The threat of enforcement action by a regulator is always on a Pharma Company’s risk radar. EQuIP is the new name for Munich Re’s customised business interruption solution that actively helps companies manage quality, manufacturing and supply chain risks.

The pharma industry is heavily regulated. Violations in Good Manufacturing Practice (GMP) can often lead to regulatory actions such as a 483, a Warning Letter, the withdrawal of a Manufacturing Authorisation or an Import Ban, which is likely to cause major interruptions in production. Pharma manufacturing processes and supply chains are highly complex. Companies, both large and small, are often dependent on their outsourced manufacturing partners. These mutual dependencies mean that any suspension of manufacture at a contract manufacturer or a supplier will affect their clients and can result in substantial financial losses.

With EQuIP, pharma companies now have an insurance solution that mitigates the financial impact of a major interruption, bridges the liquidity gap, and protects shareholders’ value. Vertex Pharmaceuticals procured the solution facilitated by Andrew Tait at JLT Specialty USA. Brando Soto, Senior Manager of Corporate Insurance at Vertex Pharmaceuticals Incorporated shares his views.

Topics Online: Had you already assessed the likely maximum cost for Vertex of a prolonged shutdown at either your own site or at a key external plant?

Brando Soto: Yes, we had modelled our exposure in this area as part of work on supply chain risk quantification. So, we knew the most important parts of our supply chain and exactly what we wanted to cover. It was particularly important for us that the product should match our requirements precisely and be tailored to the regulatory risk profile. We wanted clear, affirmative cover that provided meaningful capacity across our virtual supply chain at a reasonable cost. We were able to collaborate with Munich Re to produce a tailored solution.

What were your main criteria for the insurance carrier?

Financial strength is a key criterion for us when selecting our business partners. We knew that the product was just what we wanted. Our objective was therefore sustainable protection as part of a long-term relationship with Munich Re that provided an intensive focus on our particular risk profile. We could only achieve the right scope of cover and the right insurance cover through a close collaborative partnership. Munich Re listened to us – and developed a programme that perfectly matched our requirements.

How flexible is the policy; can your Non-Damage Business Interruption insurance be refined?

Yes, we would like to increase our cover for non-physical damage business interruption risks in connection with regulatory intervention. We are also planning to extend the insurable events to areas beyond purely regulatory risks. We view this insurance solution as a key component of our risk management strategy.

Sector data show that enforced and pre-emptive shutdowns due to manufacturing deficiencies are among the key risks in the pharma industry: total estimated losses since 2001 amount to around USD 10bn. Standard property insurance offers no protection in this instance, because they specify property damage as the trigger for business interruption. Historically, there has been no suitable insurance to protect against the financial consequences of non-physical damage business interruption. EQuIP closes this gap, protecting against losses if production has to be suspended because of violations of GMP. Cover extends to owned, contract manufacture and supplier sites so that the complete end-to-end supply chain can be protected.

The cover is on a named site basis and comprises standard components and a number of optional components. As standard EQuIP insures against:

• a complete or partial shutdown of the policyholder's production at its own or a third party site on the orders of Defined Regulatory Authorities (DRAs), who monitor and enforce compliance with the GMP regulations
• pre-emptive suspension by the policyholder or its named supplier to prevent production shutdowns by DRA’s because of violations identified at its own or at a third party site that have not been remediated to the satisfaction of the authority.

Optional components include:

• a full or partial shutdown as the result of the application of any Import Ban by DRAs for products produced in non–DRA countries.
• a full or partial production shutdown due to the identification of out-of-specification material received from a supplier
• the loss of license or royalty fees due to full or partial production shutdowns at a third party site ordered by DRAs, or effected as a pre-emptive measure by the manufacturer in question

EQuIP from Munich Re offers comprehensive and clear non-damage business interruption cover for regulatory related production shutdowns. Critically it provides both owned site and supplier site protection to reflect the needs of a market characterised by complex supply chain dependences. Providing  a combination of flexibility and security, this innovative insurance solution mitigates the financial impact of a major interruption, bridges the liquidity gap, and protects shareholders’ value offering pharma companies a competitive edge.