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The 21st Century Cures Act Will Exacerbate Life Sciences Pharmaceutical Risk

Modern medicine and biotechnology accomplish amazing feats with cutting edge technology, but they are confronting complex and changing regulations.
By: | July 26, 2017 • 7 min read

Onco-Immunotherapy, CRISPR, Cybernetic Implants, Regenerative Medicine, Gene Therapy, Robotics – many of these recent life sciences breakthroughs sound like science fiction.

But they are very real. And the impact of discoveries such as these could redefine what it means to be human.

Although these advancements are being realized through the most cutting-edge science, the greatest risk associated with marketing these products remains one of the oldest challenges.


“Of all the underwriting factors, and there are many given the complexity of the life sciences industry, laws and regulations are not within our control,” said Ryann Elliott, Vice President, Underwriting, Life Sciences, CNA Healthcare.

The 21st Century Cures Act (the “Act”), signed into law in December 2016, is a perfect example of how regulatory risk may create destabilization and vulnerability for life sciences companies and their insurers.

While establishing an almost $9B dollar slush fund for the National Institutes of Health to tackle major biomedical research, the law also revised the drug approval process with the goal of expediting production and getting new drugs to consumers faster and at more affordable prices. But not all the changes are positive for the industry. For example, Section 1028 focuses on high-risk, high-reward research outcomes that inevitably will increase liability for the drug companies.

Specifically, the provision requires the director of each national research institute, as appropriate, “to establish programs to conduct or support research projects pursuing innovative approaches to major contemporary challenges in biomedical research involving inherent high risk, but have the potential to lead to breakthroughs.”

The measure also was subject to several revisions proposed by the FDA. Importantly, its implications for the industry remain unclear and continue to evolve, especially with a new administration establishing different regulatory goals for the years ahead.

“The industry is sitting on the fence, waiting to see what will happen, but regardless of how it shakes out, there will certainly be changes in the liability and risk landscape for drug manufacturers and insurers in the life science marketplace,” said Steven Pendergast, Industry Group Leader, Life Sciences, CNA Healthcare.

Four significant risks to the life sciences industry are presented by the 21st Century Cures Act:

1. Accelerating Drug Development Dramatically Changes Risk Profile

A core focus of the Act is its effort to reduce regulatory hurdles for pharmaceutical companies in order to speed drug development and reduce costs.

The bill encourages a shift to patient-focused drug development in order to capitalize on the patient experience in clinical trials, rather than focus primarily on adverse events in consideration of a drug’s benefits and risk (Subtitle A, Section 2001).

The Act also calls for expedited approval requirements for drugs “as early as possible” in the research, development and clinical trial testing process provided that the drug meets the standards of evidence of safety and effectiveness, thus enabling drug makers to “fast-track” new breakthrough therapies. (Subtitle E, Section 2081).

“Marketing and distributing drugs more expeditiously may reduce costs and enhance patient access, but it will increase risk as drugs spend less time in clinical trial and market surveillance, which means less time to identify potential adverse events,” Elliott said.

While expediting the development and commercialization of affordable drugs offers theoretical benefits for patients, notwithstanding the Act’s directive to require evidentiary standards for safety and effectiveness, it may potentially compromise safety as the drug latency impact period can be significantly protracted — ultimately creating litigation risk for pharmaceutical companies.

A jury listening to the drug manufacturer’s case might consider it reckless and irresponsible for speeding up processes without spending sufficient time monitoring a medication’s effects despite the governance process. Moreover, adherence to the new regulatory regime may not provide an adequate defense in the event that a liability claim arises.

“Risk management programs must adjust by contemplating the risk created by fast-tracking drugs,” Pendergast said. “If a company reduces its sample population from 3,000 to 1,500 participants and shortens the time span from seven years to five, how does that change its risk profile? How will insurers approach that risk if they provide coverage for the product when it is marketed?”

2. Existing Bespoke Policy Language Could Act as a Liability Multiplier

The current insurance marketplace for life sciences is unique because it consists of customized policies written to meet the complex needs of the pharmaceutical world. While companies can enjoy coverage tailored to their risks, brokers face the challenge of studying and understanding the various policy language and forms that currently exist.

“Not all products are created the same. There is no single standardized offering in life sciences product liability policy forms in the marketplace,” Pendergast said.

This policy language incongruence will exacerbate the risk transfer challenges of adapting to the changing liability landscape presented by the 21st Century Cures Act. The lack of standardized and consistent policy language, coupled with changing risk profiles, increases insurance complexities for brokers and insureds exponentially, as new forms are issued in the marketplace.

“Multiply the number of insurers by the number of changes resulting from the 21st Century Cures Act, and the effect is a field of liability land mines, as well as potential errors for insurers, brokers and insureds,” Elliott said. “It creates a very complex horizon of shifting risks.”

3. Pricing Disruption: Moving Away from Ratable Revenue

Life sciences insurers typically assess risk based upon ratable revenue for sold products and trial subjects for clinical trials. During the Obama administration, the impact of the Affordable Care Act created a definitive move to less costly generic drugs. Furthermore, with drug pricing being hotly debated in Congress, and the new Trump administration immediately calling on big pharma to examine and find ways to reduce pricing, the pharmaceutical top line revenue is under stress.

While the fast-track provisions reflected in the 21st Century Cures Act provision will reduce drug development costs, thereby reducing allowing for reduced drug pricing, it may, however result in a trickle-down effect for insurers.

“Its impact, of necessity, will create a shift away from the ratable revenue-based methodology for insurers, to the point where it may no longer be a reasonable ratable baseline,” Pendergast said. “Instead, insurers will be under significant pressure to find new techniques to tangibly rate the risk associated with drugs in order to keep underwriting and pricing stable and consistent.”

Elliott emphasized that pricing also should consider the purpose and criticality of a medication.

“Take a critical drug and delivery system such as epinephrine, as an example. Its effectiveness is literally a matter of life or death. Product failure thus presents an enormous risk,” she said. “In this case, the drug’s function and delivery is what drives liability. Even if its price point decreases, the risk level remains the same.”

While insurers search for a better risk measure, volatile government activity and regulatory uncertainty will exacerbate pricing disruption in the insurance marketplace.

4. Continued Change Requires Constant Vigilance

The only real certainty around the 21st Century Cures Act is that it will continue to drive industry change.

Despite being signed into law with bipartisan support in December of 2016, several components have been rolled back or placed on hold until the new FDA Commissioner, Scott Gottlieb, M.D., settles into the role. The FDA has already introduced almost 1,000 pages that would represent changes to the law.

“However, Dr. Gottlieb has expressed support for the generic pharmaceutical industry, so it’s pure speculation at this point what he will do with this regulation and how it will align with the big business-focused perspective of the Trump administration,” Elliott said.

Discussion surrounding the potential impact of regulatory change on the life sciences industry and the forward impact on insurers providing coverage for life sciences companies raises more questions than answers.

To stay abreast of changes percolating on Capitol Hill and the consequent shifts in liability and risk, life sciences companies should seek an insurer with dedicated knowledge and experience in the drug development process and pharmaceutical marketplace, and that values long-term commitments with its customers.

With industry-leading experience in medical professional and product liability, as well as the mass tort environment in healthcare and life sciences, CNA is uniquely positioned to identify emerging trends. The insurer writes approximately $900 million in premium for physicians, nurses, hospitals, allied care facilities, life sciences products/services and entire health systems. This significant presence in the healthcare professional liability insurance industry provides the experience needed to recognize emerging problems with drugs or medical devices.

“We are one of a few insurers that write a large amount of medical malpractice in healthcare as well as product liability for life sciences companies, which gives us deep insight into emerging issues and allows us to get out in front of them,” Pendergast said. “When there are injuries in a clinical setting, it ultimately spills over into the drug and device world.”

That insight and expertise, combined with underwriting discipline, claim expertise and risk control services, makes CNA a leader and stable partner in weathering the regulatory volatility confronting life sciences companies.

Learn more about CNA’s Life Sciences practice.

One or more of the CNA companies provide the products and/or services described. The information is intended to present a general overview for illustrative purposes only. It is not intended to constitute a binding contract. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All products and services may not be available in all states and may be subject to change without notice. “CNA” is a service mark registered by CNA Financial Corporation with the United States Patent and Trademark Office. Certain CNA Financial Corporation subsidiaries use the “CNA” service mark in connection with insurance underwriting and claims activities. Copyright © 2017 CNA. All rights reserved.


This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with CNA. The editorial staff of Risk & Insurance had no role in its preparation.

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Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.


In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.


Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”


How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.


One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]