These exposures stem from the physical assets of the company, which could consist of buildings, equipment, compounds and consumables, and products in development. Traditional insurance markets are cautious and tend to shy away from providing cover for some of the risks associated with these assets, however, there are specialist insurers offering protection specifically designed for companies operating in this space. Below is a summary of four key exposure areas where cover is not generally available under standard insurance products.
1. Basis of Valuation on Research Materials
Many property insurance policies are unclear on how they will respond to a loss of materials which do not have a market value and are not easily replaced. The definition of contents or stock may be ambiguous in relation to, for example, samples, consumables, and documents & electronic data, and the basis of valuation applied in the event of a loss may not be appropriate.
To ascertain the level of cover being provided, the definition of property (contents or stock) should be broad enough to cover the items at risk, and the amount payable in the event of loss should cover the cost to reinstate or reproduce the materials, including materials and labour.
Where your compounds are climate sensitive, you should investigate whether cover is being provided, or available for losses as a result of a change in climate beyond the stability profile of the materials.
2. Supply Chain Partners
Many biotechs rely on third party suppliers to progress the research and development of products and therefore may have property at risk at premises located around the world.
While there may be protection under the contracts and/or agreements with CRO's, CMO's, providers of storage facilities, trial sites etc, if there was a loss, it may be necessary to prove negligence on the part of the supplier responsible for your goods. Furthermore, where a third party has agreed to provide insurance coverage, you would be reliant on their ability to recover from the insurer in a timely manner.
Another consideration is whether the third party will cover the full recreation costs (as discussed in point one) and whether any resultant business and/or financial implications caused by the loss of the materials is covered.
To avoid these issues, it is recommended that biotechs protect their own goods, taking out separate cover over and above what may be provided by the third party supplier, to ensure control and certainty of the cover in place. This way, any loss is first covered by your own insurer, who can then seek recovery from any responsible third parties. This may also protect your commercial relationship with suppliers, reducing the potential for disputes.