Debunking life science insurance myths

The world of life sciences is complex - add insurance requirements into the mix and it can become a very confusing place to be.

Having appropriate insurance and risk management solutions in place can be crucial for any life science business, whether your seeking initial funding, running clinical trials or taking a product to market.

There are many questions that arise – and myths that surround these topics. Here we share some of the most common myths that have been debunked by CFC Underwriting, a specialist insurance provider to the science and technology sectors.

With constant developments in medical devices and research and development (R&D), it is imperative companies operating in this sector have insurance to cover the wide range of risks they are exposed to.

1. Companies providing clinical trial services need clinical trial insurance

Typically, the clinical trial insuring clause is designed to cover bodily injury to a research subject from the trial’s investigational product, when the researcher is the sponsor of the clinical trial. This usually means they have developed the product.

If the company seeking cover is a service provider and a clinical trial sponsor, this can also be provided.

Companies paid a fee in exchange for services provided to the clinical trial sponsor require professional liability insurance. This can be included as part of life science insurance cover with the clinical trial insuring clause designed to cover bodily injury from the trial’s investigational product when the insured is the sponsor of the clinical trial.

2. Wholesalers and distributors have no product liability exposure

Wholesalers and distributors of medical devices, nutraceuticals and pharmaceuticals can often pass back product liability claims to the manufacturers of those products. Unfortunately, there will always be a contingent product liability exposure. The manufacturer could purchase lower limits than the distributor, or their policy might be with a poorly rated insurance company. In these situations, where the manufacturer’s policy was assumed to provide cover, the wholesaler or distributor’s policy would step in to pay claims.

Rights of recourse are important from an insurance perspective. If a company outsources its manufacturing to, or imports its products from, territories with lower manufacturing standards, or in which lower limits of insurance a purchased; the company may struggle to enforce the third party to accept its legal liabilities and responsibilities in a contract.

In addition, manufacturers may be based in a different country to the wholesaler or distributor.

3. We’re not a technology company, so we don’t have a cyber exposure

Every company who uses technology or the internet could be exposed to cyber-attacks. The life science industry relies on data to function, whether it’s a biotech performing research into a novel pharmaceutical or a CRO that holds data for the clinical trials they manage. A cyber-attack could exfiltrate business critical data, leading to delays in life saving trials or the cause of business interruption, preventing a biotech from moving to the next stage of research.

A ransomware attack on a manufacturer could take over their computer systems and stop their production lines. This would result in costs for ransom payments to get the systems up and running again. This would also cause business interruption costs since the insured would be behind on their production schedule and potentially liable of costs to their clients for breaching their contracts. Similarly, an online retailer who relies solely on their website could be severely affected by a cyber-attack. This could cause them a large loss of sales and business interruption costs. The company may also suffer reputational damage and may incur heavy notification costs alongside potential compensation costs if customers data was leaked.

Life science and health tech businesses are facing an increasingly challenging landscape in securing cyber insurance. Ask us for our guide to managing cyber risk for science and technology businesses to find out more.

4. A clinical research organisation only requires medical professional liability

Medical professional liability will help to protect the company against negligence in the scope of rendering or failing to render healthcare related services which result in a bodily injury but does provide protection against third party financial loss claims which include allegations of negligence in the providing of professional services.

Make sure you have the right cover to protect your CRO against both financial and medical professional loss.

5. We’re a private company so we don’t need directors & officers insurance

Many individuals believe that because a company is private that their liability is limited. However, the limited liability only protects the shareholders to the extent of their investments.
This does not reflect on the directors or officers of a company whose liability is unlimited.

Therefore, if they do not have directors and officers (D&O) insurance and the company is unable or unwilling to protect them, the directors and officers will have to support their own defence.

We’re here to help you understand the challenges your business faces and provide the right insurance and risk management solutions at the right time. We’ll help you build resilience and adapt to the ever changing world as your business grows and develops.

Talk to us to find out more.