What is the future for life science insurance?

26 October 2016

The JLT Life Science 2016 Conference was our ninth. Held at the Savill Court Hotel & Spa near Windsor, it gave risk managers and chief executives in the industry as well as insurers an experts-eye view into a variety of key topics. This is what I took out of our panel discussion on major trends in the industry.

Product liability and D&O? What’s on the radar screen? The Boston Scientific ruling has caused some waves in the medical device insurance market with a lot more claims emerging. It has also broadened out the concept of default and increasingly insurers appreciate the need to have the names of qualified persons on the insurance policy.

On the subject of generic drugs and labelling there was a feeling that there was a case for making generic manufacturers more responsible for safety data. However, any step in that direction would involve increased ‘pharmacovigilance’ which in turn would undoubtedly increase the cost of generic drugs.

A series of factors appear to be driving underwriting change. One is our old friend over-capacity. D&O insurance, for instance, has seen widespread softening of rates in the UK in recent years, largely as a result of capacity in the market. As a result there has been a failure to match good risks with large-scale reductions in premium.

The growing reach of the regulators has also led to a rise in the scrutiny to which individuals are exposed. Insurers are exploring ways in which policies can respond to this global trend. The Yates memo has some significance in this context with the obligation to make full disclosure in order to gain any credit for cooperating with an investigation. If you’re a director of a company under investigation and examine your D&O policy, you’ll find clauses relating to admission of guilt and whether fraud exclusions would apply and that may make you more reluctant to provide further details. 

In effect I can understand why individual directors may be quite concerned that at the very time they need protection it isn’t there. Some delegates believed it would lead to more cases where there were separate claims for the company and the individual.

D&O policies often now include additional protection if directors and officers need to seek external advice. But there is a difference of opinion amongst underwriters over whether this is simply a business risk that individuals had to accept.

It was reported that securities claims constituted the largest element of claims made on D&O policies, particularly in the pharmaceutical industry where a remark by a director can have a significant impact on the company’s share price. 

Finally I want to turn to an important shift in the market over the last ten years which was raised by one delegate. The shift amongst large companies from using insurance to going self-insured. Conversely smaller companies have a higher degree of insurability. That allows insurers to take on an account and grow it with the company. But then three years down the road that company is bought by somebody who is self-insured. The message is that all insurers clearly need to cultivate an active pipeline of business.

A detailed analysis of new trends in insurance along with other key topics for the industry appear in the recently published reports from the JLT Life Science Conference 2016. To request a copy of the report please email adrian_donald@jltgroup.com.