Spurred with the recent events of a spate of regulatory actions against manufacturers in India, product liability insurance has become relevant, taking into consideration existing risk environment globally coupled with shrinking risk insurance market in India. With product liability exposure being a major risk factor for life science firms in the country, experts advocate holistic risk management approach to address product liability risks.

With reference to the complex regulatory environment to be complied and dealt with by the Indian companies, experts pinpoint that the potential of insurance and risk management can be helpful in addressing some of the key risks in pharma sector.

A plethora of new trends have marked the life science industry like expiration of key drug patents, ongoing pricing pressure from managed care markets, government healthcare reforms, direct to consumer marketing, internet marketing of pharmaceuticals, increasing use of generics and branded generics, lengthy and costly FDA approval process for new medications, drug re-importation and increase in counterfeit drugs. Besides this, there have been increasing mergers, acquisitions, strategic alliances, growing reliance on licensing, increasing litigation over patent disputes and patient safety issues.

Speaking to Chronicle Pharmabiz, Sanjay Kedia, country head and CEO, Marsh India Insurance Brokers Pvt Ltd, world’s leading insurance broker and risk adviser, said, "It is important to understand the potential and limitations to manage these risks. Scenario is grave as the number of players in the product liability insurance programme is limited."

He explained Indian pharma sector is cost competitive generic market and life science industry is somewhat unique considering the fact that many risks associated with it are very pronounced in terms of size, impact and cost on the balance sheets of the pharma companies. The nature of solutions available in the form of insurance is limited for some of the risks and there is not enough usage in India for the solutions available.

It has been learnt that risk from the regulatory aspect is very much profound taking into account recent events of pharma manufacturing units going for settlements and paying for penalties by the regulators.

"Size of the liability risk is quite big in India in terms of its impact. Insurance as a solution is not available for the penalties or fines in the corporate so the balance sheets of the pharma companies are increasingly being exposed to fines and penalties. But the defense cost or legal fees is something which is available for protection by way of insurance," Kedia emphasized.

Kedia informed that not only the corporate entity but senior directors and officers involved are implicated in the event of a regulatory action. If directors and officers insurance liability programme is negotiated in a proper way based on the insurers agreement, civil fines and penalties can be covered but this excludes criminal fines and penalties. There is a development in the last of couple of years where we have succeeded in bringing cover for individual protection in regulatory actions under civil fines cases.

The scenario is grim as insurance programme for regulatory fines and penalties is not available to a corporate. There is a need for a holistic risk management approach encompassing risk control, risk audit and best practices. Environment liability insurances also used to be covered on sudden and accidental risks but the concept of gradual pollution was excluded from insurance programme earlier. In the recent years, Indian companies have been able to procure gradual seepage and pollution as protection in their environment liability programme.

When Indian companies export goods to US and western markets, they are exposed to respective country's product liability risks. The challenge companies face is the need to buy more bigger limits or bigger insurance products. On one hand, risk environment are become more riskier and on the other hand availability from insurance and reinsurance market for the products is decreasing. "There are a few players in the market ready to provide pricing for the insurance programme. There is not enough competition and practically no market. Besides this, the list of exclusion is increasing and lot many risks are excluded from the product liability insurance programme," Kedia further said.