COVID-19: Implications for Life Sciences Industry in Asia
Continuing our webcast series on COVID-19’s implications, on 13 May we looked at navigating the pandemic cycle in the Life Sciences industry in Asia.
Joining me on the panel were:
Prashansa Daga, Life Sciences Industry Leader, Asia
Darrick Cheung, Client Engagement and Development Leader for Client Advisory Services
Rohan Muralee, Mercer Marsh Benefits Development Leader, Asia
Adam Russell, Placement Leader, Asia
Life Sciences Industry
- India restricting the export of dozens of active pharmaceutical ingredients (APIs) and related medicines.
- UK banning the parallel export of more than 80 drugs to protect supplies.
- US and the EU exploring the implications of bringing manufacturing back to their soils.
- Heavily disrupted sales and marketing activities: nearly 60% of larger companies are reviewing the need to implement new technologies to engage healthcare providers, hospitals, patients, and customers.
- Businesses need to restructure product launches and their related preparedness and timelines based on changes in demand.
- Supply chain leaders need to secure alternative sources of APIs and excipients.
During the past three recessions, the industry has been driven primarily by its intrinsic innovation cycle, rather than market dynamics, hence deals can be executed at higher volumes than in other industries. There are opportunities for bolt-on acquisitions of late-stage assets previously too expensive pre-pandemic, such as Biotech, MedTech, or biopharma companies with a promising pipeline, but also with liquidity concerns.
With the new wave of loss of exclusivity (estimated impact of US$180 billion in 2020–2024), there are possibilities of businesses replenishing the top-line or pipeline.
However, the uncertainty will not fully disappear as COVID-19 may return after the summer months, as was the case in the 1918 Spanish Flu (H1N1 strain). As with other industries, new market distribution models are considered with a focus on online channel models.
From a risk management and insurance perspective, businesses have several tools available to manage costs and improve cash flow. The approaches below were shared by Darrick, Prashansa, and Adam.
Speak with your Marsh broker if you believe you have a potential Business Interruption (BI) claim. We can help assess if the policy criteria are met and, subsequently, support the claims preparation to improve expediency.
With likely changes to revenue figures, a thorough review of your business interruption values may potentially qualify you for a return premium or reduction to future premiums. Any material changes in information provided, manufacturing processes, or business activities in regards to Products Liability and Recall Policies will have to be updated to the insurers. We recommend discussing this with your broker to determine viability.
Alternatively, we can identify your most economically efficient means to finance your risk through Risk Finance Optimization (RFO), which ultimately gives you information on which risk management programs provide the best financial returns. This process is thorough, so it is best to start this several months ahead of your renewal date.
Alternative Risk Transfer options, such as Parametric Insurance, can be a long-term alternative strategy. The use of a captive may provide access to reinsurance markets and potentially more efficient capital.
Employee Wellbeing and Productivity
Rohan talked about how insurers have started offering innovative benefits such as telehealth facilities and the home delivery of medicine. While non-pandemic claims will be lower this year, we are expecting a spike next year, but in the long run, these advances should help drive down utilization and costs.
More companies are adopting non-traditional approaches to benefits, such as flexible working policies, programs focused on psychological wellbeing, financial wellness, and digital HR transformation. There has also been a renewed focus around regular and effective employee communications and other benefits ramped up, including the availability of rapid testing kits and improved onsite health screening. During this period, consider providing your employees with flexible or voluntary benefits.
An area of concern is Workers Compensation insurance and solutions, as these policies tend to focus on workplace injuries with the traditional “workplace” being offices and laboratories. Given the current trend of reduced hours and working from home, it is best to review your Workers Compensation insurance and solutions with your broker.
As employees begin to return to the workplace, companies need to pay particular attention to their onboarding, screening, and testing policies to ensure that this is now part of a standard test.
When the sectors recover, we expect higher adoption of non-traditional benefits policies, per the pre-pandemic trend.
Shifting Risk Profile
Darrick shared his thoughts on how the pandemic has long-lasting impacts on the Life Sciences industry. The demand for Life Sciences R&D is at an all-time high, resulting in rapid innovations like Rutger’s Saliva Covid-19 test or how in Singapore swab test diagnostic results are now ready in 3–6 hours instead of 7 hours.
This demand and urgency also sped up the regulatory aspect of test authorizations, and will potentially accelerate clinical trial processes, and change intellectual property regulations. With technology like telemedicine a growing trend, the Life Sciences landscape has evolved and will continue to do so. We believe there are four areas Life Sciences companies should consider to manage their risk profile changes:
Business Continuity Plan Reviews and Updates
In the short and medium-term, the focus should be on:
- Staff safety and health: Safe distancing, screening protocols, adequate Personal Protective Equipment, active sanitation equipment, etc.
- Supply chain: Address issues in distribution channels and overreliance on single suppliers.
- Planning for recovery or when governments ease restrictions: adopting a phased recovery to a “new normal” of business operations.
Pandemic Risk Vulnerability Assessment and Forecasting Models
In the longer term, these assessments and models enable organizations to evaluate different risk mitigation strategies, manage tail uncertainty under different scenarios (e.g. second wave outbreaks), and balance revenue interruption versus cost control decisions.
Inaccurate or modified data can lead to devastating consequences for Life Sciences companies. With the increased risk of cyber-attacks, companies should financially quantify such new exposure changes and develop appropriate risk management strategies, which can include insurance.
Given the increased importance of the Life Sciences industry, we expect D&O insurers to increase underwriting scrutiny, so engage with your broker or insurers as early and as openly as possible. Firms should also validate if their Professional Indemnity coverage is suitable for our “new normal”. This is particularly relevant for manufacturers of Diagnostic kits/ PPE/ masks/ ventilators.
Risk Management and Business Enablement
Darrick, Prashansa, and I continued to outline how Marsh can provide immediate support through three primary activities:
- Preparedness assessment and advice as the crisis unfolds, for example, ongoing advice that BCPs are “Fit for Purpose”.
- Providing additional management capacity, including additional reviews and PMO support to navigate the crisis.
- Debriefing (lessons learned) to better prepare for the future.
Our consumer solutions team also develops insurance solutions that can be offered on a B2B2C basis across many industries, for example:
- Customer engagement programs for Life Sciences companies.
- Employee benefits top-up programs for employers.
Lastly, Marsh has developed a dedicated risk transfer solution with insurers to consider non-damage Business Interruption cover for Infectious Disease. There are limited markets for this type of standalone coverage, but organizations involved in the manufacturing of life sciences equipment and devices are currently and generally within underwriting appetite for those limited markets. The policy is triggered either by the World Health Organization (WHO)’s notification of a disease, followed by deaths in country, or by the WHO’s issuance of a Public Health Emergency of International Concern (a PHEIC). If you are interested in learning about this product, or find out more about how Marsh can help, please speak to your Marsh representative.
Click here for the full replay of this webcast.