COVID-19: Navigating a New Product Risk Environment
The rapid response to COVID-19 from a wide range of manufacturing businesses called for accelerated risk assessment all along the insurance value chain.
The development, regulatory approval, and rapid rollout of COVID-19 treatments has likely saved more than a million lives in the US alone. Alongside fast acting pharmaceutical companies, countless businesses moved quickly to meet the urgent demand for personal protective equipment, test kits, sanitizers and medical devices — as well as vaccines.
However, the unprecedented deployment of treatments and products has also created new areas of risk for companies pivoting production to respond to the emergency.
Companies expanding into pandemic related lines don’t always have the institutional background necessary to navigate the regulatory approval and launch requirements for their wares. Frequently, the personnel involved are neither doctors nor virologists, and may have only a layman’s understanding of information provided to them.
Many companies responding to demand — both manufacturers and distributors — also may have little or very limited experience when providing therapies, personal protective equipment (PPE), and other products such as hand sanitizer, for example.
In some cases, a company’s shift away from familiar territory into an FDA-regulated industry can lead to increased risk and potential exposure to bodily injury or even property damage claims. This increased risk should be at the forefront for all parties involved, including brokers, insurers, and the companies themselves, to ensure adequate processes are in place to reduce the risks.
“It is common knowledge pharmaceuticals have to go through the clinical trial process, but hand sanitizers and nutritional products, for example, are also regulated by the FDA and require certain standards to be followed,” according to Sandie Mullen, head of life sciences and pharmaceutical casualty broking for North America at Willis Towers Watson (WTW).
Mary Ann Stewart, product line leader for Life Sciences at Markel, adds that a number of products needed to treat and prevent the spread of COVID-19 are needed in vast quantities, and these products are regulated as medical devices, pharmaceutical and biological products by the FDA and other regulatory bodies around the world. Each area of treatment and prevention has a specific set of regulations to go alongside it. “So while vaccines are front and center in COVID-19 disease treatment and prevention, there are many other products in scope,” Stewart says.
Due Diligence and Risk Selection
Insurance carriers experienced a big influx of companies needing insurance to provide them with adequate protection against newly developed product liability exposures. The surge includes businesses from outside the life sciences sector responding to the newly created demand for products, as well as biotech incumbents.
When a company branches off from their core competencies and into a new market they might be confident they have a good system in place. But often they run into difficulties, especially with items that are approved under new frameworks.
One of Markel’s clients manufactured menus for restaurants but switched its focus from the hospitality sector to making PPE, for example: “It meant a shift in their manufacturing operations to ensure they were following regulatory guidelines in place for Class 1 and 2 medical devices,” Stewart says. “Making the shift and also ensuring they had the right people in place was a big challenge for companies like this.”
Sandie Mullen points to a WTW client that was active in HVAC (heating, ventilation and aircon) manufacture: “They had expertise in airflow and related technology and that knowhow was transferable to mask manufacturing. But they didn’t have experience of FDA requirements,” she says. “The life science sector is a rich environment for plaintiff’s attorneys, so as a broker we wanted to be sure that the client understood the risk — or was hiring individuals who did.”
Ray Howard, director of technical engineering and risk solutions training at Markel, says that businesses — even those making a small product diversification — sometimes underestimate the heightened risk potential present when entering a different sector: “When a company branches off from their core competencies and into a new market they might be confident they have a good system in place. But often they run into difficulties, especially with items that are approved under new frameworks.
“If they manufacture overseas, or export to other markets, they might need people that are cognizant of approvals including not only the FDA in the US but also requirements in other countries. It’s complicated and it takes time to acquire those skillsets,” Howard says.
Specifically, getting production lines up and running under appropriate guidelines such as current Good Manufacturing Practices (cGMP) is an operational challenge that must be met — or face the consequences, he warns.
My team’s goal is to understand our clients’ exposures and mitigation processes to manage risk. Insurance is not the first step.
Limited manufacturing capacities, workforce gaps, and disruption in supply chains can all lead to design defects, manufacturing defects, or failure to properly warn the consumer of potential harm. Such issues increase risks to the public and create additional exposure for insureds.
In supply chain management, risk profiles are impacted by such factors as ingredient and component sourcing, repacking/relabeling, contract manufacturing, and distribution selections, all of which can affect the quality of the finished product, Howard says.
Stewart recalls a number of distilleries producing alcohol who shifted to the manufacturing and distribution of hand sanitizers. Instead of using ethanol as an ingredient in hand sanitizer, some of these operations were utilizing methanol, which the FDA has warned to be toxic.
Loss Control in The Spotlight
It pays to bring in risk professionals. “Loss control advice on manufacturing processes and quality control (QC) can be so helpful for clients, making sure they have a good understanding of any requirements related to the new activities they’re undertaking,” Stewart says.
Howard agrees and cites the example of a company that’s experienced in making textile products that switches to making masks and needs to increase its “defensibility.”
“We help by studying their products’ liability pattern for similar products and also that of competitors. There’s a lot of predecessor liability history to study, not just locally but also in overseas markets like the EU and Japan,” he says. “We help clients develop site specific cGMP, especially in an FDA approved environment.”
Carriers who insure FDA-regulated products within life sciences should have specialized underwriting and risk management teams that have experience within this space.
There’s frequently an apathy factor to overcome where insureds have a misplaced sense of security because they haven’t had a product liability problem before and neither have a handful of their competitors. Sometimes, companies simply don’t have the necessary expertise in house.
WTW’s Sandie Mullen says that ideally there’s a chain of risk professionals ready to respond to a changing risk environment, from the client risk manager to the broker and the carrier. “But in reality, many businesses do not have a dedicated risk manager. Instead, it falls to the CFO or buyer or general counsel ‘to do risk management’,” she says.
“My team’s goal is to understand our clients’ exposures and mitigation processes to manage risk. Insurance is not the first step. We start with risk management measures around QC and product recall contingencies, for example, in partnership with the insurer. The insurance carrier must understand how claims can be mitigated and how the client can improve loss prevention,” Mullen says.
Planning Ahead for the Next Emergency
It’s become clear that the wider commercialization of innovative life science products brought about by COVID-19 requires a clear understanding of numerous new factors related to insureds’ risk management and insurers’ risk selection.
It follows that the highly specialized nature of these requirements — and the speed with which they need to be addressed — places special emphasis on the quality of relationships between carriers, brokers, and insureds.
Underwriting and claims expertise, as well as risk solutions services, are all important areas where knowledgeable, seamless and responsive interactions are critical to effective risk management on behalf of insureds, Stewart says.
“Carriers who insure FDA-regulated products within life sciences should have specialized underwriting and risk management teams that have experience within this space,” she says. “Additionally, having a clams team that has expertise in life sciences claims handling is paramount. Brokers and underwriters need to work together to make sure clients have the necessary coverage to address their exposures and that they have the resources they need to succeed. Ultimately, it’s all part of creating a more resilient society before the next health emergency happens.”
Insureds diversifying into new areas need to understand all the key phases of the product approval and launch process, including:
The expertise and experience of other partners involved in development and distribution is also an important factor in risk assessment: