Risk management and insurance solutions in the Indian pharma industry

Speaker Profile

Andrew Clarke Executive Vice-President - Corporate Broking Aon Global Insurance Services Pvt Ltd

Andrew arrived to India in 2003 to head up the Corporate division of Aon Global Insurance services.

He has been with the Aon group for over 22 years in various management positions in New Zealand, London and Asia, which included leadership roles in Guam, Thailand, Vietnam, Philippines and Singapore, before moving to India.

Andrew has extensive corporate broking experience, servicing most industry sectors of global and local clients, as well as developing new business opportunities in the various country management positions he has held.

Synopsis

Any pharma company that is concerned about risk transfer to the insurance market must be equally concerned with the current state of the international insurance industry. Without a viable insurance industry that is willing and able to take on certain risks for the pharmaceutical companies, these risks can often be retained on the pharma’s financials, and have the potential to cause serious financial damage.

All business is the undertaking of risk for reward, however where there is uncertainty in risk, either in volatility or severity, many pharma companies look to transfer that risk as much as possible.

It is of little surprise therefore, that the insurance industries response to adequate product liability insurance is causing greater concern in the pharma industry.

There has been a rash of drug withdrawals in recent years, over 12 in the past 5 years alone versus only 8 in the previous 26 years. And in many cases the ultimate loss is still unknown. ‘Fe-phen’ produced by American Home Products, recently increased its charge to US$ 12.25 billion and has created the largest severity problem the industry has faced. Vioxx produced by Merck, is reportedly going to cost them in excess of USD 600 mn.

Swiss Re, a leading reinsurer and one who is heavily involved in the pharma industry, estimated that for the period 1994-2003 the losses faced by the insurance industry for pharma product liability claims have exceeded 200 per cent of the premium received.

So what does this mean to the Indian pharma company, mostly involved in generics or bulk manufacturing? Your part of the industry is not without litigation or losses. Admittedly the settlement amounts are less, however you still incur the legal costs to defend such claims, as well as the market and reputational risks that occur when you are named in litigation.

The insurance industry has over the past years tightened up on the product liability coverage they will now give. A number of insurers have withdrawn from the pharma sector, putting pressure on the overall capacities the insurance industry now has. But more importantly, the list of excluded products under the insurance policy is growing longer. Individual insurance companies are now freely adding to the list as events occur. (most recently being Cox 2 inhibitors being added as an excluded product).

Indian pharma companies must carefully check the product exclusion list on the insurance policy and attempt to negotiate coverage as best they can. And in addition to this, there will be risks pertaining to certain excluded products from the insurance policy, and the pharma company must identify these risks and decide a strategy of alternative transfer of risk, such as contractually, or how best to retain the uncertainty of risk frequency and severity.

As the Indian pharma industry spreads its wings and competes more vigorously in the international arena, care must be exercised to identify your key risks and ensure they do not become an impediment to your ability to achieve your vision.