While insurance may seem like the answer to every risk you face, increasingly non-insurance techniques are being implemented by organizations within the life sciences and technology space. From medical device to biotechnology, pharmaceutical firms and more, risk management strategies are being employed to blend insurance and non-insurance techniques in order to reduce uncertainty and the financial consequences of loss.
What is risk management?
As a general overview, risk management can be viewed as a process that involves:
For life sciences companies, risk management can also be viewed as a toolbox of four classic risk management techniques including:
Control
With a heavy emphasis on safety and prevention techniques, control aims to reduce the frequency or severity of accidents. In the realm of life sciences and technology risk management, control techniques might involve:
In particular, loss control techniques benefit medical device, biotechnology and pharmaceutical companies in three ways:
Ultimately whatever the cost of loss control and safety measures may be, they are typically less than the costs of a single accident.
Retention
This risk management technique is often implemented when an organization can self-fund partial or all losses without transferring the risk to an insurer or another entity. While some large life sciences and technology firms establish large and sophisticated “self-insurance” programs, many smaller enterprises lack the funds or risk appetite to seriously consider this. However, there are still other ways that smaller-sized firms can consider retention as an option.
For example, using “self-insured retentions” (SIR’s) or deductibles on liability insurance is one form of retention. The higher the SIR or deductible a company is willing to shoulder, the lower the rate. Thus, stepping up to higher SIR’s or deductibles is one quick way for firms to trim insurance costs.
Second, firms can identify certain small types of losses and opt not to purchase insurance for them. One example might be breakage of glass or rental car reimbursement for company-owned vehicles. These types of losses involve low dollar figures, and some firms may feel comfortable funding for these types of contingencies out of regular operating funds.
Transfer
An insurance policy is a prime example of the transfer technique as it involves shifting the financial consequence of loss to another entity. Insurance is a common risk management technique, but it works best and is most cost-effective when integrated with avoidance, control and retention. Prior to purchasing insurance, executives should ask themselves:
Avoidance
Avoidance means shying away from an activity because of its potential for losses. For example, due to a liability of lawsuits, there are now few companies which manufacture intra-uterine devices. Some device companies have found these lawsuits so prevalent and costly that they mad a conscious decision to stay out of these product lines. Life sciences and technology firms can consider avoidance as a risk management tool by deciding to avoid functions or activities which may entail a risk of severe loss. Examples might include:
Avoidance is an extreme risk management technique, reserved largely for risks which a firm deems uncontrollable or extremely threatening to its financial existence. Any healthy enterprise must also strike a comfortable balance between serving the needs of its customers all the while balancing risks in an intelligent manner.
Life science firms can view risk management as a four-legged table supporting their financial health. Focus on loss control, retention, transfer and avoidance to boost your corporate immune system against the potential of liability claims and lawsuits. To see how insurance can complement your risk management strategies, contact the Axis Insurance Group to speak with one of our specialized brokers today.
As a member of the TechAssure network, the above was provided by Quinley, KM Risk Management 101 for Life Sciences Technology Companies (Medmarc, 2006).