From an insurance perspective, biotechnology organisations and companies have unique features that pose uncommon risks. Biotech companies face unique risks that could cause delays in development and even prevent them from reaching milestones. These delays can hinder the company’s ability to raise additional funds, and thus its ability to continue operating as a going concern.
These risks are caused by the company’s physical assets, which can include buildings, equipment, chemicals, consumables and products in development. Although traditional insurance markets tend to be cautious and not offer coverage for all risks associated with such assets, specialist insurers are available that can provide protection for those companies. Here is a list of four areas that are not covered by standard insurance policies.
1. Research Materials: Basis for Valuation
Many policies for property insurance are unclear about how they will handle a loss of materials that do not have a market price and cannot be replaced. It is possible that the definition of stock or contents may be unclear in relation to samples, consumables, documents & electronic information, and the basis for valuation used in the event there is a loss.
The amount of coverage should be sufficient to cover all items at risk. In order to determine the extent of the cover, the property definition (contents or stocks) should be sufficiently broad to include the cost of restoring or reproducing the materials.
If your compounds are sensitive to climate change, it is worth investigating whether there is any cover or availability for losses due to a change of climate.
2. Supply Chain Partners
Many biotech companies rely on third-party suppliers for research and development. This could expose their property to risk in locations around the globe.
Although there may be protection through contracts or agreements with CROs, CMOs, storage facility providers, trial sites, etc., if you suffer a loss, you may need to prove negligence by the supplier. If a third party has offered insurance coverage, your ability to collect from them in a timely fashion is dependent.
A third consideration is whether or not the third party will pay for the entire recreation cost (as mentioned in point 1) and any resulting business and/or financial consequences due to the loss of the materials.
Biotechs should protect their goods by taking out separate coverage over and above that provided by third-party suppliers to avoid problems. This will ensure that you have control and certainty about the coverage. Any loss will be first covered by your insurer who can then pursue recovery from responsible third parties. This can protect your business relationship with suppliers and reduce the possibility of disputes.
3. Transit Risk
All materials that are being transported, whether from storage to manufacturing locations, onto packaging/labelling areas, or onto testing sites for their final purpose, are subject to constant damage. Additionally, each step of the process may result in an increase in cost for replacing these items.
As with third-party suppliers, you should not rely on the terms and conditions of the carrier or the insurance they arrange to provide adequate protection. There may be disputes about the legal liability of the carrier or the amount to be compensated. If materials are transported in special conditions such as temperature and delivery time, this risk can be magnified.
Your own policy of insurance covering goods in transit can help you ensure that you are fully covered in case of an accident and that you are fully compensated for any damage or loss. In the event of a claim, the settlement should include the entire cost of replacement (see point 1) and, if your materials are in a controlled environment, coverage for temperature variations due to incorrect packaging or delay.
4. Business Interruption
The ability to raise capital is the greatest threat to a biotech company’s survival. Any disruption in the development process, including physical loss or damage, could hinder the company’s progress towards the next milestone while still causing operating expenses.
Traditional business interruption insurance covers the loss of profit or increase in expenses for a set period. A Biotech company may have little or no revenue. There may also not be an increase of expenses. Therefore, no protection is provided.
It is recommended that biotechs look into tailored insurance products to cover this area. This means the company is covered up to the sum insured (subject to indemnity period and the sum insured) for outgoings during research and development.
A company can then recommence research and development from the same cash position it was before the loss. You can get coverage for loss or damage to property or assets at the Insured’s premises or at the premises or supply chain partners of the Insured.
Biotech professionals should examine their risk profile carefully and ensure that insurance covers the intended purpose for which they are purchasing it.
Your insurance provider must have a good understanding of the markets and products that are available to you in order to provide adequate protection.
