He ‘Knows His Stuff’
Typical risk issues at global pharmaceutical companies include product liability and professional liability.
These two exposures tend to surround the placement of significant amounts of coverage — which is made difficult because there are relatively few carriers that write that much coverage and it may be challenging to get the needed limits.
For an East Coast client, Jack Bodden introduced an advanced analytics program that helped management make better decisions especially with risk transfer options for products liability exposure in building the layers of coverage.
However, although it is less visible, pharma companies also have large property liabilities for their facilities around the world.
Bodden’s client had a multimillion-dollar loss when one of its facilities in Australia was destroyed. There was a quick advance payment for a significant portion of the claim less than four months after the accident, but the balance was subject to extensive investigation by forensic accountants and the carrier’s claims team.
Bodden, with the client, devised a strategy to expedite payment.
It hinged on his client receiving payment within their fiscal year — which was a significant challenge for this large a claim.
“He brought in all the right people including those needed to document a significant business interruption loss,” the risk manager said.
Sealing the Deal
Talk with a trucking company or cargo insurer and they will tell you that pharmaceutical shipments can be the most difficult cargo to insure.
Just think about how much a truckload of Viagra is worth on the market today if it were stolen. Millions.
A client of Erica Craner’s called one afternoon (on a day when U.S. offices were scheduled to close early) about a pharmaceutical shipment coming into the United States from outside the country.
The firm needed cargo and liability insurance immediately. And the Marsh team needed time to make the arrangements.
Craner arranged for a West Coast underwriter of the carrier to handle the proposed transaction, giving her team essential additional time for negotiations. Although cost was not as much of an issue, comprehensive coverage of the exposure was critical. The requirements were reached and the coverage secured in time for the shipment.
Insuring pharmaceutical clinical trial risk is also a challenge. One of Craner’s clients has significant clinical trial activity in foreign countries, making capacity difficult to come by.
To create a solution, Craner and her team reviewed each individual trial for each country involved. She was able to arrange additional capacity to give the master global program the strength it needed to account for any differences in limits and differences in conditions.
Throughout her career, Craner has learned that it’s one thing to create a successful result in a renewal, but quite another to retain clients unless the customer service is beyond reproach.
Focusing on Strategic Goals
“Be prepared” is Mark Miller’s motto.
“He always makes sure that we have a strategic vision of what we’re going to do if something goes wrong,” one risk manager said of him.
For example, products liability coverage can be difficult. “He asked, ‘What do we do if we lose a carrier?’ He helped us develop a very effective strategy — looking at other markets, like Bermuda, or examining our retentions.”
She added that Miller has been good at connecting her with underwriters who may not be writing their risks now, but may be needed in the future.
“He gets my face in front of them so they know me and who we are.”
For another client, Miller created a risk management manual and a process manual.
The basic manual is detailed, almost outlining what to complete on a day-to-day basis. But it’s also written in a way that gives the senior management a good understanding of how risk is managed within the different parts of the organization, the risk manager said.
Miller has also gained good marks for handling claims and other problems. Before Marsh held the account, one of the company’s carriers was put into runoff.
As time went on, reimbursement issues developed. Miller stepped in and got both sides of the issue together.
“We both understood each other and we resolved the problem with great results for us. We couldn’t have reached that point without Marsh,” she added.
Two big issues highlight the importance of professional liability coverage at pharmaceutical and life science companies. The first is huge claims and losses stemming from product liability risk. Second, but almost as important, has been the proliferation of merger and acquisition activity within the industry.
Patrick Roth heads up Aon’s executive liability practice for the life science industry.
As a client of his pointed out, there are ongoing issues concerning the supply of enough strong insurance carriers for these risks. Things are further complicated by ongoing declines in insurance capacity, increasing claims, and pricing that continues to increase.
For example, in a relatively recent transaction, a privately owned firm looked to purchase professional liability for a public company (possibly anticipating some changes). In this case, the number of available markets was limited and the budget was constricted.
The company needed to convince the underwriters that although they were privately held, their risk profile was best-in-class. Roth showed why the company was a standout, compared to its peers, especially in the area of clinical trials, which pose a significant risk.
The result: The needed insurance was acquired at a price that met the company’s budget relative to coverage and limits.
In another case, one of Roth’s clients faced bankruptcy if the company’s renewal wasn’t a success. He was able to renew the professional liability coverage, despite an increase in the underlying risk.
Satisfying Evolving Demands
A client of Aaron Simpson’s faced a dramatically changing risk profile. The client’s strategic plan called for accelerated growth during the coming two years through an expanding product portfolio.
Up to that point, the company’s risk was concentrated in a relatively narrow, homogeneous exposure. The plan would broaden that exposure by adding a diversified set of new products and new risks.
The challenge for Simpson and the company was to fashion a program that had to change significantly because of the evolving risk profile.
The company sought a multiyear relationship with its life science carriers. That relationship was needed to build upon the risk appetite of the carrier and move toward more diversified exposures.
Most carriers are not comfortable with all aspects of the risk in the life science industry, so it was a challenge to find the right carriers for the program.
The client’s strategy included both internal growth and growth through acquisitions, which added further complications to developing a flexible program.
“This was a difficult and comprehensive process,” the client said.
Usually, especially at pharmaceutical companies, the issues flow well beyond risk management and require the oversight and active participation of the finance operations. Pharmaceuticals also have significant compliance requirements that affect risk management and risk transfer.
That’s why brokers must act as trusted advisers all year long, not just during renewals.