7 Key Takeaways from the Willis Towers Watson Life Sciences Report

Digital transformation, clinical trials, climate change and product recalls are among the top risks and opportunities facing the life sciences sector over the next several years.

By: Peggy Fogarty | February 8, 2023

The global pandemic forced the life sciences sector to embrace new technologies and working methods delivering innovation at rapid speed. And digital health care solutions have been growing over the past decade.

However, COVID-19 resulted in accelerated adoption of both new tech and work methods in the sector due to necessity, bringing about opportunities and risks. Digitalizing health records, mobile devices, new clinical trial models, and medical advances, such as gene and cell therapies, are revolutionizing the industry.

The Global Life Sciences Risk Outlook 2023 report has identified the top risks and opportunities for the next three to five years. Willis Towers Watson (WTW), a global life sciences broker, surveyed 626 industry leaders for the report to identify the most significant risk to business success.

Conducted in September 2022, the survey gathered the feedback of senior decision-makers across Europe, North America, Asia-Pacific, and Latin America. A broad range of participating sectors included pharmaceutical and biotech, contract manufacturing, medical devices, contract research organizations, generic/specialty drug manufacturers, diagnostic labs, nutraceuticals and over-the-counter.

These are seven key areas of focus for the life sciences sector highlighted in the report:

1) Intellectual Property and Cyber Risk

Intellectual property, a large portion of life science company assets, emerged as a highly vulnerable risk area. New technologies such as wearables and artificial intelligence require new risk management strategies.

While larger companies have sophisticated internal systems, 50% of firms stated that they either had no standardized risk management process for intellectual property, or that it did not operate consistently or effectively.

Fifty-three percent said wearable tech was among their top five opportunities for digital transformation over the next three years. Slightly more than half of respondents ranked automation as a top five priority (52%), and artificial intelligence will be key area of focus for 50% of leaders.

Forty percent named cyber risk among their greatest external risk factors. The UK’s National Cyber Security Centre (NCSC) reported over 200 attacks specifically related to the pandemic, including on vaccine research. Sixty-nine percent agreed that insurance for IP risks was mission-critical or necessary.

2) New Clinical Trials

The pandemic accelerated changes and adaptations, from virtual working and trialing, to AI and machine learning, and speed of processes and regulation. These advances should bring efficiencies and growth in future years; however, risk and insurance strategies are playing catch-up.

Thirty-four percent said new clinical trial models ranked among the sector’s top five greatest business opportunities in the next two years. Although new models in clinical trials offer the potential to speed up the trial process and increase participation, 44% said hybrid, virtual and decentralized trials were among their greatest loss factors over the last two years. Forty-five percent are nervous about evolving regulation of clinical trials.

Fifty-six percent named potential complications of new vaccine technologies among the top three emerging themes that could negatively impact the sector over the next three to five years, which could reflect nervousness about potential long-tail liabilities. Despite the risks, 34% said new clinical trial models ranked among the sector’s top five greatest business opportunities in the next two years.

3) Health and Race Equity

New technology can provide data that accurately represent different races and backgrounds and can improve equity in health treatment and outcomes and access to medicines. As a result, life science businesses can use real-world data to develop drugs and medical devices to meet the needs of specific populations.

Fifty percent named health and race equity among the top three emerging themes that will have a positive impact over the next three to five years, while 42% put health and race equity issues and access to medicines among their top three environmental, social, and governance (ESG) social risks. Survey respondents saw benefits but are concerned about the potential risks if the industry does not make enough progress in these areas.

4) Data Privacy/Informed Consent

As the sector becomes more dependent on digital healthcare, life science companies face increased scrutiny by regulators, courts, and the public for how they use patient data and obtain their consent. Data privacy creates a challenge to ensure that a target company complies with legal and regulatory requirements.

Fifty-two percent said that improved data and data access was among their top five opportunities from digital transformation over the next three years. But 46% of respondents named data privacy and informed consent among the top five internal factors posing the greatest risk to ethical and legal issues. Thirty-eight percent named data privacy as one of their top three ESG risks.

5) Product Safety and Recall

Forty percent named product safety and recall among their top five internal risks.

Just under half of leaders (44%) were concerned about labeling and packaging issues, and 36% identified social inflation, including the rising cost of litigation, as a top concern.

6) Climate-related and Supply Chain Risk

Risk perceptions have shifted away from core risks, such as product liability, property and D&O, as life science businesses become increasingly concerned about a broader range of threats.

Emergency response plans were designed, tested, and modified when the global lockdown in 2020 created a catastrophic threat to supply chains. Manufacturers developed strategies to protect inventory and sought alternative sources. Though in many parts of the world the pandemic appears to be behind us, supply chain issues are a continued concern.

Forty-four percent named environment, climate, and extreme weather among their top five external risks, although climate-related interruptions are not well covered. Thirty-six percent name supply chain disruption among their most significant external risks. Yet, a surprising 26% still have no coverage for extreme weather risks should their supply chain be interrupted. Thirty-five percent said their insurance covered property damage only.

The war in Ukraine is another reminder of the instability affecting supply chains globally. Fifty-three percent said the geopolitical instability was the biggest challenge in addressing risk over the next three to five years.

7) Industry Collaborations and M&A

Lessons learned from COVID-19 served as a warning not to be over-reliant on a single region or organization. The rapid development of vaccines and drugs to combat the illness demonstrated what could be achieved when scientists, businesses, and regulators work together to achieve common goals.

Thirty-five percent of overall respondents are prioritizing industry collaborations, while in Latin American 46% of companies identified collaboration as the sector’s greatest opportunity over the next two years.

Globally, 35% of leaders put strategic acquisitions and industry collaborations among their top three strategic objectives, while 38% also put M&A among their top internal risk factors.

The report findings can be used as a guide for life science businesses to identify and reassess critical risks, helping the sector quantify, model, and mitigate risks and build resilience. &

Peggy Fogarty is a business development and technical writing specialist. She is a graduate of the University of Arizona, where she received her master’s degree in family and consumer sciences, and Rutgers University, where she received her bachelor’s degree in anthropology and urban studies. She can be reached at [email protected].

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

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