A guide to insurance for life science start-ups

Life sciences is a fast moving, exciting and creative industry. Founders of start-ups enter the market with the goal of solving problems that could help millions of patients across the world.

The Covid-19 pandemic has accelerated growth in the market. Research by The UK Bioindustry Association found that the British Biotech market raised £2.8billion in investments in 2020. As the world becomes more conscious of potential public health crises in the future, the opportunity to create change is there for entrepreneurs.

Of course, where there is opportunity, there is risk. This is particularly true for Research & Development. Start-ups entering the market will need robust policy and protections for handling patient data, testing new drugs, offering medical advice and navigating patent law across locations.

Therefore, taking out the correct insurance is a must. However, this is not a straightforward task. Life Sciences insurance is not as simple as picking a ready-made policy off the shelf.

Start-ups will need tailored policies, depending on their exposure to different risks. It is crucial that founding teams consult with a trusted broker to help create a bespoke plan that covers every facet of their output.

What insurance does a life sciences start-up need?

Life sciences start-ups will need a mix of general and industry specific coverage. Depending on the country you’re operating in, you may be obliged to hold certain policies by law. You should always contact a specialist advisor to understand the statutory requirements of the markets you operate in.

Here are the policies a Life Sciences, based in the UK will need:

• Employers Liability

• Public & Products Liability

• Professional Indemnity

• Directors & Officers

• Cyber Liability

• Intellectual Property

• Clinical Trials

• Property, Business Interruption

• Product Recall

Why does your life sciences start-up need these policies? We’ll break down the role of each below.

Employers Liability

Employers’ liability insurance is a legal obligation for any employer operating in the UK. It protects you from any work-related injury or illness your employees may suffer.

It is usually sold as a package with other policies. Make sure it is properly displayed once purchased, as you can be fined up to £1,000 by inspectors should your certificate not be made available upon request.

Public & Products Liability

Public & products liability protects your business where it is legally responsible for damage or injury caused to an employee either during day-to-day business activities or by a product you have supplied.

Professional Indemnity

Professional indemnity insurance protects you against any negligent act you may have made in a professional capacity, which has led to either a client or a third party suffering financial loss. It helps cover allegations of contract breach, negligence or dishonesty, and covers your defence costs should a disagreement result in legal action.

This is often required for technology providers entering into contractual obligations, so should your company be providing telehealth services, or medical commitment, this is an absolute must.

Directors’ & Officers’

Directors’ & officers’ liability insurance covers the cost of compensation claims made against your business’s directors and officers for alleged wrongful acts.

Wrongful acts can include:

• Breach of trust

• Breach of confidence

• Breaches of fiduciary duties to shareholders

• Employment practices and HR disputes

• Investors will usually ask for your founding executive team to be covered by such a policy.

Cyber Liability

Cyber insurance or cyber liability insurance is a type of cover designed to protect your business from threats including:

• data breaches

• malicious cyber attacks from malware or ransomware and hacking

• system shutdowns

Life insurance companies have a duty beyond regulation to protect the health data of their employees. Without the right cyber security, and insurance should your defences be breached, the potential damage to your company’s reputation should be taken extremely seriously.

Intellectual Property

Whether your business is involved in retailing, licensing, manufacturing, distributing, research and development or any other form of trading you run the risk of infringing another’s intellectual property rights. This can be the form of patents, trademarks, copyrights or designs, etc.

You might also need to take action against a competitor, should you feel your intellectual property has been plagiarised in turn. This is more common in the life sciences than you may think - recently Moderna announced a lawsuit against Pfizer for breaching its patent in developing a Covid-19 vaccine. Because of this, most contracts for manufacturing, licensing, and research & development require this protection.

Such cases can run high costs. The average estimate of a patent litigation case in the UK’s High Courts is £750,000; intellectual property insurance would cover these fees.

Clinical Trials

Depending on the key outputs of your start-up, clinical trials can vary greatly in size and scope, and as such, rigorous risk assessment will be needed to ascertain the businesses’ exposure. Trials are happening at a rapid pace thanks to the increased investment in life sciences; however, this insurance cannot be overlooked for the sake of speed.

There are many potential complications from which your company needs protection. This type of policy will cover you against all sums for which you're liable to pay in the case of a subject’s death, bodily injury, physical or mental illness. It can also be used to cover the defence or settlement of any claim. As some health issues may not present themself for some time, it is best to acquire a policy with an extended period of coverage.

Property, Business Interruption

Business interruption protects businesses against loss of income. Unexpected interruptions can happen in the case of technological shutdown or injuries or illnesses during trials.

This type of policy allows you to continue paying staff following an unexpected interruption and protects your income streams and tangible assets, such as:

• buildings/offices

• laboratory machinery and equipment

• computers

• documents

• R&D materials

• temperature-sensitive stock

Product Recall

The safety of products is absolutely vital. It’s what a business is built on, but sometimes a product can unintentionally be compromised.

Product recall covers the cost of reimbursing clients or customers for their orders should you need to recoup your stock in the case of a government authority suggesting a recall.

What types of Life Science companies can we support at Lockton?

The life sciences market is diverse. We know the needs of start-ups vary greatly, and they cannot always be neatly categorised. However, at Lockton, we can help businesses that operate in the following fields:

• Biotechnology 

• Clinical Trials

• Dental product manufacturers

• E-Health and Health Technology

• Health & Beauty 

• Importers / wholesalers / distributors

• Medical devices – invasive and non-invasive (including implants) 

• Nutraceutical companies

• Pharmaceutical manufacturers and distributors

• Responsible person organisations

• Research and experimental development companies

• Service organisations, e.g., contract manufacturers, contract research, site management, analytical and testing laboratories

• Veterinary drug manufacturers and distributors

To find out how we can help create a unique insurance plan for your life sciences start-up, please visit the Lockton Life Sciences page and get in contact with one of our team.