Prior to 1985, patients relied heavily on their physicians for drug information — especially for data on sourcing and side effects. Direct-to-consumer advertising existed on a limited basis, leaving physicians as the primary recipients of Life Sciences marketing. Physicians had to trust the research, development, and trial testing of the Life Sciences companies. While the Life Sciences industry has always been heavily regulated, most drug testing at the time occurred in-house as part of the manufacturer’s quality control. If a problem was identified, it was handled by the company, with little public awareness. Moreover, information was not easily accessible, which limited the average consumer’s knowledge of drug sourcing, development, and safety.
Over the last few decades, the Life Sciences industry has undergone a significant and rapid transformation. Technology has led to the development of breakthrough cancer treatments as well as the cloning and sequencing of the human gene. As technology has advanced, considerable computing power has been applied to massive amounts of genetic data and drug development, allowing Life Sciences professionals to better devise and evaluate drug development formulas.
Technology has also led to direct, immediate public knowledge about drug development and drug usage side effects. Consumers now have a better understanding of how drugs are sourced as well as their side effects. In the late 1990s and early 2000s, the FDA loosened restrictions on direct-to-consumer advertising, and the industry began spending billions on television commercials. In June 2014, the FDA launched openFDA to provide simple access to public data and to create greater transparency between Life Sciences companies and consumers.
With this increased consumer access to their data, Life Sciences companies have been under greater regulatory and public scrutiny, which has led to an increase in drug recalls and class action lawsuits.
Several drugs, including Zantac® (ranitidine), were recently found to contain N-nitrosodimethylamine (NDMA), which is considered a probable carcinogen. In response to these findings, Life Sciences companies have voluntarily recalled products with known NDMA contamination. The threat of class action lawsuits related to NDMA has since emerged, and it has the potential of costing the industry millions in litigation expenses.
What it means for customers
As Life Sciences companies have become more complex
due to M&A, international supply chains, and growing product portfolios, many of them are re-evaluating their risk management and risk financing programs with the help of brokers and other service providers. Technology has brought Life Sciences companies cost savings, R&D advancements, and increased revenue; it has also exposed them to PR
and litigation risk by enabling consumers to research and share drug facts. Customers are very sensitive to negative information regarding products and patient safety. When companies fail to protect the public from potentially harmful products, the costs of litigation can be high. For example, in 2017, the average product liability settlement was more than $5 million.
As a result, Life Sciences companies are frequently seeking additional capacity with broader coverages such as mitigation expense coverage and care, custody, and control coverage. Life Sciences companies have also sought to exercise greater control over claims handling and defense costs – which is an important dimension for Life Sciences companies as they require a solid financial position to support their resource- intensive businesses. To that end, they have considered building out captives and absorbing larger self-insured retentions. Operationally, greater emphasis is being placed on risk management around interaction with healthcare professionals, drug safety, and product promotion.
What it means for insurers
As the Life Sciences industry has become more complicated, it has become necessary for underwriters to perform deeper research and more thorough analysis to better understand risk. Since the industry is dynamic, underwriters must stay on top of the most cutting-edge developments in the industry, including changes in regulations and FDA priorities, recalls, and claim trends. More broadly, changes in the Life Sciences industry — increased M&A, a new regulatory framework from the FDA, and heightened customer awareness — require Life Sciences underwriters to exercise even greater discipline.
In addition to evaluating loss information and scope of coverage, underwriters must deeply understand business operations and activities to gain an accurate picture of the customer’s business, risk management philosophy and practices, and corporate governance mechanisms. Additionally, underwriters need to closely monitor personalized coverage requests delivered thorough manuscript endorsements to ensure that they are appropriately balancing the scope of coverage with the unique needs of complex customers.
Ultimately, Life Sciences insurance carriers must stay relevant and skilled in managing this new norm. Specialization is key to remaining cutting-edge and maintaining market expertise.