Product liability: Navigating a restrictive market

Andrew Catton of Miller explains why product liability insurance is becoming more restrictive for many pharmaceutical, biotech and medical equipment companies and what organisations can do to maintain affordable cover.

Insurers are facing increasing product liability claims in what is becoming a more litigious environment in the UK and Europe.

Stricter regulation, a high-pressured economic environment and more complex supply chains are just some of the factors driving this trend. As a result, it is often difficult to maintain access to broad and affordable product liability cover.

Claims inflation

Within the healthcare sector there has been a noticeable trend of claims inflation in recent years. One of the drivers is new and tighter regulation, including the US Consumer Product Safety Improvement Act of 2008, the impact of which is now being felt and the incoming EU Consumer Rights Directive & EU Regulation on Common Sales Law. These new laws have increased scrutiny in what was already a highly-regulated industry.

While the US market has always been highly litigious, there are signs that the UK and Europe are catching up. Recent reform of the consumer code to include class actions, or collective redress, has seen the incidence of product liability claims rise sharply in these markets.

At the same time, the economic environment has brought more pressure to bear on life science organisations. In today’s globalised world with ever-more complex supply chains, suppliers are often located in low-cost jurisdictions which may not have the same level of quality control or oversight in place.

This trend has seen an increasing number of product recalls where goods supplied from Asia to US or European manufacturers do not stand up to national regulations. Nevertheless, organisations are forced to balance their ongoing cost pressures against their risk and compliance responsibilities. Contract negotiations can help ensure organisations are not overly exposed to risks in the supply chain.

More pertinent to the healthcare sector are the high level of claims related to implantable medical devices. Here, recent high-profile cases including claims from the PIP breast implant saga, have dented insurers’ profitability and in turn, led to a tightening of cover for product recall across the sector as a whole.

Advice to clients

With the rising cost of claims, product liability is inevitably becoming more restrictive. This is true for the whole spectrum of life science organisations, but particularly those that produce, import or supply implantable devices. Many insurers are imposing more onerous conditions and exclusions and want to see their clients taking high retentions and require more detail on risk management procedures and controls that are in place.

To avoid being unfairly penalised, life sciences organisations need to work with the right insurance and broking partners to ensure they have full access to the market and are suitably rewarded for maintaining a betterthan- average risk profile. Communication is essential and insureds are encouraged to demonstrate all the steps that have been taken to improve and maintain the safety of their products and devices.

Bringing new products to market is particularly fraught with difficulty in the current climate. Pharmaceutical, biotech and medical equipment companies are encouraged to detail every stage with their underwriters, so they have a clear understanding of the extent of clinical trials before a new product is released.

Even sensitive information should be shared with insurance and broking partners, and here non-disclosure agreements can be of help. By gaining an insight into the development procedures, study results and the quality and extent of clinical trials that have taken place, insurers will be more comfortable taking on the liability risk of new products coming to market.

By partnering with the right brokers and insurers, building up a relationship and keeping communication channels open, life science organisations will ensure they continue to receive cost-effective insurance, tailored to their risk profile. In the current environment maintaining an open dialogue and taking steps to improve the client’s risk profile can make a big difference.

Andrew Catton is a life sciences specialist at Miller

"While the US market has always been highly litigious, there are signs that the UK and Europe are catching up"

Andrew Catton
Miller Life Sciences Specialist