Technology, life sciences companies: New opportunities & risks
These companies should work with their insurance agents or brokers to reevaluate their coverages and limits.
Technology and life sciences companies have proven resilient as they navigated challenges and disruptions during the COVID-19 pandemic, while finding opportunities to expand their businesses. These innovators helped the world adapt since the onset of the pandemic. They also made operational adjustments that may have created new risks and unintended exposures.
Key findings from Chubb and TechAssure’s latest survey of TechAssure’s insurance agent and broker members highlight the challenges and opportunities their technology and life sciences clients experienced and provide a roadmap for helping these clients identify new exposures and suggest ways to mitigate them.
Supply chain issues move to forefront
The pandemic revealed weaknesses in supply chains, which was reflected in the survey results as 93% of respondents noted that their technology and life sciences clients were very or somewhat concerned about supply chain shortages.
In response to the disruptions they experienced, many of these companies reevaluated how they source materials and export goods, with 87% of respondents saying their clients in these sectors increased their supply chain diversity or were moving in that direction.
Technology and life sciences companies should work with their insurance agents or brokers to evaluate coverages and limits in their commercial insurance package policies, and engage risk engineering services to help identify and mitigate potential exposures — such as supply disruptions — through exercises focused on business continuity planning. In particular, they should also consider evaluating the adequacy of their extra expense coverage, which may enable them to bring in additional suppliers or take other measures to help minimize the impact of supply disruptions when, for example, rebuilding damaged property after an insured loss is hampered by reduced availability of construction materials. By regularly evaluating their coverages and evolving exposures, companies will be able to adjust their risk profiles based on their most current exposures and make improvements to their insurance programs, partner contracts, and business continuity plans.
Data risks escalate
Technology companies operate at the intersection of providing cutting edge solutions and being exposed to increased data privacy regulations and cyber risks. In the survey, 86% of respondents noted privacy and data protection as a concern for their technology and life sciences clients.
In addition, an increasing number of companies have experienced a cyber incident in recent years and these events have become significantly more expensive to correct. As a result of these risks, more companies are turning to cyber insurance and taking advantage of their carriers’ pre-incident planning and post-event services to help mitigate the impact from a cyber event.
Litigation concern leaps higher
An increasingly litigious environment was noted as a concern for 81% of TechAssure survey respondents, compared to 67% in 2019. The surge in litigation reflects the trend of “social inflation” — the populist notion that if something goes wrong, someone must also be at fault – combined with rising anti-corporate sentiment. Together, these factors have resulted in more lawsuits and higher settlements and awards.
Given the litigation climate, companies must continually evaluate their exposures to such risks throughout their operations to determine if they have the adequate general liability and management/professional liability coverages and limits to help protect their bottom line.
Pandemic expanded growth opportunities
The pandemic served as a catalyst for growth and innovation for many technology and life sciences firms, and 58% of survey respondents said COVID-19 led their clients to innovate new products and services. For example, life sciences companies have been at the forefront of developing vaccines, therapies and devices, while technology firms have introduced or enhanced ways for companies and consumers to do business remotely.
These new sources of revenue can increase these companies’ risk profiles and need for coverages and potential changes in limits across their insurance programs — from property, general liability and commercial auto to workers compensation, cyber insurance and excess or professional liability.
About 30% of respondents said the pandemic had increased opportunities for their clients to do business in domestic and international markets. As companies expand into new geographic markets, having consistent insurance coverage across locations is essential. Regional insurance regulations — and risks themselves — can be complex and vary from country to country. Whether making changes such as incorporating new suppliers or adding new locations from which to ship their products, technology and life sciences companies should collaborate with their insurance agents or brokers to review how their exposures may have changed in tandem.
More merger and acquisition interest
Many technology and life sciences companies are also seeing more opportunity for growth through mergers and acquisitions (M&A). Forty percent of TechAssure survey respondents said their clients are considering an acquisition over the next year, compared to 30% in 2019.
Typically, these companies seek complementary capabilities or products and services that enhance their ecosystem such as a software firm purchasing or merging with a maker of hardware for a combined product/service offering.
From a risk management perspective, companies need to consider and make adjustments to better control the risk exposures and liabilities that the acquired company may add to the combined going-forward entity.
Moving forward with confidence
Having navigated the unprecedented challenges during the pandemic, survey respondents reported that technology and life sciences companies are better prepared for the challenges ahead (80%) and are more risk averse (60%). In fact, 45% of respondents said their clients have already adjusted their insurance policies and coverages to respond to business challenges, up sharply from 25% in 2019, and nearly half said they and their clients are discussing how to adjust policies and coverages in response to these challenges.
As technology and life sciences companies’ exposures evolve, their overall risk management strategy — from risk mitigation and preparedness planning to their insurance programs — must adapt in lockstep. These innovative growth companies and their insurance advisors should team up with a carrier that has dedicated, industry-specific teams of underwriters, risk engineers and claims professionals that can help protect their organization with the appropriate insurance solutions as their needs change over time.
Veronica Somarriba (vsomarriba@chubb.com) is executive vice president and Technology Segment Lead for Chubb North America Commercial Insurance. This piece is published with permission from Chubb and may not be reproduced.
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