment is multifaceted, highly regulated and complex. Players need to confront a range of challenges, from getting the right financial backing to investing in talent, navigating a convoluted regulatory environment and securing supply chains in the face of the pandemic.
Beyond the immediate drive to develop tests, treatments and vaccines for the coronavirus, new exposures have been created elsewhere within the sector as it matures and this makes the case even more strongly for using specialist insurance rather than general liability protection.
With skincare, new products that use medical-grade ingredients, such as tretinoids, alpha and beta hydroxy acids and salicylic acids previously prescribed by dermatologists, are now readily available in cosmetic stores. Although these offer genuine benefits, if these potent ingredients are not used correctly, bodily injury claims can result from burns and allergic reactions. If incorrectly placed on general liability wordings rather than a bespoke life sciences policy, there is a risk of claims falling between the gaps of cover.
Cannabidiol, known as CBD, is a derivative of the cannabis sativa plant and is increasingly being used in topical beauty products and supplements. Despite the body of evidence of its potential in both the medical and wellness field, insurance remains difficult to source for these products because of general concerns about the negative association with illicit drugs and the social scrutiny such products attract.
To be comfortable about underwriting these risks, underwriters need a strong understanding of science and the clinical data behind these products to insure the risk appropriately.
Unique coverage requirements
The complexity of the risks means one size does not fit all in most areas of life sciences and clients require bespoke workings for the innovative products they develop.
Clinical research organisations (CROs) that facilitate and manage clinical trials around the world similarly require bespoke wordings and appropriate insuring clauses.
This includes clinical trials insurance that provides no-fault compensation and legal liability for trial participants and professional indemnity for the guidance and co-ordination that goes into organising the complexities of such trials.
Test laboratories have been in the media spotlight with Covid-19 and testing for the virus has created new risks. If a false positive diagnosis is given, for example, the lab could face claims arising from the distress caused to the patient who incorrectly believes they have spread the virus. Financial losses are also a concern where false positive results force the temporary closure of a business.
Barcoding is another unique risk that requires cover. It has been integral in anonymising data of Covid-19 samples taken via swabs for laboratory analysis, but if there are printing or technical errors linked to the barcodes, cover is needed to provide support towards the cost of rectifying the problem.
Like any fast-growing sector, life sciences can pose challenges for the insurance industry. The lack of loss history for first-in-class innovation means insurers cannot rely on traditional methods of underwriting to assist decision-making on pricing and risk analysis, such as using actuarial claims data or underwriting guidelines. It instead requires a thorough review of each risk and for underwriters to make informed decisions from scientific data provided by the creators of the products.
In an environment where low-frequency but high-severity claims are the norm, specialist cover helps to underpin the remarkable breakthroughs being achieved. Brokers and specialist insurers need to work together closely to understand the market, the risks and the opportunities to provide support for clients.
As Covid-19 has shown, the work being undertaken by the life sciences industry is novel, life-saving and revolutionising healthcare. The London market, with its technical expertise, capacity and ability to innovate, is perfectly placed to respond to the challenge and support this revolution.