For starters, let’s differentiate between an insurance agent and a broker. An insurance agent typically represents the insurance seller, i.e., the insurance company. An agent may have exclusive or non-exclusive contracts with certain insurance companies, and can place coverage only with those insurers.
An insurance broker brings buyers and sellers of insurance together, but represents you, the buyer. A broker can survey the entire insurance marketplace to find the best deal for you—assessing price, service and scope of coverage. For many medical device companies, an insurance broker will be their chief insurance advisor.
What should medical device companies look for in an insurance broker, or when evaluating their current one? Recently, I queried several insurance brokers who work in the medical device and life-sciences space.
Here, in no particular order, is a shopping list of 15 qualities to look for when selecting this key business partner.
Medtech firms should look for:
- A broker who can grow with you and evolve with your insurance needs. Mike Tanghe of Falcon West Insurance Brokers Inc. (Twin Cities, Minn., area) advises, “Make sure brokers can help not only with present needs, but insist they also have the expertise and capabilities to adapt as your firm grows and changes. Insurance needs for early stage R&D firms differ from those of mature companies with several products on the market.”
- Low staff turnover and high longevity. Tanghe also recommends focusing on the individuals with whom you’ll be working. Ask the broker, “What is your historical staff turnover ratio?” He urges that firms look beyond “dog and pony shows,” and focus on a broker’s customer service role. This not only should protect the client from exposures, Tanghe maintains, but also make a client’s job easier as it navigates the complexities of insurance.
- Device industry specialization. Byron Yankou, a broker with AVID Insurance and Risk Management Inc. in Toronto, Canada, notes that the device area is highly specialized. Take one small area, he says, such as an early stage company. A new insurance broker isn’t likely to build an insurance program that addresses directors’ and officers’ risk, or anticipate a seamless transition to a public listing.
- Global perspective and resources. Yankou notes that with clinical trials occurring throughout the world—where even large international underwriters have limited resources—it’s imperative that brokers have global connections to place international coverage.
- A deep bench to provide a range of risk management and mitigation services. One can’t be all things to all people, Yankou notes. “A good broker should have contacts to contract out certain aspects to outside specialists,” he says. Specifically, he cites post-loss claims management or business interruption settlements. As a company emerges from an early stage into a growth-stage or mature-stage firm, determine if the broker has other value-adds such as global capabilities and/or in-house claims advocacy.
- Trade show and conference visibility. According to Russ Jones, a broker with Summers Thompson Lowry Inc. in North Carolina, brokers must “be visible at life-science conferences so that prospects know they are serious about the business. Do you see the brokers attending industry trade shows? Do they read the trade journals in your industry niche? This is a sign they are steeped in your business.
- A broker who understands the science. They should have a basic grasp of the science the client is working on. If the broker does not understand your product—whether it is a drug-eluting stent, a retractor or an ophthalmic implant—he or she cannot “sell” you as a sound risk to an insurance underwriter.
- A broker steeped in life science, who can view the business from an investor’s perspective. Sam Fairley, senior vice president at RT Specialty LLC in New York, N.Y., suggests finding a broker actively involved with life-sciences accounts and who has assembled programs for startups and early stage investment companies. This includes a broker who has used venture capital and private equity investment, right up through initial public offering and beyond. Get a broker, he says, that understands loss exposures from the investor side, from a regulatory angle and who has negotiated coverage at each stage of clinical trial and product approval.
- Passion and interest in the medical device sector. Shane Aiken, account director at Indemnity Corporation in Sydney, Australia, believes that a good broker is passionate about the science, the thrill of the ride from a capital and discovery standpoint, and wholeheartedly embraces their role in the business network. Andrew Tamworth, a life-sciences underwriter with CFC Underwriting in the United Kingdom, says a good broker has an interest in and understanding of the medical device sector.
- Understanding of life-cycle risk. Medical device firms strive to build shareholder value. Procuring insurance is not as thrilling as buying that sexy new BMW you’ve been eyeing. Device firms face cost pressures. A good broker breaks through this, understanding the full discovery life cycle—from capital raising to registration—and articulates to management the true nature of complex risk exposures that threaten balance sheets throughout the life cycle, providing best practice solutions that provide protection.Matt Heinzelmann, executive vice president at Higginbotham & Associates in Dallas, Texas, notes that from early to mature stages, each insurance buyer is focused on different objectives. Part of a broker’s value-add is in understanding his or her client’s financial objectives, then (and only then) articulating specific insurance coverage with unique strategies that dovetail with short- and long-term goals. For example, early stage companies focused on R&D, he notes, aren’t typically preoccupied with product liability, but might want a specialized insurance product that covers them for complications arising from human clinical trials.
- Perspective that goes beyond insurance buying, encompassing risk management and strategy. Michael Cremeans, who leads the life-sciences practice at the Oswald Companies in Cleveland, Ohio, says, “It’s really not about insurance. A good broker truly acts as a business advisor and not as an ‘insurance person.’” Any insurance placement results from hard work and analysis. Weaving insurance and risk management into a strategic plan, along with experience in dealing with contractual liability, are key components to adding value, according to Cremeans.
- A broker that breaks out of “insurance product” silos. Cremeans observes that the insurance industry often organizes itself into product-type silos, but many device firms dislike that approach. A broker that can apply knowledge across multi-insurance-disciplines to the medical device industry has great value.
- Ability to offer bespoke solutions. “Medical device companies are not cookie-cutter risks,” Cremeans insists, “and may need something other than cookie-cutter insurance solutions and products.” He cites as key success traits for brokers the ability to think laterally and design an insurance program around the client’s needs rather than pushing off-the-shelf products.
- Accessibility and proactivity. A good broker stays in touch with theclient—not just at policy renewal time—and communicates with you proactively as a device firm’s risk profile changes. This, Cremeans says, enables the firm to recalibrate the structure of the insurance program as needed. Crises and problems for device firms do not always conform to 9-to-5, Monday-through-Friday schedules. A good broker comes through in a pinch, even if a problem arises outside of office hours.
- A broker who can provide strategic alliances, resources and partnerships. According to Bruce Ball, chairman of Britton Gallagher in Cleveland, “A good broker is steeped in the tangible and regulatory risks that a device company faces and offers substantive dialogue with senior management about risk and dealing with its consequences.” He stresses, though, that a good broker doesn’t stop there. An “A player,” he adds, helps clients grow their businesses by opening up relationships with other clients, venture capital contacts/strategic consolidators and makes strategic introductions to their spheres of influence. “Being a CEO of a life-science company can make you feel like you are on an island,” Ball says, noting, “It doesn’t have to be that way.”
Kevin Quinley, CPCU, is principal of Quinley Risk Associates, a risk management consulting firm in the Richmond, Va., area. He has more than 25 years of risk management experience with medical device companies. You can reach him online at www.kevinquinley.com or via email at kevin@kevinquinley.com.