The increase in outsourcing by pharmaceutical manufacturers and life sciences companies has created entirely new risks of interruption for their businesses, and UK insurers are now offering protection against these new and changing hazards.

Lloyd’s underwriter Kiln and broker JLT, who have created the new insurance coverage, point out that, in the past, business interruption was generally related to damage to or loss of a company’s physical assets. However, outsourcing and the lengthening of the supply chain, plus the increased use of technology, have created many unprecedented potential risks for “non-physical” business interruption for global drugmakers and life science companies.

In order to discover where companies needed protection, Kiln and JLT asked life science and pharmaceutical managers “which were the risks that were keeping them up at night.” They discovered that these included not only protecting intellectual property and goodwill and retaining confidential information in dealings with third-party providers, but also a whole raft of issues from which a pharmaceutical company would not be able to protect itself under physical damage insurance, such as product recalls related to packaging errors, withdrawal of patents and the shutdown of any or all of the company’s operations by local regulators. There is also the increasing problem of criminal activity such as counterfeiting.

For publicly-traded companies, problems in any of these areas leading to serious supply chain disruption could also have a disastrous effect on share prices, against which traditional insurance policies may not offer protection.

Kiln and JLT have used this research to develop their SCAIR (supply chain analysis of insurance risk) tool which, they say, enables drugmakers to assess the potential costs of these risks to their own individual circumstances, and the insurers to provide them with the level of cover which they require.