Industry Insights

Life Science

Life Science Organizations Continue to Innovate

Like most industries, life science companies have been hit by insurance premium rate increases and capacity issues. But many risk and insurance managers in the sector have previous experience using alternative risk financing methods to adapt to challenging market conditions for risks such as product liability and PD/BI risks. There is now a strong focus on D&O and cyber in the current environment.

The New Focus: D&O and Cyber

The continued high number of securities class actions filings associated with this industry is driving D&O capacity shortages and premium rate hikes, in particular for U.S.-listed life science organizations. Trends we see in Aon’s 2021 Captive Benchmarking Survey reflect this pressure, with a 35 percent increase in captive D&O gross written premiums between 2019 and 2020.

Cyber has seen a similar swing, with total captive premium spend increasing by 33 percent year on year. The recent surge in ransomware attacks has resulted in an extremely challenging insurance market with increased pricing and diminishing capacity. Given the limited capacity on the risk transfer market, captive owners are turning to alternative risk financing solutions.

Financing Core Risks

Significant product liability risk exposures have long been a pain point for life sciences. Liability rates remain high, and risk transfer capacity is limited. This is particularly true for the large global players, who often turn to their captive for support rather than seeking risk transfer solutions. Net retention for product liability risks in captives we manage are on average in excess of $100m,1 demonstrating the extent to which captives are providing a viable risk finance solution for the industry.

Eighty-eight percent of Aon-managed life science captives have some form of PD/BI in their program.2 This is not surprising, as the past 12-18 months have been challenging for almost all clients in this sector regarding this line, with some improvement in recent renewals. Interestingly, captive use has been shifting in the industry, and we are noticing an increased focus on BI, in particular non-physical and contingent BI.