This article was created in partnership with SUM Insurance.
From biotech to cannabis to robotic surgery, Canada's life sciences sector is a fast-evolving space with a complex risk profile to match. Research from CNA found that in 2021 Ontario’s life science sector recorded $846.8 million in venture capital – with that figure only having grown over the past four years. The boom in interest and demand in life sciences has also led to an increased awareness around insurance here, however the diverse and far-reaching nature of the sector means finding the right coverage can be tricky.
In a recent interview with IB, Jeff Somerville (pictured), founder and managing director of Strategic Underwriting Managers (SUM Insurance), explained that the Canadian life sciences sector has “a very broad remit” - partially because of the nature of the industry itself. That includes everything from expendable surgical products to true pharma, biotech, nutraceuticals, health aids, medical and Cannabis products.
This demands a market with far spanning resources and capacity. To provide this, SUM Insurance has partnered with CTIS at Lloyds to access unparalleled competency and reach. Jeff was joined by Richard Kelly, managing director at CTIS, and his colleague Dan Lopes, VP of primary liability at SUM Insurance. Kelly added that the long development cycle of life science products introduces yet another layer of complexity.
“A standard drug or device can take years to come to market,” he told IB. “There’s a lot of investment from the companies but having insurance for that full duration is a challenge. And the global regulatory landscape only adds pressure. You have to go to all the regulators: the FDA, the EMEA, the MHRA, the TGA in Australia. And timing makes liability even murkier. Is it the day you first took a drug, or the day you discovered the injury? All this illustrates the need for an underwriting partner as committed to the product, to the industry, as the insured must be.
It's a complex field to navigate, which makes the need for sound education and advice even more important. This is especially true in the field of experimental medicine - because when it comes to insuring clinical trials one size fits never fits all.
“Clinical trials have to have specific insurance…the coverage requirements have to be in accordance with the local law,” added Kelly, referencing the infamous 2005 “Elephant Man” trial in the UK to illustrate how high-profile incidents have driven global standardization in trial conduct, but not necessarily in insurance regulations. And each jurisdiction brings unique challenges.
“Germany is strict liability… it’s like a personal accident policy,” Kelly added. In contrast, Canada allows for more flexible arrangements, but “if I'm a Canadian company and I'm performing a clinical trial in the UK and the US, I would have to buy a local policy.” Kelly emphasizes that this complexity is tied to “risk establishment” - essentially the legal geography of where the trial takes place and where participants are located. London offers licensure and competency to address this mosaic of risk efficiently and competently in more jurisdiction than any other insurer; a compelling advantage.
“The product we have designed with Richard is like a package. All the key casualty insuring agreements that have been identified and can be chosen matching each client’s needs,” added Somerville, highlighting the flexibility of the offering, which spans from general and products liability to medical malpractice and E&O coverage, as well as Clinical Trials.
“The entire bundle is very flexible to ensure needs [are met],” explained Somerville, adding that it’s designed to support “a very rapidly evolving field, often with very imperfect data or unforeseen future consequences again emphasizing the need of a long-term insurance partner. We suggest insurance brokers consider this when advising clients on the carrier options they have sourced.
And that support is built on a combination of sector knowledge and industry experience – two elements that can’t be overlooked in the current complex landscape.
“It’s an expertise issue - finding someone who has been doing it for a long time and knows the space is really the most important thing,” added Lopes. And with more markets eyeing the sector due to its profit potential, Lopes warns that not every entrant has staying power or the technical acumen required.
“You need the right wordings - proper product is really important.”
Kelly agrees - and goes further. “You want an insurer who has access to experts in the field, because the likelihood is you're facing a bodily injury claim. It might only be for $4 million, but it could take $1 billion off their share price. Choose carriers who have the expert knowledge and the capability to deploy that around the world.”
Capacity also matters, both financially and operationally. Kelly told IB that, at the end of the day, the firm has to be able to pay their claims - referencing the large risks often transferred from major pharmaceutical firms. But beyond balance sheets, a broad appetite for risk is vital. After all, life science companies often wear many hats; manufacturers, service providers, consultants to name a few.
“You don't want to end up going with one insurer for General Liability, and another insurer over here doing their errors and omissions… then you get multiple insurers in a room facing a complex claim. You're risk having a coverage dispute,” added Kelly.
Somerville emphasized this inherent importance of integrated underwriting: “It’s real value to the client, to have this consolidated under one underwriter that's accepted the entire risk. Th risks in this field are quite bespoke, quite custom, quite specialized - through our access to [Lloyd's of London], you get to talk to someone who's been doing it for decades with capacity to match.”
Somerville contrasts this with other insurers who “don’t necessarily have that expertise in-house. They’re deferring or referring elsewhere.” That delay can lead to inefficiencies and uncertainty. “We can turn this over very rapidly,” he added. “It’s one of our real value propositions.”
Looking to what the future holds for the sector, the panel is cautiously bright – however, that’s not to say it’ll all be plain sailing from here on out. Especially where competition is concerned.
“It’s a very competitive buyer’s marketplace,” added Kelly. “We’re seeing some dramatic rate reductions, especially in Canada, for no reason other than the fact that supply and demand drives the price down if you've got more capacity. There’s a lot of generalist insurers coming into the marketplace that want to offer into this line of business seeing it as a high margin growth area. Sadly, they probably are doing it a bit naively. They don’t realize the potential risks that’re coming through and what they need to look at.”
For Lopes he was keen to hammer home how the regulatory and cultural landscape, as well as political, personal and religious beliefs, were contributing to risk overall.
“The culture is changing - everything's being diagnosed. You have a lot of anti-vaccine rhetoric in the US – the overall litigious nature of the States is going up. If you don’t have a tailored product to it, and you’re just entering the space because you think it’s profitable, you could get burned.”
And emerging risks aren’t just hypothetical or novel. Kelly points to new claims involving familiar products like “acetaminophen being linked to ADHD or autism in children.” While causation is unproven, “someone somewhere has been injured and they want to find blame.” This, paired with aggressive class-action tactics in the U.S., creates a challenging landscape for insurers.
“Within two hours on Facebook, [lawyers] could have 200 people to represent.” .
Somerville pointed out that despite its dynamism, life sciences is a business and is sensitive to the overall Canadian economic outlook and condition. Case in point: Cannabis. Despite opening the recreational market “the segment has suffered as of late. There was a lot of investment into that burgeoning business with some very real obstacles, including things like excise tax that make them uncompetitive with the traditional black market. This comes through in our results; we are aligned with our customers and follow their fortunes.”
Finally, for Somerville, he told IB that the long-haul nature of the exposure is something that’ll be important moving forward.
“It’s a classic long tail insurance product, where your future results are not known for a long, long time with potential for some very real severity
As Somerville sums it up: “Softening market, more competition - good for the consumer but challenging for incumbents like ourselves who are here for the long term. But we remain confident our unique combination of people, product and quality paper will continue to deliver value to the Canadian life science marketplace.”
