Category: Latest Thinking

BY JAMES M. HANRAHAN AND ROGER W. LADDA

The traditional approach to property and casualty business risk is to transfer it to an insurance entity by purchasing a policy. Some organizations take the opposite approach and opt to assume all of that risk through self-insurance. But more and more businesses are pursuing a middle ground such as captive insurance. The number of captives has increased in the last two decades as companies of all sizes seek alternative solutions outside the traditional insurance market to insure against new and emerging exposures and maximize the benefits of an effective risk management program.

The easiest way to understand a captive is to think of it as an insurance company owned and operated by its insureds and/or members. These same individuals or groups that hold the insurance policies also own the captive insurance company. Captives are legal entities that are licensed and domiciled on-shore (Unites States and its territories) or off-shore (Caribbean, Europe, Asia). They’re subject to similar regulations, albeit sometimes different statutes, as traditional insurance companies and must maintain financial solvency.

In a sense, captives are a more structured form of self-insurance that allow an organization to assume some risk while also accessing reinsurance for catastrophic and more extreme exposures best managed in the traditional insurance marketplace. The greatest benefits of captives are typically greater control over the insurance program, coverages and premium costs as well as the potential for additional equity through sound underwriting, pricing and loss control.

While there are numerous benefits to captives and their popularity is rising, they are not always the right fit for every organization and every risk. Yet as businesses evolve and their risk profile changes, it’s worth periodically re-evaluating a role for captives in a broader risk management approach. That means getting a handle on the various types of captive insurance structures available and some critical tipping points that may indicate a captive approach is worth a closer look.

Categorizing Captive Options

There are many different ways captives can be structured, but they tend to fall into one of three broad categories:

• Single-parent captive – also known as a pure captive, this structure is typically an insurance company owned by its parent company that insures the risks of that company and affiliates, which often fund large deductibles and may have complex risks. A single-parent captive is best suited for companies with premiums in excess of $2 million, but can be set-up for a company with premiums as low as $1 million. The captive’s owners will have to put up initial capital based on premium writings, types of coverage and policy limits assumed by the captive.
• Group captive – this structure is based on a number of organizations joining together to form their own insurance company. Group captives are effective for mid-market organizations that do not want to incur all the costs of establishing their own insurance company. Performance is shared among the group members but it is quantified and follows a set methodology. Group captives can be homogeneous (similar industries) or heterogeneous (different industries), but typically companies are privately held and engage in sound risk management practices. A group captive is best suited for single organizations with annual premiums between $200,000 and $1.5 million for workers compensation, general liability and automobile liability.
• Hybrid captive – also known as a segregated cell or segregated portfolio captive, a hybrid captive allows organizations to use a captive structure without directly owning the insurance company. This structure allows an organization to “rent” the segregated cell’s capital and insure specific coverages supported by another entity, usually another insurance company. A hybrid captive is best suited for single organizations with premiums in excess of $1 million or groups with premiums in excess of $3 million.

With this understanding of various captive models, here are four factors that suggest captive insurance might be a good fit for your business.

Tipping Point #1 – Your Business has a Proven Track Record

For organizations with a long-term risk financing strategy and proven results in loss control efforts, captives can be an effective way to drive down costs and retain greater control over coverage. Loss ratios below 50 percent and predictable costs year after year create an opportunity to tailor coverage limits and deductibles to maximize savings. This is especially beneficial in traditional property and casualty lines including workers compensation, general liability and auto liability, where there’s an investment opportunity in insuring against long-tail losses. A business with a long-term strategy and good loss control may be better suited to handle the startup expenses associated with establishing a captive and realize the benefits of fewer costs and claims. This proven track record also suggests the organization will efficiently manage risk in the future.

Tipping Point #2 – Your Business has a Lack of Traditional Insurance Options

Other organizations may be driven toward captives by a lack of traditional insurance coverages. Businesses in niche industries can develop more tailored coverages and policies with fewer exclusions. This need for tailored coverage also applies to emerging risks, including cyber and terrorism coverage, which may have limited policy options or is prohibitively expensive in the traditional markets. Single parent captives are usually the structure used to address these coverage items. On the other hand, group captives may be able to obtain better rates and coverage enhancements compared to the traditional market, as group captives base their pricing on an individual members own loss experience. Group captives also benefit from mass purchasing power, including investments in safety and loss control programs to lower costs over time.

Tipping Point #3 – Your Business is on the Cutting Edge of Risk

Company leaders with a deep understanding of risk or who like to manage all aspects of the business may not like the idea of ceding any control over risk to outside partners. In these cases, a captive approach may match leaders’ entrepreneurial spirit. Companies and leaders may recognize the savings and control that come with a captive approach and want to take on the challenge of achieving a better risk management approach and view it as an investment in the future of their organization. Rather than allowing the traditional market insurance company to benefit from a company’s good loss performance, a captive owner puts itself in the position of the insurance company and thus reaps the benefits of the superior performance.

Tipping Point #4 – Your Business could Benefit from Shared Best Practices

When organizations with solid loss control efforts combine forces in a captive, the potential for savings can be even greater. Group captives can benefit from an atmosphere of collaboration to better prevent claims and improve claims management. Homogenous captives have an opportunity to share industry best practices and set ambitious risk management goals.

What Comes After the Tipping Point?

For businesses who may be primed for captive solutions, the next step is a relatively straightforward financial analysis. Organizations should compile five years of loss runs and corresponding premiums for the lines of coverage in consideration as well as exposure information. Crunching the numbers should quickly show if utilizing captives would make business sense. In most cases, an experienced partner can help figure out if a captive is a good fit and how to best structure this alternative insurance strategy.

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In many households, pets are considered another member of the family. When they are harmed or killed as a result of negligence or a faulty product, the result can be devastating to the pet’s owners and lead to severe emotional and physical distress. Please fill out the form below to download the article about animal health liability.

BY TIM GOSNEAR & MICHELE FIELDS

The hours and days immediately following an employee suffering an injury abroad is not the best time to think about the details of your company’s international insurance coverage. Rather, it pays to be proactive when determining the most effective way to mitigate the risks and potential claim costs that can arise from international employee travel. The first step of any proactive risk management process should start with understanding the exposures and the options that employers have in building a robust international insurance program. It also involves communicating the important details of the coverage to employees and ensuring employees, both abroad and at home, know what to do in the event of a claim.

1. Understand the International Insurance Coverage Options

As with any type of coverage, there are important policies and endorsements to existing policies that are designed to respond to employee injuries or claims abroad. One of those is the Foreign Voluntary Compensation endorsement added to a U.S. workers’ compensation policy. This endorsement can provide coverage for employees traveling abroad for company business. It typically covers medical costs and lost wage benefits, as well as costly repatriation expenses when an injured worker needs a medical evacuation back to the United States. However, this coverage can be fairly limited. As with traditional workers’ compensation coverage, the endorsement may be subject to a policy’s high deductible and, more importantly, employees may not be covered when they are not engaged in work activities at the time of the incident. For example, an employee, who slipped in his hotel lobby or was in a car accident may not be covered under the workers’ compensation policy if it is not deemed to be in the course and scope of employment.

Business travel accident involves an extension of the basic accident policy to include out of country travel benefits, while an international package policy involves combining multiple lines of coverage into a single policy. Having an international package policy allows employers to build a comprehensive policy based on the specific risks and exposures the company and its employees may encounter. Coverages that may be placed in an international insurance package include, but are not limited to:

• General and products liability
• Business travel accident
• Kidnap and ransom
• Automobile coverage
• Property and transit

Regardless of the type of policy obtained, it is best to ensure that coverage applies the entire time that employees travel abroad – 24 hours a day. It is important to understand the specific policy language. A knowledgeable broker can help build the policy and ensure endorsements, such as 24-hour coverage, are addressed.

Once the best travel coverage is identified and acquired for the organization, the next step involves communicating the details of the policy to all departments and employees.

2. Communicate Coverage Details

Effective communication goes beyond notifying a company’s own departments. That communication should also be specifically addressed to all employees who travel abroad so that they know the details of their policy before they step on a plane or pack their suitcase. Many organizations include these details on a company intranet or will give them to managers to share with employees. Carriers and brokers can create wallet cards for traveling employees with policy details and contact information. In addition, carrier partners typically provide instant access to key travel information via mobile apps and other tools while the employee prepares for travel or is abroad.

The most effective communication plan has a risk management aspect to it as well. There is an opportunity for employers to share tips for staying safe while traveling abroad.

These details can be tailored to where employees are traveling and any specific information related to the country in question. Another resource many employers use in accessing international travel risks is the travel advisories found on the U.S. Department of State website, Travel.State.Gov. This can be a valuable tool to stay up to date on relevant information about the destination country.

3. Clarify the Claims Process

Any employee communications should not just inform the employee about the types of coverage in place or facts about the destination, but should also emphasize what to do in the event of an injury or illness abroad that requires filing a claim. Communication tools, whether it is a wallet card or a mobile app, should provide specific instructions to employees overseas. Moreover, designated employees in the home office should have a thorough understanding of the claims and incident management process. International claims are often complex. There may be a preapproval process for payments and other requirements.

Time differences, language barriers and unfamiliar health care systems only complicate matters. Swift and accurate actions are critical. It is important to work with a carrier whose travel assistance team has 24/7 access to the claims department. It is also important to work with a broker that has the requisite experience and knowledge to successfully guide a claim to its desired outcome.

A Better Approach to International Travel Coverage

Maintaining effective international insurance coverage is not just good business practice, it also demonstrates to your employees that you are taking a proactive approach to their health and safety. As an informed employer, you can provide much-needed peace of mind for international travelers. Offering such a benefit depends on first securing adequate coverage and then sharing the necessary details to employees. It is also critical to have trusted partners to ensure you are building the right coverage and providing ongoing support to proper communication tools and claims resources.

CASE STUDY:

To better illustrate some of the common issues surrounding international travel insurance, here’s a brief case study detailing some established best practices:

A U.S. salesperson attended an annual sales meeting in Italy. She spent the morning at business meetings and then afterwards took part in a hiking excursion at her own leisure. While hiking, she fell and broke her leg. Since the injury did not occur in the course and scope of her work, it is questionable whether her injury would trigger coverage under an endorsed workers’ compensation policy. Even if it is covered, the loss may be subject to a high deductible for the employer and other potential limitations.

However, the company has an international package policy including business travel coverage with a 24-hour coverage endorsement with a $0 deductible. The employee, who was carrying a wallet card with key contact information, contacted the carrier’s travel assistance team immediately and notified her HR department. The carrier partner approved and coordinated her medical care locally. Then, they arranged her flight home once her leg was stabilized. The broker ensured smooth handling of the claim behind the scenes.

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BY JOSEPH M. DIBELLA 

Employers have limited options when it comes to traditional tools used to control health care benefits plan costs. Adjusting coverage, raising rates and changing carriers can only be done so often. However, plan sponsors and employers are under constant pressure to reduce expenses and improve benefits. As a result, many employers have put an increased focus on wellness and preventive health measures.

But in today’s world of rapidly rising healthcare costs, flu shots, walking clubs and annual physicals have become table stakes. By and large, these initiatives focus on keeping healthy individuals as healthy as they can be.

Yet in most member populations, 10 to 15 percent of the people drive between 85 and 90 percent of the healthcare costs.

These individuals interact with the healthcare system more frequently and, as a result, incur a majority of plan costs.

More and more organizations are turning to personalized care to help these members navigate the complex healthcare system maze. New human and technological resources and strategies are creating enhanced opportunities to contain costs and foster better health outcomes for these patients. Here’s a closer look at how personalized care can work for patients with chronic and catastrophic conditions.

NAVIGATING CATASTROPHIC CONDITIONS

Consider a patient who has just received a cancer diagnosis. On what may be the worst day of their lives, these patients are thrust into the health care system on a whole new level. The industry refers to this as a “catastrophic condition.” The patient starts seeing specialists and undergoing involved tests and treatments. They’re dealing with insurance issues like in- and out-of-network providers and denied claims.

How these challenges are handled can be the difference of tens of thousands of dollars for plan sponsors.

When a patient suffers from a catastrophic condition requiring a lot of medical follow-up, plan sponsors should consider providing a personal care navigator. This person, often a nurse, serves as the patient’s coordinator and quarterback throughout the healthcare process. They help schedule appointments, interpret test results and handle insurance issues that may come up.

This personalized care navigator can significantly improve cost containment, but there are numerous benefits to the patients as well.

It reduces stress and provides another medical resource to help coordinate care. Research has found it can also considerably improve health outcomes in treating the catastrophic conditions and in navigating the challenges that come with recovery1.

MANAGING CHRONIC CONDITIONS

Other patients have increased interactions with the healthcare system as the result of a chronic condition – diabetes, hypertension, asthma, chronic obstructive pulmonary disease, etc. For these individuals, consistent and effective management of the chronic conditions is critical. Patients need to be consistent with their medication, keep their blood sugar in check, keep an inhaler nearby, and get regular breathing treatments.

Otherwise, chronic conditions can become life-threatening catastrophic conditions, putting the patient at risk while driving up costs and impacting productivity.

As a result, personalized care for these patients often focuses less on prevention and more on effective management of the condition. Emerging data warehouse tools allow employers and plan sponsors to check member conditions against treatment and medication statistics. For example, those tools can identify that a diabetic member has not had a prescription refilled or missed a recent eye exam. Then a nurse navigator or other advocate can reach out and help keep the patient on track. In most cases, patients simply got busy and forgot to take the required action. They appreciate the proactive outreach. It’s a powerful opportunity for the healthcare industry and employers to utilize big data in a meaningful way.

FINDING A PARTNER IN PERSONALIZED CARE

Personalized care is a powerful tool at plan sponsors’ disposal, but only if it’s used effectively. That starts with an analysis of member and claim data and using population health strategies to identify opportunities to reduce costs and improve care. A broker can serve as a trusted partner and benefits manager in navigating the personalized care process. Starting with the why, this partner can show the potential return on investment of a program, then work towards who the program should focus on and how it should be constructed. Often, patient navigator programs and platforms represent significant savings over traditional treatment and administrative strategies.

In many cases, savings can be at a rate of 2:1.

When done right, personalized care is a true win-win for patients and plan sponsors. There’s tremendous opportunities to use data analysis tools and strategies to cut and contain costs while offering patients a partner and a roadmap in navigating complex medical conditions. The result is a better outcome for patients and plan sponsors.

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1 https://www.journalofclinicalpathways.com/article/role-patient-navigation-improving-value-oncology-care

BY TERRENCE J. TRACY, RICHARD J. TREMBICKI & TAYLER LINDEMAN

Mortgage protection insurance is a coverage area not often discussed, but it’s a tried and true coverage provided to financial institutions and any companies that originate, sell or service mortgages.

This coverage is widely available, highly customizable and has the ability to protect against unforeseen and sometimes hidden liabilities. If a bank employee mishandles escrowed premiums and the client’s homeowners insurance lapses, who is responsible for any damages that occur? How can financial institutions protect their interest in a property if the homeowner fails to acquire adequate insurance? Who pays for flood loss for properties that were not deemed to be in a flood zone?

Considering the complexity of mortgages and the various parties and coverages involved, it is important that the coverage be tailored to your needs. For example, there are coverages available that are not automatically provided by insurance carriers, such as balance of perils coverage. This coverage expands coverage to include perils not required by the mortgage agreement, including damages caused by flood loss for properties not located in a flood zone, weight of rain, ice or snow, theft and/or vandalism and collapse.

Typically, mortgage protection insurance is broken up into two key coverage areas. Here are a few key considerations to keep in mind about both:

Mortgage Impairment Fills in Coverage Gaps

Typically, the homeowners insurance policy held by the borrower will cover any damages to the property. However, coverage gaps may arise which can leave financial institutions responsible for these sometimes expensive repairs. Mortgage impairment insurance protects financial institutions for their interest in property resulting from lack or inadequacy of coverage and insures against perils where required in the mortgage agreement.

Mortgage impairment insurance is important for protecting financial institutions. For example, if a borrower fails to pay their premium and their homeowners insurance lapses, financial institutions can find themselves liable for damages caused during this window. Similarly, if the insurance company becomes insolvent and the house is destroyed, the financial institution may find itself without adequate coverage.

If a borrower fails to purchase earthquake coverage as required by the mortgage agreement and the house is damaged or destroyed by one of these unexpected natural disasters, the financial institution can also see the value of its interest in the property vanish. Issues can also arise with government entities if the homeowner fails to pay real estate taxes on the house and the government seizes the property.

Dotting I’s & Crossing T’s with Mortgagee’s E&O

The other side of mortgage protection insurance is Mortgagee’s errors & omissions (E&O). These policies cover claims resulting from the financial institution’s mishandling of the borrower’s insurance. For instance, if the mishandling of escrowed premiums results in a lapse of homeowners coverage, the financial institution would be covered for any damages that result during this break in the policy.

Depending on the specifics of the mortgage agreement, financial institutions are also sometimes responsible for certain tasks like paying the borrower’s real estate taxes or identifying if the property is located in a flood zone. E&Os made during this process and those arising out of the financial institution’s recordation, maintenance or safeguarding of loans are also covered by mortgagee’s E&O insurance.

Closing Coverage Gaps

Mortgage protection insurance is a must-have for all financial institutions that work with mortgages. However, there is no standard form and different carriers offer different coverages. It is important for financial institutions to work with a broker that has expertise in these risks and the corresponding policy language. These professionals can carefully review the policy and consider the coverages and expansions available to ensure the organization is fully protected.

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BY DANIEL S. BRETTLER

Blockchain has the potential to revolutionize supply chain management in businesses around the globe. The life science industry is no exception considering the need for accurate, protected and transparent information that is critical to every stage of the supply chain from a clinical trial through a drug’s delivery to a patient. But with any broad introduction of a new technology or process come inherent liabilities and cause for concern, particularly where valuable intellectual property and patients’ personally identifiable information are at stake.

While the potential benefits of blockchain are limitless, innovating companies must understand that implementing this new technology also brings new areas of vulnerability. This technology is making massive strides in protecting sensitive data, but information security is still a major concern. The consequences of a breakdown or breach could result in massive financial and reputational damage if information and sensitive data is altered or lost. As adoption grows, the new risks that come with it can be addressed with insurance coverage and risk management.

Before exploring these dynamics and how they may play out in the life science industry, it is helpful to first understand exactly what blockchain is and how it can be leveraged.

A Distributed Ledger

Blockchain, also known as distributed ledger technology (DLT), has many applications and can be used for any exchange, agreement, contract, tracking and, of course, payment. Blockchain enables proof of ownership and the transfer of ownership from one entity to another without using a bank. It works by recording transactions on a block and across multiple copies of the ledger that are then shared and distributed over many computers. It is therefore both highly transparent and secure since every block links to the one before it and after it. The value that is transferred can move through an extended supply chain while ensuring that what occurs at each point in the chain is chronologically recorded.

Unlike other ledgers, blockchain lacks a central authority and is extremely efficient and scalable. Entries are stored within a chain of blocks. At every stage, the participants to the network must agree on the latest sequential block of transactions. This happens based on majority consensus which eliminates the risk of duplicate entries. While it is unclear exactly who invented blockchain, it is widely believed that a person, or group of people, operating under the name Satoshi Nakamoto is responsible for the technology’s creation in 2008. As Satoshi Nakamoto put it, blockchain is a “peer-to-peer network using proof-of-work to record a public history of transactions.”^[1] Thus, it cannot be altered once it is kicked off, assuring an accurate and transparent record which acts to help prevent fraudulent transactions.

Benefits to Supply Chain Management

Blockchain is a potentially disruptive process that corporations can use “combined with artificial intelligence (AI) and the internet of things (IoT) according to some advocates[2]” to revolutionize supply chain management.

The life science industry’s current supply chain is somewhat complex and has limited transparency and thus is well positioned to potentially benefit from this technology. Blockchain can add transparency and efficiency to supply chains and has potential applications in warehousing, delivery, payment and everything in between. Blockchain gives users access to real-time, trusted data, and therefore more secure transactions. It can even protect against theft and reduce opportunities for fraud or counterfeit products.

Blockchain also has endless possibilities in the life science industry in pharmacovigilance, industry analytics and compliance, management of patients’ personally identifiable information and trial data. It is equally useful for both retail and wholesale transactions on virtual and global dimensions. That said, “just under a quarter (22%) of life science companies are already using or experimenting with blockchain [technology], but industry collaboration over security and storage standards is needed,” according to a June 2017 survey by industry nonprofit, Pistoia Alliance.[3]

When it comes to blockchain in pharmaceuticals and healthcare, Pistoia Alliance noted that a significant use of the technology can be applied in support of the supply chain by ensuring an auditable trail to safeguard drug provenance. The report noted that “more than two thirds (68%) of pharmaceutical and life science leaders believe blockchain will have the greatest impact in this area.[4]”

According to the Alliance, other uses include using blockchain to store medical records, where 60% of respondents believe blockchain will have the greatest impact.[5] Another area where blockchain offers a competitive advantage is in the development and handling of genomic data. The Pistoia Alliance believes that “genomic data could be stored in ‘blocks’ on a blockchain, but standards for how it is stored and then shared securely will be essential” to an area where the Pistoia Alliance “sees great opportunity for collaboration.[6]”

In short, for life science companies, using blockchain technology can minimize security breaches, reduce human error, act as a brake on clinical trial fraud, improve collection of data and subsequent transparency between sponsors and regulators and simplify or reduce the cost of doing business.

Cybersecurity Advantages for the Supply Chain

Blockchain creates a tamper-resistant, cryptographically secure online ledger that can be used to verify transactions securely and directly on a peer-to-peer and decentralized basis without involving a bank or financial institution. In other words, since blockchain doesn’t have a centralized server location, it reduces the chances of malicious cyber-attacks. In addition, blockchain lets companies securely transmit documents to other organizations with approvals in place to help speed up the transaction and reduce errors. Because changes to blockchain are displayed in real time and no central user controls the record, blockchain is said to be much less susceptible to hacking than a traditional database transaction. An unauthorized change would require access to a specific block of data and all preceding and ensuing blocks in the blockchain across every ledger in the network simultaneously.

While blockchain technology may offer unparalleled security, it isn’t infallible as Bitcoin exchange Mt Gox found out in 2013 when a technical glitch resulting from the use of different versions of Bitcoin software caused Bitcoin to temporarily lose a quarter of its market value.[7] In 2015, Interpol identified an opening in blockchain used for cryptocurrencies that could be exploited to transfer malware to computers.[8] Even Blockchain has vulnerabilities and is only as secure as its entry points. Such access points may be vulnerable to attack which can undermine its security features.

Industry Application and Inherent Risks

The practical applications of blockchain are attracting interest of a wide variety of companies across the industry spectrum, according to Keith Gregg, MBA, CLP and Ed McKenna, PhD, the Principal Partners of JRG Ventures, who have decades of experience helping life science and healthcare companies navigate new trends and technological developments. They have observed that while there is an increasing level of interest in the potential to integrate blockchain into life science supply chains, industry players are educating themselves rapidly and carefully weighing the pros and cons of introducing this relatively new technology into their highly sensitive and regulated processes which are, by definition, existential to their companies.

Although encouraged by the massive potential operational and financial benefits of a successful adoption, decision makers at pharmaceutical companies are being held back from quickly adopting blockchain by two key factors:

1. Significant upfront costs: Implementing blockchain requires a large investment of time, resources and financial cost to get up and running. Pharmaceutical companies have been managing information across the supply chain the same way for years. Any changes to this process will ultimately disrupt existing processes, at least in the short term. Implementing blockchain will also require a meaningful upfront financial investment. Justifying this initial financial investment may present challenges considering most of the largest pharmaceutical companies leading the industry push toward blockchain are managed and evaluated on a short-term basis.
2. Risk aversion: Blockchain will have massive implications on how information is managed across the pharmaceutical supply chain. Considering the sensitivity of this information as well as the potential fallout from order information being lost or compromised, some pharmaceutical companies are taking a wait and see approach to how the implementation of this new technology will play out.

As Gregg said, “no one just jumps in, but the promise of a better audit trail is very appealing to risk-averse industries like life sciences, medical devices and healthcare.”

In terms of uses, both Gregg and McKenna agreed that blockchain will have wide-ranging applications across the pharmaceutical supply chain. But each area carries its own unique risks and liabilities. For instance, Gregg and McKenna said drug track and trace capabilities are one area that can simplify processes and reduce costs in the early stages of a drug’s development. Drug wholesalers looking to reduce counterfeiting through serialization could also leverage blockchain, which could track and trace the passage of prescription drugs through the entire supply chain. But leveraging blockchain in these ways may open up firms’ intellectual property to risk of data breach if it is not adequately protected.

Blockchain could also impact a new form of “decentralized” clinical trial[9] that is rising in popularity. These decentralized trials are typically conducted without the use of a central site. Participants administer their own treatments from home, use wearable devices for monitoring the effects, and upload their own data to the cloud for researchers to analyze. Clearly, a distributed ledger that tracks and dates all information while logging any changes has the potential to simplify the process of organizing this data. However, this process opens up new entryways for cybercriminals to gain access to networks. If compromised, sensitive patient health records and sponsor intellectual property would be at risk.

Ultimately, blockchain adoption will vary by user, even in the same industry space. According to Gregg and McKenna, traditional risks and new risks will continually evolve as adoption grows. It is paramount that insurance and risk management be effectively coupled with comprehensive cyber protections to assure the security of the firm and its resources.

Insurance to Transfer Blockchain Risks in the Supply Chain

It is important for life sciences companies to consider which risks they will transfer with insurance coverage and which risks they will retain and address with risk management practices and solutions. The first step in this process is a close look at insurance coverage options available in the market and how they will respond to exposures involving or created by blockchain technology.

It goes without saying that cyber coverage requires careful review. Likewise, other first and third-party exposures may manifest themselves as blockchain becomes more prevalent on commercial transactions and across the supply chain. Property damage, business income or transit losses, general liability, errors and omissions, malpractice, auto, crime and directors and officer’s coverage may all be impacted following manipulation or failure of a distributed ledger. For example:

• General liability includes injuries to third parties at a company’s premises, personal or advertising injury or products and completed operations claims involving bodily injury or third-party property damage. Particularly in the case of patient visits or protection of personally-identifiable information or protected health information, it is important to assure that the policy does not limit or exclude injuries arising from blockchain transactions since cyber policies may not respond to such injuries or damage.
• Property damage, business income or transit losses should be carefully considered. Property and business income insurance addresses first-party damages and ensuing business interruption. Transit losses involve theft or property damage during transit between business locations. In each case, reliance on blockchain may influence not only security controls but mechanical vulnerabilities, adequacy of inventory/supply and human factors on the manufacturing floor, in the warehouse and/or during transit. Since the coverage is based on physical damage resulting from a covered accident, a careful look at coverage and exclusions is a must.
• Cyber insurance policies may be both first- and third-party covers. Many policies include data breach coverage that addresses the cost to respond to the event. System interruption, cyber extortion, data corruptions or lost digital assets may be other relevant coverage features.
• Commercial crime insurance addresses loss via computer fraud or theft. Some policies offer solutions for social engineering losses caused by employees or third parties.
• Errors and omissions policies protect against loss resulting from services provided (or the failure to provide them) that result in financial loss to a third party. The importance of your contracts with customers and regulatory requirements that may accompany your work may not be covered without amendment. As in the case of other policies, a thorough review of coverage, exclusions, definitions and conditions is necessary to ascertain whether the scope of coverage is adequate.
• Directors and officers insurance addresses the liability of key executives or the liability at the board level for actions that diminish the value of assets held by stake holders. Transition and reliance on blockchain technology may necessitate changes in the directors and officers policy to ensure its response.

Asking the Right Coverage Questions

Since many insurance policies are written with differing terms, it is important to review these policies to see if they include provisions that might limit coverage. For example, will the general liability policy respond if damage arises to a tenant in a building you own or manage that is caused by exploitation of blockchain technology used in the security of the premises? Will you be protected if damage to your property or a lengthy business interruption arises from a blockchain that malfunctions at your business?

Since blockchains are peer-to-peer networks which have no central administrator, would an insurance carrier argue that the “Who’s Insured” section (of many liability, cyber, or professional liability policies) doesn’t meet the test since blockchain isn’t owned by any person or organization? Even definitions can be problematic when cyber coverage is drafted to address failure or violation of the security of a computer system, the cloud or other hosted resources operated by a third-party provider.

If you rely on a commercial crime contract, will it respond to a loss involving the theft of digital assets? While such coverage is especially germane to the use of cryptocurrency, it should be noted that there is exposure to a commercial organization favoring cryptocurrency to handle inventory or complete transactions with suppliers or customers. In addition, it may be favored as an alternative to cash accounts or other receivables. Traditional commercial crime policies may not cover cryptocurrency transactions since policies are designed to address physical property such as cash, securities or precious metals. On the other hand, cyber policies may cover both first- and third-party actions like investigations, but won’t necessarily address the face value of cryptocurrency if it is lost as a result of a criminal act.

If you are implementing or servicing a firm’s blockchain and coding errors arise, would an errors and omissions policy respond to address ensuing financial loss to others? If a regulator were to impose fines or penalties in connection with lapses in security or failure to protect personal health information or other personally identifiable information, would your errors and omissions policy be sufficient?

As noted, directors and officers coverage addresses management or board members’ exposure to liability for either involvement or lack of involvement in implementing and overseeing the use of technologies such as blockchain. Will such insurance respond if a security incident occurs that impacts the value of the firm?

Regulators on the Sidelines

Regulation of blockchain has been disjointed with a number of agencies involved depending on how blockchain is utilized and whether it is viewed as property, commodity or currency such as Bitcoin. The relative newness of the technology has resulted in regulators, including the FDA, taking a wait and see approach to the technology. While FDA Commissioner Ned Sharpless has briefly spoken about some of the benefits available, there has been little in terms of formal guidance from the administration about how to leverage it safely and effectively.

That same newness of the technology may be a stumbling block for those with existing insurance policies which pre-date blockchain or weren’t drafted with an understanding of blockchain and its risks. Many questions must be tackled if the life science and healthcare industries are to benefit from blockchain, including how patient data will be handled, whether or not compliance with HIPAA regulations will be necessary and how regulators such as the FDA will view the role of blockchain in product creation and safety.

Identifying Areas of Risk

Blockchain technology is a revolutionary way to manage the supply chains and many other functions. However, with such opportunity and promise come exposures to physical property, business reputation and a variety of financial and nonfinancial third-party damages. How to best mitigate such risks and the potential for lawsuits, regulatory scrutiny and reputational injury is a critical component that life science companies should prioritize and address. Otherwise, your organization could be exposed to the potential for significant enforcement actions, public and social media challenges, tort and criminal lawsuits that tie up resources and even  class actions.

It is important to retain an insurance broker that knows your industry and has deep expertise on the exposures blockchain can have on your business and its supply chain. Significant relationships with specializing underwriters that have specific expertise in the application of blockchain technologies in the life science industry with a strong claims-handling pedigree may save you heart ache and protect your directors, officers and critical company assets. Since the technology is evolving rapidly it is important to stay ahead of the curve, partnering with your broker to apply contractual, insurance and other financial tools essential to the well-being of your employees and your business.

Click here for a printable download.

[1] Blockchain: Tapping Its Potential and Insuring Against its Risks, Business Law Today, L.S.Masters, S.F.Oehninger, P.M McDermott.

[2] Blockchain: Tapping Its Potential and Insuring Against it’s Risks, Business Law Today, L.S.Masters, S.F.Oehninger, P.M McDermott.

[3] Pistoia Alliance Is there a role for blockchain in healthcare? Slides from A Pistoia Alliance Debates Webinar Moderated by Nick Lynch, June 20, 2017

[4] Pistoia Alliance Is there a role for blockchain in healthcare? Slides from A Pistoia Alliance Debates Webinar Moderated by Nick Lynch, June 20, 2017

[5] Pistoia Alliance Is there a role for blockchain in healthcare? Slides from A Pistoia Alliance Debates Webinar Moderated by Nick Lynch, June 20, 2017

[6] Pistoia Alliance Is there a role for blockchain in healthcare? Slides from A Pistoia Alliance Debates Webinar Moderated by Nick Lynch, June 20, 2017

[7] The Risks and Rewards of Blockchain Technology, K Heires, March 1, 2016

[8] The Risks and Rewards of Blockchain Technology, K Heires, March 1, 2016

[9] https://www.connerstrong.com/blog/insights-detail/hidden-cyber-security-risks-in-clinical-trials/

Billionaire Sam Zell and other former executives of the bankrupt Tribune Company have reached a $200 million deal to settle the bankruptcy trustee’s adversarial claims against them arising out of the disastrous 2007 leveraged buyout (LBO) of the company. According to press reports about the settlement, the $200 million settlement amount, which is still subject to bankruptcy court approval, will “significantly” exceed the company’s remaining D&O insurance. The settlement amount in excess of the remaining insurance is to be split among the various individual defendants.

The bankruptcy and subsequent adversarial proceeding both arose out of the December 2007 LBO in which Zell and other investors took the Tribune Company private. The Tribune Company owns or owned the Chicago Tribune, the Los Angeles Times, and a number of other media properties. The LBO transaction resulted in an enormous debt load for the company. The transaction timing was poor as the global financial crisis arose only months after the deal was completed. Within a year of the LBO, the company filed for bankruptcy.

In 2010, the bankruptcy trustee initiated an adversarial proceeding against former Tribune CEO Dennis FitzSimmons, Zell, and eventually, a total of approximately 50 other former Tribune executives. The trustee’s complaint sought damages from the defendants for a variety of alleged violations, including breaches of fiduciary duty;
unjust enrichment (based on payments made to certain of the defendants in connection with the LBO as well as incentive compensation payments made to certain of the executives); illegal dividends; as well as certain other preference payments and fraudulent conveyances.

Following years of litigation, in late 2018, the Federal District Court judge presiding over the adversarial proceeding directed the parties (including the company’s D&O insurers) to mediation. In March 2019, the parties reached an agreement in principle to settle the adversarial proceeding; the agreement was subsequently reduced to a settlement agreement, and on May 31, 2019, the bankruptcy trustee filed a motion for court approval of the settlement.

According to the bankruptcy trustee’s motion for settlement approval, the company’s D&O insurers and the individual defendants agreed to settle the adversarial claims for a total of $200 million. According to the motion, “the total Settlement Payment is significantly in excess of the available insurance.” Pursuant to a schedule in the Settlement Agreement, there were fourteen (14) D&O Insurers on the D&O Program, with several D&O insurers participating twice at varying attachment points.

In exchange for the payment, the defendants (and the insurers) are to receive complete releases. Interestingly, the settlement agreement also includes releases for certain other individual defendants who otherwise would have been entitled to the protection of the now exhausted D&O insurance proceeds. The settlement agreement excludes from the releases a variety of other parties (including, for example, various advisors to the LBO transaction).

According to the settlement agreement, “The Settling Defendants will be responsible for allocating individual responsibility for the Settlement Payment between and among the D&O Insurers and between and among the Settling Defendants.” According to our review, there is nothing in the settlement agreement specifying how much the D&O insurers (collectively or individually) will contribute to the settlement, or how much the individuals (collectively or individually) will contribute.

“THE MOST IMPORTANT TAKEAWAY FROM THIS SITUATION IS THAT THE SETTLEMENT AMOUNT SIGNIFICANTLY EXCEEDS THE LIMITS REMAINING UNDER THE D&O PROGRAM.”

The bankruptcy and the adversarial litigation resulted from what clearly was a disastrous transaction. The ultimate settlement of the adversarial proceeding is noteworthy in a number of respects, and not simply because of its massive size. Any D&O claim settlement that reaches nine figures is noteworthy, but this one is particularly noteworthy — as we are not aware of very many (if any) bankruptcy trustee claims that have reached this level.

As it relates to the liabilities of corporate directors and officers, the most noteworthy aspect of this settlement is that the individual defendants are being called upon to contribute to the settlement out of their own personal assets. It is not clear from publicly available settlement documents how much the individuals are contributing.
Further, whatever the individuals are contributing collectively, the aggregate amount is going to be split up among a large number of individuals.

The most important takeaway from this situation is that the settlement amount significantly exceeds the limits remaining under the D&O program. It is not as if the Tribune Company did not purchase a meaningful amount of insurance. The list of insurers on the D&O Program suggests that the company purchased a very significant amount of insurance. As defense costs erode the available D&O limits, there can be little doubt that one of the reasons the $200 million settlement so “significantly” exceeded the remaining amount of insurance is that years of defending complex litigation substantially depleted the D&O program’s limits. While defending complex D&O suits will always erode the available insurance, this practical consequence of mounting a vigorous defense is particularly noteworthy where, as here, the depletion
of the insurance limits ultimately leads to the individuals being required to contribute towards the settlement out of their own personal assets.

D&O insurance buyers, as well as their attorneys and insurance brokers, have always wrestled with the appropriate limit of liability for D&O programs. For public companies, the focus is often on market capitalization performance and peer purchasing patterns. For private companies, limit purchasing decisions are made based on total asset and revenue levels, capital raises, employee counts and retirement plan assets. As this settlement starkly illustrates, leverage must also be taken strongly into consideration when forecasting the appropriate level of D&O limits. Debtholders are generally not litigious until things go really wrong, but when things do go wrong, the exposures can be catastrophic. With the U.S. economy in a record expansion and corporate debt levels at historic highs, it is very important to factor debt levels into the conversation when deciding on D&O program limits. From a cost/benefit perspective, buying adequate limits now can reduce the potential of directors and offerings making personal contributions to a settlement in the future.

For a printable download, click here

ABOUT THE AUTHOR
This article was prepared by Kevin M. LaCroix, Esq. of RT ProExec. Kevin has been advising clients concerning directors’ and officers’ liability issues for nearly 30 years. Prior to joining RT ProExec, Kevin was President of Genesis Professional Liability Managers, a D&O liability insurance underwriter. Kevin previously was a partner in the Washington, D.C. law firm of Ross Dixon & Bell. Kevin is based in RT ProExec’s Beachwood, Ohio office. Kevin’s direct dial phone number is (216) 378-7817, and his email address is [email protected].

ABOUT RT PROEXEC
RT ProExec is the Professional & Executive Liability Division of R-T Specialty, LLC. R-T Specialty, LLC is an independent wholesale insurance brokerage firm that provides Property, Casualty, Transportation and Professional & Executive Liability insurance solutions to retail brokers across the country. Our proven leadership, deep talent pool, and commitment to coverage and service has made us one of the largest wholesalers in the Professional & Executive Liability insurance marketplace.

ABOUT CONNER STRONG & BUCKELEW
Conner Strong & Buckelew is among America’s largest insurance brokerage, risk management and employee benefits brokerage and consulting firms. The firm is an industry leader in providing high-risk businesses with comprehensive solutions to prevent losses, manage claims, and drive bottom-line growth. Its employee benefits practice focuses on providing best-in-class benefits administration, health and wellness programs and strategic advisory services.

The company provides insurance and risk services to a wide range of industries including but not limited to aviation, construction, education, healthcare, hospitality & gaming, life science & technology, public entity and real estate. Additionally, Conner Strong & Buckelew and its affiliates offer a number of innovative and specialty solutions which include captive strategies, construction wrap-ups, executive risk, safety and risk control, and private client services.

Founded in 1959 with offices in New York, New Jersey, Pennsylvania, Georgia, Massachusetts, and Delaware, Conner Strong & Buckelew has a team of nearly 400 professionals, serving clients throughout the United States and abroad.

DISCLAIMER
This article is provided for informational purposes only and is not intended to provide legal or actuarial advice. The issues and analyses presented in this article should be reviewed with outside counsel before serving as the basis of any legal or other decision.

With the issuance of new and final regulations related to Health Reimbursement Account (HRA) plans, here is a high-level overview, as the new rules are a lengthy 500 pages, and the possible impact for employers and plan sponsors. As we shared in our recent Legislative Update, starting in January 2020, employers and plan sponsors will be able to consider two new HRA approaches: Individual Coverage HRA and Excepted Benefit HRA. These new options will be available alongside the current HRA models.

Overview of HRAs as of 2020:

1. Group Health Plan HRA (GHP-HRA)

This is the current HRA approach and has been in existence for some time. It is intended as a means to combine an employer group health plan (GHP) with an employer-paid source (the HRA) to reimburse certain health plan-related cost-sharing. Employers fund the HRA and generally enrolled employees can use the funds in the HRA to pay for eligible out of pocket costs such as deductible expenses, copays, etc. There are no new rules to this traditional HRA approach

2. Individual Coverage HRA (IC-HRA)

The new IC-HRA allows employers, regardless of size, to provide an HRA that employees will use to pay premiums for coverage that the employee buys from the individual market. There is no cap on the amount of the IC-HRA contribution. Employers may either offer an IC-HRA or a traditional GHP-HRA, but may not offer employees a choice between the two. Employers can offer an IC-HRA on a class by class basis by creating certain employment distinctions (e.g., salaried versus hourly, full-time versus part-time, workers in certain geographic areas). Employers that offer an IC-HRA must do so on the same terms for all employees in a class, and may increase the IC-HRA amount for older workers and for workers with more dependents. Under this plan, the employer technically “exits” the benefits for medical and pharmacy coverage. The employee is responsible for purchasing their individual insurance. There are various accompanying rules that will come with this option. This option would meet the coverage option under the ACA. Furthermore, based on how much money the employer puts into the HRA, this option may meet the ACA’s affordability rules. The regulators have not yet issued the “affordability” rules.  This is currently an open issue.

3. Excepted Benefit HRA (EB-HRA)

The new EB-HRA permits employers to provide an EB-HRA of up to $1,800 per year (indexed to inflation after 2020), even if the employee doesn’t enroll in the GHP. The new EB-HRA can reimburse an employee for certain types of qualified medical expenses, including premiums for vision, dental, long term care, nursing home, short-term limited-duration insurance and COBRA.

An employer can offer an IC-HRA or an EB-HRA. It cannot offer both. The two new HRAs are not compatible since the IC-HRA does not allow an employer to offer employees a GHP option and the EB-HRA requires the employer to offer a GHP.

There is another HRA option available to employers with fewer than 50 employees known as the Qualified Small Employer HRA. We are not commenting on this plan, as our firm does not conduct business in the small group space.

What’s the Bottom Line?

The two new HRA options expand what an employer may do for 2020.

The new IC-HRA may be a solution for certain business markets. With this option, the employer is providing pre-tax money for the employee to purchase coverage on their own. The employer is “out of the benefits” business (except for things like dental, life insurance, disability, etc.) Employees will have to “figure it out” and what an employer may fund, may not cover all of their individual premiums. The IC-HRA is comparable to a “private exchange” model without the employer “private exchange”. Since this option can be used for “classes” of workers, some companies may opt to offer this solution for certain segments of workers. Employers should consider the option and how it synchs with their overall benefits and HR strategy. Since all the rules are not published, final decisions will have to wait. We view this new HRA as an option for employers to consider.

The new EB-HRA is more of a “niche” play. Employers can only fund up to $1,800 a year into the HRA for 2020. This will be adjusted annually. This could be offered in place of a “stipend” for employees who waive coverage since an employee can waive the GHP and just enroll with the EB-HRA. We don’t see as much applicability for this new HRA although some businesses may consider.

Now What?

Until the regulators issue the affordability rules for the new IC-HRA solution, it is hard to determine if this approach will be of value. If the affordability rules are reasonable, an employer could fund the HRA accordingly and simultaneously “get out of the benefits” business while meeting the ACA’s requirements. Yet for many employers, jettisoning workers to a “do it yourself” solution may diminish their competitive position as an employer in a tight labor market. For now, we are waiting on the financial rules to provide better guidance.

In the interim, click here to read our recent Legislative Update on the new rules. Please click here to find a simple FAQ on the IC-HRA from the regulators.

As more information surfaces, we will provide rapid-response updates.

Is the policy triggered when the crime occurs or when it’s discovered?

There are many decisions to make when considering and selecting a Crime Coverage policy. Most people focus on how much insurance to buy and the risks they want insured. An important but often over-looked decision is whether to purchase Crime Coverage for criminal acts that are discovered during the policy period or Crime Coverage for criminal acts that occurred during the policy period.

Before delving into discovery triggered coverage or loss sustained coverage, it is important to understand what a Crime Coverage policy is intended to insure. In particular, Crime Coverage insures certain exposures that aren’t covered by a Property policy, such as money and securities, jewelry, furs, etc., and causes of loss that aren’t covered by a Property policy, such as theft committed by an employee.

When deciding between Crime Coverage with a discovery trigger or a loss sustained trigger, it is important to remember that crime losses can take a long time to discover. Unlike a property loss, which is usually immediately apparent – a tree falls on a building or a fire damages a facility – a crime loss may not be discovered until well after the incident occurred. Further, such crimes may occur over an extended period of time. As a result, insurance carriers have two main coverage triggers for crime losses – Discovery Coverage and Loss Sustained Coverage.

The Basics of Discovery Coverage

A Discovery Coverage policy will generally provide insurance for crime losses that are discovered during the policy period. Thus, it usually doesn’t matter when the loss actually occurred; it only matters that the loss is discovered during the policy period.

An important consideration when contemplating Discovery Coverage is the retroactive date.  The retroactive date is the date when a crime policy will no longer provide coverage if the crime occurred prior to that date. Usually, insurance carriers make the retroactive date the same as the date that they first started writing coverage for that particular insured. Thus, when changing insurance carriers, the new carrier may want a retroactive date that is the date of the change.  This obviously severely limits the efficacy of the coverage as many crime losses can occur months if not years before they are discovered.

As a result, it is very important to maintain a consistent retroactive date even when changing insurance carriers.

The Basics of Loss Sustained Coverage

Unlike Discovery Coverage, Loss Sustained Coverage usually only insures losses that both occur and are discovered during the policy period. Loss Sustained Coverage will typically allow a loss to be discovered and reported for up to one year after the end of policy period. A loss that is discovered after the policy period and / or extended discovery period can still be covered, but only if the insured has maintained uninterrupted coverage and the limits of the policy during the policy period in which the loss occurred will apply.

Therefore, it is very important to maintain uninterrupted coverage and policy limits from year to year.

Crime Coverages in Action

To better understand how the forms apply, let’s review a few examples.

Example 1:

ABC Manufacturing Co. has a policy period that runs from 1/1/18 to 1/1/19. One of its employees steals money from a bank deposit on 1/14/17 – before the policy period began. Here is s how coverage would play out, under different scenarios.

Example 2:

In this example, the circumstances are the same, except the theft occurred on 1/14/18 – during the policy period.

From these two examples, it’s clear that Discovery Coverage may offer more protection, especially for insureds that are more likely to discover crime losses after they occur.

However, the specifics of the policy make a big difference. Pay close attention to reporting requirements, maintain uninterrupted coverage, and scrutinize renewal policies for changes to retroactive dates.

Ultimately, the coverage you select will depend on these specifics, as well as the insurance carriers’ offerings, your price sensitivity and the specifics of your current policy.

Crime claims can be both frequent and severe. While improvements in financial controls, procedures, and electronic monitoring can be helpful, fraud and employee dishonesty remain a significant exposure to many organizations.

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Outlining the impact of risks and obligations related to clinical trial participant travel

BY DANIEL S. BRETTLER

Successfully executing a clinical trial requires juggling the complexities associated with the clinical process along with developing sufficient incentives to promote enrollment. For many sponsors, removing barriers to participation is essential not only to improve the chances of reaching enrollment targets but to assure that both the science behind the protocol and patient safety are balanced to achieve the sponsor’s goals. Often balancing science with a successful recruiting effort while ensuring that the balance sheet is protected from exposures which might not be otherwise protected under traditional negligence-based clinical trials insurance policies factor into the success or failure of the recruiting effort. Further, governmental reforms may make insurance an important piece of the regulatory process in some countries. However, these requirements, whether mandated by statute or ethics committees, may have the unintended consequence of limiting the availability of insurance (and affordability), thus compromising the ability of sponsors to conduct trials.

Regulators are trying to balance participant safety with the desire to avoid putting bureaucratic obstructions in the path of life-saving innovations. Still, regulatory variations from country to country and differing legal frameworks on such issues as advertising, recruiting, reimbursements, data privacy and human subject protections are making it more challenging to recruit subjects and balance inducements with safety as sponsors draft clinical trial agreements and informed consent documents.

While sponsors must balance a multitude of issues in order to organize an investigation, address requirements for subjects and investigators and ultimately create a comprehensive protocol and consent process, finding suitable participants often means going far and wide since the pool of or subjects may be limited and/or affected by numerous variables such as use of existing medications, other health conditions, involvement in other studies and even geography.

Jurisdictional requirements may vary with regulations, laws and even ethics committee preferences involving requirements to begin and perform the investigation. While legal liability is the standard for the safety of subjects, including treatment and exposure to investigational products in the U.S., other jurisdictions operate based on local laws or regulations with some requiring no-fault payments, necessitating different insurance solutions. In addition, contractual requirements present yet another area in which a sponsor may unnecessarily assume liabilities that they aren’t well suited to control.

Role of Regulation

Regulation plays a role with respect to the standards required of a sponsor, an investigator and/or a trial site. While paying subjects for participation in clinical research may raise difficult questions that should be addressed by an institutional review board (IRB) or ethics committee, reimbursements for travel expenses to and from trial sites are not considered to raise issues regarding undue influence, according to the FDA’s Office of Good Clinical Practice. On Jan. 25, 2018, the FDA updated its guidance to institutional review boards (IRBs) and clinical investigators to clearly allow reimbursements to patients in clinical trials for lodging and travel. According to the guidance, ethics reviews should continue to look at the amount of compensation given to participants, including for reasons like time, inconvenience and discomfort. The FDA’s guidance is directed to the IRB/Ethics Committee to execute and oversee. The guidance suggests that IRBs should receive the amounts and schedule of all payments, including end-of-study bonuses, during the initial review to ensure that they are not coercive according to federal regulations, including 21 CFR 50.20[1]. An important component of this guidance is the direction that all information concerning payment should be spelled out in the informed consent document. By doing so, the sponsor can define the scope of compensation including obligations they may elect[2] to assume for subject travel.

Clinical Trials Insurance

While the protocol sets forth the rules of engagement, including recruiting qualified subjects and performing clinical activities necessary to the study, the consent process determines the patients’ understanding of benefits and risks associated with the study. Patient consent should not only spell out the study goals, risks and rewards, but any obligations the sponsor may offer to influence participation. In addition, a well written patient consent may provide a framework for the insurance company to structure insurance coverage to protect the sponsor, investigators and others the sponsor may engage contractually to help manage the investigation or oversee/report results to regulatory authorities. Because insurance policies typically respond to the sponsor’s legal liability, a well-drafted consent form which limits liability can improve the clarity around the study commitments sponsors make, reduce risk and make insurance more affordable. Typically, such insurance is limited to a trial site and the clinical activities that the subject may be exposed to. In some cases, medical payments insurance may be included to assure that treatment is prompt and addresses immediate injuries or adverse reactions by the patient.

Clinical Trial Subject Travel Risks – a Growing Concern

The terms and structure of a human clinical trial insurance program should reflect the sponsoring company’s risk tolerance, product and patient profile, enrollment, geographic factors and contractual requirements with clinical sites, CROs, investigators and corporate partners. Increasingly, the sponsor is pressured to fill out the patient census for the trial especially in instances where they are studying a rare disease. What is often overlooked are the exposures faced by subjects who may need to travel, sometimes between countries, to participate in a study. While compensation is increasingly used to recruit subjects, it has only been until recently that the consent form has addressed travel risks and expenses. Increasingly, sponsors are including provisions in their consent documents that obligate them to address injuries or illnesses for subjects and companions/caregivers that might arise during the journey to or from the trial site.

Unfortunately, typical clinical trial insurance may not respond to that obligation, creating potentially significant financial consequences for the sponsor in the event that an accident or illness arises during the trip. Careful review of clinical trial provisions is imperative to establish whether medical payments might indemnify subjects who are injured in the process of traveling to or from a trial site. Such insurance may only indemnify for an event arising out of a sponsor’s negligence, as a result of contractual obligations or may only apply geographically to limit the scope and substance of any coverage available in the clinical trial policy.

Perhaps a better option is to seek a travel and accident policy tailored to afford benefits to a subject who has an injury, sustains disability or illness that necessitates medical treatment, hospitalization, or affords repatriation expenses in the event of death while traveling outside of the home to/from the trial site.

Typical Requirements

Compensation is not always offered, but in some cases participants in a clinical trial may receive some form of compensation in exchange for their participation. Compensation is most common in Phase I trials involving healthy volunteers and is paid in recognition of their decision and contribution to the advancement of the science. CROs often utilize compensation as part of the recruitment process for clinical studies with verbiage that may offer limited opportunities to earn money in exchange for participation. In some cases it may be monetary, in others the protocol may specify reimbursement for certain expenses associated with the subject’s participation, including travel expenses to and from the site, accommodations, meals, lost wages, and perhaps certain specified services (i.e., medical expenses) considered essential to subjects recruited to participate in a particular study.

In the U.S., the practice of paying subjects for research participation is widespread, though a polarizing topic. Some believe paying research subjects may be coercive, while others believe payments are a necessary part of recruitment for clinical research. However, there is only a small amount of guidance that helps investigators determine whether or how much to pay participants in a given study. In fact, the U.S. Code of Federal Regulations governing clinical research does not specifically address the issue of payment of research subjects, rather it leaves the decision to IRBs that operate as ethics committees used by institutions to review, approve and oversee clinical research involving human subjects. While operating with minimal guidance, IRBs may therefore be responsible for determining the acceptability and amount of payments to research participants. Consequently, according to a 2005 study on the topic published in PubMed, payment practices vary widely in the U.S.[3]

In Europe, the practice varies depending on the country. Some exclude compensation entirely while many allow compensation only in conjunction with review and approval by the appropriate Ethics Committee[4]. In the EU Clinical Trial Regulation (536/2014)[5], it directs that no incentives or financial inducements are given to vulnerable populations such as incapacitated participants or minors (or their legal representatives), including individuals with mental disabilities, or pregnant women, except for compensation for expenses and lost earnings directly related to clinical trial participation. In other words, this regulation dictates that no undue influence be exerted on subjects involved as participants in a clinical trial. The EU regulations also address whether insurance is necessary to indemnify subjects who are exposed to risk during treatment considered more than incidental. In such cases, sponsors are obligated to ensure that adequate insurance coverage is in place.

According to the European Patients Academy (EUPATI), the EU also requires sponsors and CROs to be completely transparent about financial transactions made with participants or with the trial site itself[6]. The ICF (informed consent form) must contain reference to any compensation offered and the insurance coverage offered should a participant be injured during the clinical trial[7]. There are various models available to sponsors to set the amount of compensation for subjects electing to participate in a clinical trial. EUPATI offers guidance through the publication of compensation models such as one included in their whitepaper on compensation in clinical trials.[8]

Coverage Provisions for Sponsor or Contractor Obligations on the Sponsor’s Behalf

Indemnity (or in certain countries no-fault obligations) for injuries or harm to subjects of a clinical trial is primarily addressed through the purchase of clinical trial insurance protection, which indemnifies subjects for injuries arising directly from the investigational product or treatments associated with the trial. For injury or harm outside of the trial or trial site, including reimbursement for medical expenses or other costs, clinical trial insurance often fails to address this risk. In the event it does, it is limited to the indemnification of certain medical expenses. Coverage may be further limited by deductibles or co-participation clauses. In Europe, Germany is one of the few countries in which insurance provisions beyond the trial site are customarily required by an ethics committee, but only for travel within the country. Of course, depending on the nature of the investigation, it may be necessary to recruit subjects across Europe or beyond. This is something German regulations fail to recognize.

One solution offered by certain underwriters with expertise in the life sciences industry is to pair clinical trial insurance with travel and accident products.

Travel and accident insurance often includes coverage for specified amounts due to loss of life, physical disability, including certain illnesses, or impairments. Coverage for subjects of a clinical trial may include both subjects and those accompanying them as a parent, guardian or caregiver. Coverage may specify a limit of insurance for accidental death and dismemberment, for accident medical expense and for medical evacuation or repatriation expense. Typically, the policy will specify a principal sum for each section subject to a maximum benefit amount for that section. In many cases, insurers will automatically aggregate maximum benefits between two and 10 times. Depending on the principal sum insured, it is important to assure that aggregate limits are provided in multiples sufficient to address the total participants involved in the study.

Coverage often specifies that it will apply specifically to a class of insured persons, so it is important to assure that the description includes “all clinical trial participants and any accompanying parent, guardian or caregiver.” The policy may also include a provision for covered activities or covered activities hazards. If so, it is important to work with your agent or broker to assure that the underwriter specifies language that affords protection while the specific class of insured persons is traveling to clinical trials scheduled and sponsored by the insured policyholder including coverage while traveling directly to or from such clinical trials. Such language should specify words such as “supervised by,” as it is important to assure that it is defined to include the sponsoring insured along with any contractors, such as CROs, investigators or site operators that may be involved in the clinical trial. It is also important to note effective dates and end dates of coverage and to note that covered activities often include language that expressly limits coverage so that it ends immediately when the insured participant (subject) returns from a trial site to their primary residence.

In addition to the coverages noted, some insurers offer a variety of travel assistance services to help the subject with pre-travel information, emergency travel arrangements, transportation, dependent care, legal or translation services, replacement of lost or stolen travel documents, security information services, referral to medical or dental professionals, coordination of medical records and arrangements for accommodations.

Jurisdictional Limitations for Travel Accident

In some jurisdictions, including the U.S., travel and accident insurance may not be allowed for patients in clinical trials as an eligible group. Examples include New York and New Jersey in the U.S. In such cases, even though the policy may address participants with principal residence in permissible states, any participants enrolled from states with restrictions may not be insured.

In such case, if you have made a commitment to offer participants reimbursement for injuries or harm during travel associated with the study, it may be possible to work with the clinical trial insurer to modify medical payments provisions for additional consideration to allow for indemnification for injuries or harm associated with travel to and from the clinical site. Of course, for any participants that fall under this protection, it is important to note that indemnity provisions are an extra hurdle for a participant to receive protection. Furthermore, it is essential that the ICF specify the obligation, including an amount of compensation permitted to assure that the indemnity arrangement is triggered.

When recruiting participants from across state lines, it is absolutely imperative that clinical trial sponsors, investigators, CROs, and all other involved parties check the specific laws within the states that participants are traveling to and from in order to close any potential gaps in travel and accident coverage.

A Broker’s Value

It is important to retain an insurance broker knowledgeable of your industry and with deep expertise on the exposures, including the impact of your commitments or those of your contractors to compensate those subjects recruited to participate in a sponsored clinical trial. Significant relationships with specializing life science underwriters is essential to protect your balance sheet. Such insurance professionals can assure that coverage is in place in compulsory jurisdictions worldwide and that you have adequate limits of insurance and coverage across the globe. They can also identify underwriters with the bandwidth to address travel and accident obligations you may offer to recruit the necessary subjects. Their ability to find underwriters able to do so will make your coverage more seamless. Combined with a strong claims-handling pedigree, working with such professionals may save you heartache and protect your firm’s reputation, your directors and officers and the critical assets that help you stand out with peers, suppliers, and customers.

Click here for a printable download.

[1] USFD & C CFR section 50.20. https://www.fda.gov/RegulatoryInformation/Guidances/ucm126429.htm

[2] USFD & C CFR section 50.20. https://www.fda.gov/RegulatoryInformation/Guidances/ucm126429.htm

[3] Grady C, Dickert N, Jawetz T, Gensler G, Emanuel E. An analysis of U.S. practices of paying research participants. Contemp. Clinical Trials. 2005; 26:365–375. PubMed https://www.ncbi.nlm.nih.gov/pubmed/15911470

[4] Perspectives in Clinical Research. Compensation in clinical research: the debate continues. Mansi Pandya and Chetna Desai. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3601710/

[5] European Parliament (2014. Regulation (EU) No 536/2014 on clinical trials involving medicinal products for human use. See: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1558539734912&uri=CELEX:32014R0536

[6] European Patients’ Academy (EUPATI), Compensation in clinical trials. See: https://www.eupati.eu/clinical-development-and-trials/compensation-clinical-trials/

[7]  European Patients’ Academy (EUPATI), Compensation in clinical trials. See: https://www.eupati.eu/clinical-development-and-trials/compensation-clinical-trials/

[8] European Patients’ Academy (EUPATI), Compensation in clinical trials. See:   https://www.eupati.eu/clinical-development-and-trials/compensation-clinical-trials/