Facing a spike in truck heists targeting high-value pharmaceuticals, Johnson & Johnson implemented a cargo theft deterrence program that has been so successful that its insurer now helps pay for the security measures, said Scott P. Borup, director of corporate risk management.

The deterrence measures and a new accounting method that helps Johnson & Johnson's risk management department obtain favorable insurance pricing followed a series of truck thefts in 2008.

“We had a number of them happen in a row,” with each truck carrying millions of dollars in pharmaceutical cargo, Mr. Borup said. The heists appeared to be part of an escalating trend of high-value pharmaceutical thefts occurring worldwide, he added.

According to Austin, Texas-based FreightWatch International, thefts of truckloads of pharmaceuticals exploded during the past five years. By volume, pharmaceuticals were only 5% of all cargo thefts. But the average value of $4 million in 2009 pharmaceutical thefts surpassed all other commodities. In March of this year, for example, thieves stole an estimated $75 million in wholesale pharmaceuticals from a warehouse owned by drug giant Eli Lilly & Co.

To address the problem for Johnson & Johnson, Mr. Borup's risk management department convened a task force in 2009 composed of personnel from its accounting, logistics and security departments. As a result of the task force's findings, Johnson & Johnson trucks now operate with two drivers, escort cars are used often and tracking devices are installed in company trucks, among other security measures.

The measures have prevented further thefts, Mr. Borup said.

In addition to implementing security measures, a task force subgroup revised Johnson & Johnson's accounting procedures to recognize revenue from the sale of certain high-value pharmaceutical shipments, and that change has lowered the company's insurance costs.

Previously, title and risk of loss for the goods passed to the customer when a shipment left a Johnson & Johnson warehouse.

Under the previous system, the customer purchasing the goods had to be the named insured party for a cargo loss, although Johnson & Johnson bought the coverage and made the customer the policy's beneficiary.

But the task force revised the terms of certain high-value transactions so that title passes to the customer when the shipment reaches its destination.

Therefore, Johnson & Johnson remains the insured party until the cargo reaches its customer. That allows Johnson & Johnson to purchase insurance that covers its manufacturing costs rather than coverage for the sales invoice price of the finished pharmaceuticals.

The new accounting procedures helped make “our insurer comfortable that even if a truckload is stolen after all those security measures, the claim they are going to pay out is going to be substantially lower,” Mr. Borup said.

As a result, his cargo insurer, London-based RSA Insurance Group P.L.C., renewed his 2010 coverage for a lower price than it would have, considering Johnson & Johnson's 2008 cargo losses, saving the company millions of dollars in premiums, Mr. Borup said.

“And when we showed RSA what we put in place, they were impressed enough that they now contribute financially to (our security) efforts to make sure we continue” enforcing them, Mr. Borup added.

Mr. Borup declined to specify the amount of RSA's contribution to Johnson & Johnson's security efforts.