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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.

Serving business and professionals since 1897, CNA is the commercial insurance carrier of choice for more than 1 million businesses and professionals worldwide.

Employment Practices


Sexual harassment is a growing concern for corporate America. Risk managers can pave the way to top-down culture change.
By: | March 5, 2018 • 12 min read

The #MeToo and #TimesUp movements opened up Pandora’s Box, launching countless public scandals and accusations. The stories that continue to emerge paint an unflattering picture of corporate America and the culture of sexual harassment that has permeated it for decades.


“The clock has run out on sexual assault, harassment and inequality in the workplace. It’s time to do something about it,” reads the official tagline of Time’s Up, one of the most vocal groups demanding change.

The GoFundMe campaign that supports the Time’s Up Legal Defense Fund raised more than $16.7 million in less than a month, making it the most successful GoFundMe initiative on record.

Funds will be used to help victims of sexual harassment and assault bring legal action against harassers, as well as provide public relations consultation to manage any media attention such suits might attract.

The problem was never really a secret.

In surveys conducted since 1980 by the U.S. Merit Systems Protection Board, 40 percent of women and 15 percent of men consistently reported being sexually harassed at work.

In a sweeping meta-analysis of 25 years’ worth of research data, published in “Personnel Psychology,” an average of 25 percent of women reported experiencing sexual harassment at work. When respondents were given clear definitions of harassing behavior, that figure shot up to 60 percent.

The current climate is just now pushing awareness to the forefront. It was reported last November that law firms in the nation’s capital are seeing a spike in inquiries about sexual harassment cases.

Laura Coppola, regional head of commercial management liability in North America, Allianz Global Corporate & Specialty

In addition, the Equal Employment Opportunity Commission (EEOC) website is seeing visits to its harassment web page double.

There’s no question the costs to businesses can be staggering. Twenty-First Century Fox reportedly incurred $50 million in costs tied to the settlement of sexual harassment and discrimination allegations in its Fox News division, as well as a $90 million settlement of shareholder claims arising from sexual harassment scandals.

In June, the company disclosed in a regulatory filing that it had $224 million in costs during the fiscal year related to “management and employee transitions and restructuring” at business units, including the group that houses Fox News.

If time is indeed up, it won’t just impact Hollywood, Silicon Valley or Capitol Hill. It will impact every workplace, in every industry.

“It affects everybody,” said Marie-France Gelot, senior vice president and insurance & claims counsel for Lockton’s Northeast Claims Advisory Group.

“I think anybody in corporate America — at some point — has seen it or been aware of it or been around it.”

“This particular phenomenon is certainly at a much wider scope than we’ve seen in the last decade or so,” said Laura Coppola, regional head of commercial management liability in North America, Allianz Global Corporate & Specialty.

“This is going to touch many industries, many segments, and many people.”

Employers are beginning to wonder if their workplace could be next.

“I think if you’d been asking [insureds] a year ago, ‘Are you interested in hearing about sexual harassment prevention?’ I think the answer would have been, ‘No, we’re good, we’ve got it,’ ” said Bob Graham, vice president, HUB International Limited.

“But I think now everyone’s saying ‘Sure, yes, we’d like to hear something.’ ”

Leading the Conversation

As American workplaces come under increasing scrutiny, the time is ripe for a large-scale pivot in the way employers manage risks related to sexual harassment.

The co-chairs of the EEOC’s select task force on the study of harassment in the workplace expressed it aptly in 2016:

“With legal liability long ago established, with reputational harm from harassment well known, with an entire cottage industry of workplace compliance and training adopted and encouraged for 30 years, why does so much harassment persist and take place in so many of our workplaces? And, most important of all, what can be done to prevent it? After 30 years — is there something we’ve been missing?”

Experts in the management liability field unanimously told Risk & Insurance® these issues should be elevated to the board level and the C-suite.

“Just as cyber liability shifted rapidly from an IT discussion to a board level discussion, so too will the harassment and discrimination discussion go beyond HR and be elevated to the highest levels,” said Coppola. It will become a corporate-wide, enterprise-wide conversation.

“It’s going to take some time to get to that board level, but it’s going to have to happen,” said Paul King, national practice leader, management and professional services, USI Insurance Services.

“Risk management and HR cannot go down parallel paths, not understanding one another. Not anymore. There’s too much at stake.” — Paul King, national practice leader, management and professional services, USI Insurance Services

Risk managers, said Kelly Thoerig, U.S. employment practices liability coverage leader, Marsh, are well suited to lead this conversation, which means actively partnering with human resources, the legal department, the general counsel’s office and outside counsel.


“Just like the quarterback depends on the offensive line, on receivers, on the running backs, it’s not a one-man show,” said King. “This can’t be the risk manager operating in a vacuum; they have to be liaising with multiple parts of the organization.”

Added King, “Risk management and HR cannot go down parallel paths, not understanding one another. Not anymore. There’s too much at stake.”

Connecting with outside counsel can also be of great benefit to risk managers, said Coppola.

“[They can] provide a very independent objective view of what they see in the overall market and how their knowledge of the individual client’s best practices can be improved and enhanced to ensure that they are protecting employees and the organization.”

Brokers and carriers also may be able to offer insights and services. Unfortunately, that piece is often lost because risk management and HR are siloed.

“The [knowledge of the] services that come with the insurance policy end up with the policy — in a drawer in the risk manager’s office,” said Tom Hams, employment practice liability insurance leader, Aon.

“HR doesn’t know that they exist. Even if they’re just online blogs or something like that, they could be more meaningful to the HR department than they are to risk management.

“So it’s important to make sure that companies are aware they’ve got those tools and — more importantly — to share them internally.”

Expediting Cultural Change

The X factor that underpins every aspect of these efforts is culture, experts agreed.

“It’s not so much ‘does the company have best-in-class policies and procedures in place;’ I think many of them do. I think that a significant change needed is doing a full overhaul of corporate culture, and that’s no small feat,” said Gelot.

Paul King, national practice leader, management and professional services, USI Insurance Services

True culture change can only come from the top level. But that isn’t likely to happen unless everyone at the top understands what the scope of the exposure could be if it’s not addressed appropriately on the front end. And for that, money talks, said Thoerig, who will be presenting on the topic at RIMS 2018 in San Antonio.

“Nothing is more instructive than real tangible claims examples and settlement amounts. Arm yourself with … recent, relevant claims examples specific to the industry and the jurisdictions the company operates in.”

In addition, said King, HR and legal should be regularly feeding claims information to risk managers to share at quarterly meetings of the board and give specific updates around these issues.

Armed with that level of intelligence, top brass can set the goals that will drive all anti-harassment efforts, said experts, putting an emphasis on identifying and correcting behavior that could potentially expose a company to liability.

Better Training and Reporting 

The best anti-harassment programs are multilayered, said Hams, with each facet carefully tailored to suit the employee population, the industry and the organization’s goals. A clearly defined policy is essential, stating that harassment will not be tolerated and neither will retaliation against those who report it.

The policy should be clear that employees are expected to report harassment or unacceptable behavior. Hams said he’s seen companies go so far as to state employees who don’t speak up are in violation of the policy.

“At least it should give them pause to stop and think about what they might have seen before they click the button or sign the document,” he said.

Companies should consider how uncomfortable employees may be about speaking up. An open-door policy is a start.

But there should also be multiple reporting points throughout the organization, said Hams, and an anonymous hotline for those reluctant to bring the matter up with anyone in their chain of command, and a multilingual hotline as well.

An effective training plan will have multiple moving parts and should touch every level of the organization from the executive suite to managers and supervisors to the rank and file. Comprehensive training is especially critical for the managers and supervisors who might receive or investigate complaints.

Many large employers already have training programs that can be considered best-in-class. Small to midsized employers, however, may still be using the cookie-cutter compliance-centric training that has dominated the field for decades.

The goal of this training is to hit all the bases related to Title VII of the Civil Rights Act, ticking off a list of acts or speech that would be considered illegal and affirming the company will not tolerate illegal behavior.

Overwhelmingly though, this type of training misses the mark. Studies have shown that this one-size-fits-all training is ineffective, especially when it’s a rote check-the-box exercise. Employees get the message their employer doesn’t take the subject too seriously.

Worse, it can even aggravate tensions, creating more discriminatory behavior from men who avoid working with women just to eliminate the chance of being accused of anything.

One study even found that men were more likely to place blame on the victim of sexual abuse after they’d received that type of anti-harassment training.

Even at best, compliance-centric training will still fail, because it only addresses behaviors that violate the law. But there is a broad array of behavior that — while not quite illegal — shouldn’t be tolerated.

When this kind of activity is allowed to flourish unchecked, the environment becomes increasingly toxic for those on the receiving end. It also tells employees that the company will tolerate harassment as long as it’s not overly egregious. In that case, it’s just a matter of time before the company is faced with a serious claim.

“Nothing is more instructive than real tangible claims examples and settlement amounts. Arm yourself with … recent, relevant claims examples specific to the industry and the jurisdictions the company operates in.” — Kelly Thoerig, U.S. employment practices liability coverage leader, Marsh

In its 2016 report, the EEOC’s harassment task force recommended changing tactics, exploring alternative training models such as respect-based civility training — what some call professionalism training.


The theory is “if you train them to act in a professional manner, these things tend not to happen at all,” said Hams.

The EEOC also suggested bystander intervention training, which is designed to empower employees to intervene when they witness harassing behavior.

Experts agreed whatever training programs or modules a company chooses, it’s important the training material reflect the workforce and be continuous and regularly refreshed.

A certification scheme also should be put in place to ensure the training is hitting the mark. While the law does not yet require companies to prove the effectiveness of their programs, some suggest it’s only a matter of time before the courts catch up to the problem.

What’s more, said Coppola, it’s simply the right thing to do for companies that want to confirm they’ve created a culture where all employees can expect to be treated professionally.

Zero Tolerance

Gelot and others believe a zero-tolerance policy should be a key component of an effective anti-harassment program.

“There are many companies that have Harvey Weinsteins and Matt Lauers and Kevin Spaceys working in their midst and those people are tolerated. Employees know about them — it’s not a secret.”

Bob Graham, vice president, HUB International Limited

Particularly when the harasser is a high-level executive, companies may wrestle with the decision to look the other way or lose a key rainmaker. In a zero-tolerance environment — one that starts at the top — the decision would be clear.

“What we saw with Matt Lauer and Charlie Rose — they were terminated immediately as the accusations came out. That’s zero tolerance. That’s sending a message to all of the employees within the company that this is completely unacceptable, we won’t tolerate it, and [it] clearly sends a message to the public at large.”

Employers should promote a workplace culture where all forms of harassment and discrimination are unacceptable and reportable, said Gelot. That’s the only way to take the fear and the stigma out of reporting.

That said, the EEOC offers a word of caution on zero-tolerance policies applied militantly without regard for common sense. Employers should hash out the specifics of which acts merit immediate termination versus a warning.

Overzealous application of the zero-tolerance doctrine can backfire if an employee fears her coworker’s children will go hungry if she reports his lewd or sexist jokes.

Creating a Dialogue

As with managing any other exposure that touches everyone, robust sharing of ideas and best practices has the power to improve the risk profile of entire industry sectors.

Facebook raised eyebrows in December, making public its sexual harassment policy in full.

“I hope in sharing it we will start a discussion, both to help smaller companies thinking about this for the first time, and to improve our own practices by learning from other companies,” wrote Lori Goler, Facebook’s global VP of people, about the company’s bold move.


That level of disclosure is making some risk professionals uncomfortable. But others acknowledge the wisdom of it.

“Any time you can share best practices that’s probably a great idea, because no one has all the answers … or at least not all the right answers,” said Graham.

“There’s a reason they did that, and I think it’s for all the right, positive reasons. They want to drive the momentum that is going to reduce or even eliminate what we have seen in corporate America over the last 50-plus years. They want to lead by example, they want to be the model and rightly so,” added Coppola.

“I think we are at a perfect time in our economic environment that allows the evolution of equality in our workplace.”

Part of that should involve making the workplace more egalitarian, said Gelot, and figuring out “how to make female employees not feel ostracized by a ‘boys’ club’ atmosphere, and actively championing the ascension of women into senior rolls.”

“We can’t focus on the past,” said Coppola. “But we can work very hard collectively as a community, and within the insurance industry specifically, to move forward.” &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]