Aiming at a moving target

The medical supplies industry is experiencing extensive consolidation. With firms struggling to find new avenues of growth, many are choosing to expand through mergers and acquisitions (M&A) rather than through creating new product lines.

This means that insurers specialising in covering these risks face dealing with and assessing an ever-changing client base. It also means a diminishing pool of potential clients for these insurers.

Mark Wood, president and chief executive officer at LifeScienceRisk, a managing general underwriter specialising in generic pharmaceuticals, medical devices and nutritional supplements, says this dynamic is especially true in the US. “It is a particularly big issue in the States,” he says.

Consolidation in the sector is being driven largely by the tough economic conditions insureds face. While companies are continually under pressure to grow, the cost of developing new devices and drugs also continues to rise, as do the regulatory hurdles firms must pass through in the process.

This means that M&A can offer an efficient route to growth, says Wood. “Some companies are becoming acquisitive. If they don’t have products in their pipeline they feel obligated to look at further opportunities to increase their product portfolio via acquisitions,” he says.

This leads to serious competitive pressures for insurers, who see their potential client list dwindling. “Not only are we competing against each other, but the reduction in clients is putting a pressure on insurers as well,” adds Wood.

It is not all bad news, however. For some insurers, this environment is also providing opportunities. As medical supplies companies merge into increasingly bigger organisations, individual executives and sometimes whole teams are sensing an opportunity. This means there is also a proliferation of start-ups in the market—perfect for specialist insurers targeting small- and medium-sized businesses.

This plays well for LifeScienceRisk, a subsidiary of Ryan Specialty Group, whose main client base, especially when it comes to companies in emerging device technologies, consists of companies that turn over less than $1 billion. This provides a growth opportunity for the firm. “That’s a good thing for us,” says Wood.

To capitalise on these opportunities, LifeScienceRisk has developed strong relationships with brokers and agents that specialise in the medical supplies sector. This means that the firm gets the pick of the business coming through those intermediaries, according to Wood. “That is fundamental to how we operate,” he says.

LifeScienceRisk focuses on individual risks, rather than class underwriting, which allows it to focus on the needs of clients bringing specific products to market. The firm also has a very open risk appetite which allows it to consider a wide variety of exposures. Each account is underwritten on its own merit. “That’s an advantage for us. We pride ourselves on our ability to select risks,” says Wood.

This experience means LifeScienceRisk can also provide insight to clients involved in the swathe of M&A activity. If a client acquires another company with products it is unfamiliar with, that can create issues.

“We can articulate to clients about the need to address the amount of risk they are taking on,” says Wood.”If they do acquire a higher risk company, they could face problems buying insurance at premium levels that they are not used to.”