Introduction: Aon's Industry Lens

Lars Sørensen

Global Life Sciences Industry Leader

Anne-Christine Fischer

Global Consulting Life Sciences Industry Leader

Aon’s industry verticals provide tailored solutions, consultancy, and insights across a range of sectors, helping clients answer some of the most challenging risk and people issues facing their organizations. Aon’s sector-specific capabilities enable better decisions in the face of increasing global volatility, interconnectivity, and complexity of market dynamics.

In the Industry Spotlight section of this quarter’s Global Market Insights report, we cast our lens on the Life Sciences sector – an industry that has been in the spotlight throughout the pandemic. Amongst the many lessons learned during this time, we have gained a deeper understanding of:

The importance of global collaboration across multidisciplinary teams, organizations, and regulatory bodies in the development of innovative drugs and vaccines and the acceleration of R&D
The complexity of the global Life Sciences production and supply chain, including the specialized expertise required to scale up
The rapid digitalization of healthcare as patient education has moved online and online healthcare services, health apps and digital devices have become more widely available.

As a result, the Life Sciences industry has attracted new investors and new technologies and M&A activities have accelerated across the industry.

The Q1 Spotlight looks more closely at Life Sciences industry trends and their risk and insurance impacts, including:

Emerging risks relating from gene therapy, personalized medicine and rare disease treatments will change the future Products Liability risk profile of many companies in the industry. The industry is now exploring how these new innovative treatments will affect the clinical trails risk profile as we know it today.
Outsourcing of manufacturing processes across different geographies has contributed to today’s complex Life Sciences supply chain. Up to 60%-80% of all active pharmaceutical ingredients (API) globally currently originate from China and India. As a result, coverage for Contingent Business Interruption and Unnamed Suppliers has remained difficult to secure. Insurers have been requiring more insight to the supply chain – going deep into the chain; e.g., tier 1, 2, 3 etc. suppliers.
As the use of AI in the R&D and supply chain processes increases, and medical devices increasingly incorporate software components and connect to systems (like hospital networks), enhanced cybersecurity has become increasingly important.

The Q1, 2022 version of our Global Market Insights Report discusses how the following market trends have impacted risk and insurance agendas – not only for Life Sciences companies, but across the market at large:

The myriad direct and indirect impacts related to the unfolding geopolitical events in Eastern Europe have been profound and are expected to continue as rising commodity prices fuel inflationary pressures, decreased demand dampens global trading, and global supply chains suffer further disruptions. Insurers, looking to manage volatility, have already begun modifying coverage terms and conditions - including those related to cyber, terrorism, sanctions, and war, as well as coverage territories. The world is watching anxiously as economic impacts develop, while the risk and insurance industry watches carefully, ready to respond to further impacts on exposures and risk profiles, especially in the Political Risk space, where significant losses are expected.
The market moderation that began in late 2021 continued in Q1, which saw modestly favorable conditions, especially for products and risk types targeted for insurer growth. Underwriting rigor continued in Q1 as insurers remained focused on reducing volatility through best-in-class risk selection.
The cyber landscape remained volatile in the first quarter. Complex cyber losses continued to develop with multiple severity cases compounding on large events that occurred in recent years, while the frequency of claims remained relatively constant year-on-year. Waiting periods for Business Interruption related coverage (e.g. Systems Failure Business Interruption, Dependent Business Interruption) increased. Ransomware co-insurance provisions, ransomware sub-limits, and sub-limits for Business Interruption, Systems Failure Business Interruption, and Dependent Business Interruption were introduced in certain client and industry segments, or when risk controls were deemed by insurers as insufficient. Insurers scrutinized the coverage offered for critical infrastructure, systemic, correlated events and restricted coverage on either a generalized or event specific (e.g., Log4j) basis. Insurers actively managed their global aggregate capacity and in some cases reduced limits offered. The underwriting process continued to gain rigor.

Our industry expertise enables us to identify emerging risk trends and work with organizations to identify solutions for addressing them. On behalf of Aon’s Global Industry Groups – and specifically the Life Sciences Industry Group - we are pleased to introduce you to Aon’s Q1 Global Market Insights.

Industry Spotlight: Life Sciences

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