London broker seeks support to create pharmaceutical mutual

A mutual insurer could provide the answer to the liability coverage problems of global pharmaceutical companies, according to Neil Campbell, a partner with broker JLT Risk Solutions in London.

And the former AstraZeneca P.L.C. risk manager is busy at work trying to garner support for his idea from risk managers and reinsurers.

Global liability capacity for large pharmaceutical companies has plummeted over the past several years as result of spiraling claims and as a result, buyers have deserted the market.

Neither buyers nor insurers and reinsurers are particularly happy with the situation, according to experts, but given the volatility and high risk nature of the modern drug manufacturing and marketing business, they have found it a difficult problem to solve.

According to Mr. Campbell, a mutual insurer could be structured to offer significant capacity to drug companies provided it is structured to offer significant new capacity with realistic attachments at a competitive price. It would also need a long term approach with perhaps five-year terms and provide coverage for whole product portfolios, rather than on a product-by-product basis.

"We are developing a much more complex proposal than a simple mutual.... It is long-term, experience-based, removes post-loss sharing of claims and ensures there is a sufficient limit to meet all claims," Mr. Campbell said.

The broker said that he is a "long way down the road" with the concept, but admits that it is "very tough." Large pharmaceutical companies have become used to retaining a significant amount of their liability exposures, he said.

"It is really down to whether people decide that insurance is adding value or whether their balance sheets are really big enough," Mr. Campbell said.

And the concept should make sense for the insurance and reinsurance companies that are holding a tough line on a business that can wreck their earnings, but also one that still offers huge potential premiums, he said.

"For insurers and reinsurers, it's potentially a way to get away from trying to write this on a product-by-product basis," Mr. Campbell said.

But Robert Corbet, pharmaceutical specialist with Aon Risk Services in London, is not sure that the mutual concept can really be applied to pharmaceutical liabilities.

"Look at the dynamics of (the mutual concept) and it is difficult. The buyer says 'I won't put my balance sheet with someone who I don't think is as well run as my own company....' In the current market I think it is unlikely," said Mr. Corbet.

Chris Bryce, European chemicals and life science practice leader for Marsh Inc. in London, said he likes the idea in principle but is also skeptical, particularly of the European response.

"It's a great idea and it has been debated for some time, but it will be difficult in Europe. In North America, there is a far greater acceptance of the mutalization concept. Europeans are more cynical and the argument always goes back to who is the first one to swoop the pot," he said.

Whether the mutual concept for the pharmaceutical business will fly this time around should become clear over the next several months, according to Mr. Campbell of JLT.

"We should know in the next couple of months. We are currently looking for reinsurance support for the structure. The problem is many buyers have philosophically decided not to buy insurance and we have got to overcome that," he said.