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Insurance in the Pharmaceutical Industry

In the fast-paced and highly competitive pharmaceutical industry, companies are looking for ways to cut costs while remaining compliant. One area where many companies can see a quick return is by implementing insurance strategies that have proven to be successful in other industries. After all, what company wouldn’t want to pay less when something bad happens? 

Pharmaceutical manufacturers have struggled with various claims management issues for years. These risks are amplified by the expensive nature of raw materials, production facilities, inventory storage and shipping costs. Understandably, most pharmaceutical manufacturers are unwilling to share details about their insurance policies or the premiums they pay for coverage. However, there is ample information available from public sources and interviews with industry insiders that give an indication of what major players in this sector are currently using as loss prevention tools.

What is pharmaceutical insurance?
In the broadest sense, insurance refers to a form of risk transfer in which the owner of risk pays a premium and, in return, receives a promise of payment if the risk eventuates. This definition applies to most forms of insurance, but there are nuances that apply to the pharmaceutical industry. Obviously, the most essential aspect of a pharmaceutical insurance policy is its coverage. The pharmaceutical industry has two primary coverage types: property and loss of business income. Property insurance protects against the loss of inventory and other assets that are necessary for production.

Loss Prevention Strategies
Since most of the pharmaceutical industry’s losses are associated with inventory and shipping, a good place to start is by looking at loss prevention strategies that focus on these two areas. These approaches include inventory controls, inventory verification, inventory insurance, shipping and handling practices and shipping insurance.

Loss and Theft Protection
Most property insurance policies have built-in coverage for loss and theft. This can include coverage for the cost of replacing stolen items with new ones and any loss of business income that may be associated with the theft. In many cases, loss and theft coverage also has no deductible, which can be significant cost savings for the policyholder. However, if you are working with a broker to design your policy, make sure you know if the coverage provided for loss and theft is actual or non-actual. Actual coverage would cover the cost of the stolen goods at the time of the theft. Non-actual coverage would cover the replacement value of the stolen goods at the time the policy was issued.

Computer Fraud Protection
In the pharmaceutical industry, computer fraud protection is important to protect against unauthorized access to networks and databases. The good news is that this coverage is available in most business insurance policies and is relatively inexpensive.

Shipping and Warehousing Insurance
The shipping and warehousing segment of the pharmaceutical industry relies heavily on specialized insurance policies. This includes workers’ compensation insurance for employees, product recall insurance, cargo insurance, and product liability insurance. Most of these policies have been created with the specific needs of the pharmaceutical industry in mind.

Employment Practices Liability Protection
Employment Practices Liability (EPL) insurance is designed to protect companies from the cost of defending against wrongful termination lawsuits. It is important to note, however, that this coverage applies to all employees, not just senior executives. In the pharmaceutical industry, EPL is often purchased as a standalone policy, which is more expensive than having it included as part of a larger policy.

Commercial Property Insurance
Commercial property insurance policies are designed to cover the value of the real estate where a pharmaceutical manufacturer’s production facilities are located. This coverage is often written as either a scheduled or an all-risk policy.

Should You Have Pharmaceutical Insurance for Your Business?
The short answer to this question is yes. Pharmaceutical manufacturers face unique challenges that often result in increased insurance premiums. For example, the value of inventory is typically high, and production facilities are sometimes located in areas that are prone to extreme weather events and natural disasters. However, by implementing loss prevention strategies and using appropriate insurance policies, companies can ease the financial burden of these challenges and lower their premiums.

Insurance is an important part of any business, but it is particularly important for the pharmaceutical industry. In order to protect, it is important to understand the types of coverage available and how each type of coverage works. It is important to remember that the best way to lower insurance premiums is to prevent losses. This includes keeping an eye on inventory levels, following proper shipping procedures, and protecting your computer networks and databases from cyber criminals.

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