Success in the medical device business is a team sport. One crucial member of a device firm's team is often an insurance broker. The right insurance brokers can help you get the most affordable coverage at the broadest terms. They can help guide you through the insurance maze and help you build a financial bulwark against various risks. If you face a crisis or a claim, they can partner with you and offer resources to come to your aid. In short, they can be invaluable business partners. Thus, a key part of any medical device firm's risk management program should be wise broker selection.
For starters, let's differentiate between an insurance agent and a broker. An insurance agent typically represents the insurance seller, i.e., the insurance company. An agent may have exclusive or non-exclusive contracts with certain insurance companies, and can place coverage only with those insurers.
An insurance broker brings buyers and sellers of insurance together, but represents you, the buyer. A broker can survey the entire insurance marketplace to find the best deal for you — assessing price, service and scope of coverage. For many medical device companies, an insurance broker will be their chief insurance advisor.
What should medical device companies look for in an insurance broker, or when evaluating their current one? Recently, I queried several insurance brokers who work in the medical device and life science space. Here, in no particular order, is a shopping list of fifteen qualities to look for when selecting this key business partner:
1. A broker who can grow with you and evolve with your insurance needs. Mike Tanghe of Falcon West Insurance Brokers, Inc. (Twin Cities, Minnesota area) says, "Make sure brokers can help not only with present needs, but insist they also have the expertise and capabilities to adapt as your firm grows and changes. Insurance needs for early-stage R&D firms differ from those of mature companies with several products on the market."
2. Look for low staff turnover and high longevity. Tanghe also recommends focusing on the individuals with whom you'll be working. Ask the broker, "What is your historical staff turnover ratio?" He urges that firms look beyond "dog and pony shows," and focus on a broker's customer service role. This should not only protect the client from exposures, Tanghe maintains, but also make a client's job easier as it navigates the complexities of insurance.
3. Device industry specialization. Byron Yankou, a broker with AVID Insurance and Risk Management in Toronto, notes that the device area is highly specialized. Take one small area, he says, such as an early-stage company. A new insurance broker isn't likely to build an insurance program that addresses Directors and Officers risk, or anticipate a seamless transition to a public listing.
4. Global perspective and resources. Yankou notes that with clinical trials occurring throughout the world — where even large international underwriters have limited resources — it's imperative that brokers have global connections to place international coverage.
5. Deep bench to provide a range of risk management/mitigation services. One can't be all things to all people, Yankou notes. "A good broker should have contacts to contract out certain aspects to outside specialists," he says. Specifically, he cites post-loss claims management or business interruption settlements. As a company emerges from an early stage into a growth stage or mature stage, determine if the broker has other value-adds like global capabilities and/or in-house claims advocacy.
6. Trade show/conference visibility. According to Russ Jones, a broker with Summers Thompson Lowry (North Carolina), brokers must "be visible at life science conferences so that prospects know they are serious about the business. Do you see the brokers attending industry trade shows? Do they read the trade journals in your industry niche? This is a sign they are steeped in your business.
7. Brokers must understand the science. They should have a basic grasp of the science the client is working on. If the broker does not understand your product — whether it is a drug-eluting stent, a retractor or an ophthalmic implant — he or she cannot "sell" you as a sound risk to an insurance underwriter.
8. A broker steeped in life science, who can view the business from an investor's perspective. Sam Fairley, Senior Vice President at RT Specialty in New York City, suggests finding a broker actively involved with life science accounts and who has assembled programs for start-ups and early-stage investment companies. This includes a broker who has used venture capital and private equity investment, right up through IPO and beyond. Get a broker, he says, that understands loss exposures from the investor side, from a regulatory angle and who has negotiated coverage at each stage, up through Phase III trials and product approval.
9. Passion and interest in the medical device sector! Shane Aiken, Account Director at Indemnity Corporation (Sydney, Australia) believes that a good broker is passionate about the science, the thrill of the ride from a capital and discovery standpoint, and wholeheartedly embraces their role in the business network. Andrew Tamworth, a life science underwriter with CFC Underwriting (UK), says a good broker has an interest in, and understanding of, the medical device sector.
10. An understanding of lifecycle risk. Medical device firms strive to build shareholder value. Procuring insurance is not as thrilling as buying that sexy new BMW you've been eyeing. Device firms face cost pressures. A good broker breaks through this, understanding the full discovery lifecycle — from capital raising to registration — and articulates to management the true nature of complex risk exposures that threaten balance sheets throughout the lifecycle, providing best practice solutions that provide protection.
Matt Heinzelmann, Executive Vice President at Higginbotham & Associates (Dallas) notes that, from early to mature stages, each insurance buyer is focused on different objectives. Part of a broker's value-add is understanding client's financial objectives, then (and only then) articulating specific insurance coverages with unique strategies that dovetail with short- and long-term goals. For example, early stage companies, focused on R&D, he notes aren't typically preoccupied with product liability, but might want a specialized insurance product that covers them for complications arising from human clinical trials.
11. A perspective that goes beyond insurance-buying, encompassing risk management and strategy. Michael Cremeans, who leads the life science practice at the Oswald Companies (Cleveland) says, "It's really not about insurance. A good broker truly acts as a business advisor and not as an 'insurance person.'" Any insurance placement results from hard work and analysis. Weaving insurance and risk management into a strategic plan, along with experience in dealing with contractual liability, are key components to adding value, Cremeans states.
12. A broker that breaks out of "insurance product" silos. Cremeans observes that the insurance industry often organizes itself into product-type silos, but many device firms dislike that approach. A broker that can apply knowledge across multi-insurance disciplines to the medical device industry has great value.
13. Ability to offer bespoke solutions. "Medical device companies are not cookie-cutter risks," Cremeans insists, "and may need something other than cookie-cutter insurance solutions and products." He cites as key success traits for brokers the ability to think laterally and design an insurance program around the client's needs rather than pushing off-the-shelf products.
14. Accessibility and pro-activity. A good broker stays in touch with the client — not just at policy renewal time — and communicates with you proactively as a device firm's risk profile changes. This, Cremeans says, enables the firm to re-calibrate the structure of the insurance program as needed. Crises and problems for device firms do not always conform to 9-to-5, Monday-through-Friday schedules. A good broker comes through in a pinch, even if a problem arises during "off hours."
15. Opens strategic alliances, resources and partnerships. Bruce Ball, Chairman of Britton Gallagher (Cleveland) says, "A good broker is steeped in the tangible and regulatory risks that a device company faces and offers substantive dialogue with senior management about risk and dealing with its consequences." He stresses, though, that a good broker doesn't stop there. An A-player, he adds, helps clients grow their businesses by opening up relationships with other clients, VC contacts/strategic consolidators and makes strategic introductions to their spheres of influence. "Being a CEO of a life science company can make you feel like you are on an island," Ball states, adding, "it doesn't have to be that way."
"Dream Teams" are monikers more often associated with US Olympic basketball squads than with med-tech enterprises. Device firms can help build gold medal caliber businesses, though, by incorporating savvy insurance brokers as part of their own risk management Dream Team!
This article originally appeared in the April 2013 issue of Medical Product Outsourcing Magazine.
