Business interruptions can be costly for any commercial enterprise, and especially for technology and life sciences companies. Whether it's research and development, manufacturing, data centers, vivariums or analytical laboratories, each of these specialized environments face unique challenges. Fortunately, however, the right combination of insurance protection and business continuity planning can minimize risk and help organizations manage unexpected interruptions. 

Understanding Unique Business Interruption Risks

The road from product development to launch is often long and complex in the technology and life sciences industries. Therefore, businesses would be wise to be prepared to address a business interruption at any point in this process. Furthermore, once a product is brought to market, tech and life sciences companies should be mindful of the potential for interruptions, safeguard inventory and equipment, and proactively establish a road to recovery.

Comprehensive, well-designed insurance coverage can safeguard investments and ensure that the path to recovery is well-defined. To provide the right level of coverage for business interruptions, it's crucial to understand the specific risks faced by startups and established enterprises. Factors such as facility location, size, unique facility requirements, construction features and operational complexity all contribute to the potential impact of an interruption.

Tech and life sciences manufacturers—whether they produce medical devices, pharmaceuticals or electronics—must identify their critical operations. Imagine a worst-case scenario where over 80% of these operations are destroyed. Evaluating the time required for recovery is essential.

For customers in the life sciences space, there is an added complexity and significant impact arising from the dependency on federal agencies. For example, consider the impact of a contaminant being found in the drug manufacturing line of a pharmaceutical company. Under such circumstances, the company would shut down production and notify the Federal Drug Administration (FDA). The FDA would likely halt production and require that production remain closed until the incident has been carefully investigated and the production line has been remediated and recertified by the FDA.

Business interruption and extra expense coverage could help offset income losses along with day-to-day expenses—such as payroll and taxes—including the extended period of restoration associated with the FDA's recertification of the line.

5 Unique Exposures for Life Sciences and Tech Companies 

In the dynamic landscape of life sciences and technology, companies often encounter specific risks that require unique risk management and coverage considerations. Independent insurance agents play a crucial role in helping businesses understand and proactively address these potential challenges. Let's dive into five unique exposures:

1) Clean rooms. These controlled environments are essential for manufacturing sensitive products. However, they are also more susceptible to fire, smoke and water damage. Rebuilding a cleanroom involves significant costs, including FDA recertification, and the associated income loss can be substantial.

2) Climate-controlled areas. These areas are used in pharmaceutical and biologics manufacturing and by biotechnology firms to maintain the temperature of certain materials—such as cell lines or finished goods. Temperature changes may compromise the integrity of these areas. A power outage or fire can render climate-sensitive materials worthless, resulting in potential years of lost research or revenue.

3) Equipment and machinery. Maintaining critical equipment during and after a loss can be challenging. Limited access to replacement parts increases downtime and restoration costs. Insurance can bridge this gap to help minimize the impact of damaged data centers, centrifuges, cutting machines and tools, electrical discharge machining (EDM), industrial mixers, fluidized air bed dryers and more. 

4) Sensitive or unique materials. Some contents are irreplaceable. When disaster strikes, rebuilding manufacturing spaces and replenishing inventory takes time. Robust insurance coverage ensures financial protection during this recovery period.

5) Research and development. When a product is being tested and the testing is interrupted by a business shutdown, this has a significant impact on the company's ability to meet milestones and continue the path to production. This can result in a delay in going to market, and ultimately the anticipated launch of the product, which can ultimately lead to a loss for the company.

Agent Guidance 

Experienced independent insurance agents are uniquely positioned to help businesses mitigate risks in the technology and life sciences industries. By identifying exposures, putting the right coverages in place, and having regular conversations about risk mitigation, agents can help ensure financial protection and resilience. Their expertise in proactive risk management and strategic partnerships empowers clients to thrive even amidst disruptions.

Here are a few of the many steps agents take to serve their customers:

• Proactive risk management. Encourage businesses to prepare for the unexpected. Implement robust business continuity plans, protect high-value and unique materials, and leverage cybersecurity services to mitigate potential losses.
• Coverage conversations. Regularly engage with tech and life sciences organizations to assess evolving risks. Ensure their business income coverage includes extended business income, FDA recertification adjustments, milestones, new product delays, and research and development expenses.
• Partner expertise. Partner with carriers who have expertise and offer valued risk management services to your life sciences and tech clients as they grow and evolve their business.

Insurance isn't just a safety net—it's a strategic tool for safeguarding innovation, investment and resilience in the face of unforeseen challenges. Given all this complexity, absent close collaboration between insured, agent and carrier, the client is likely not to be properly insured.

By understanding their risks and optimizing coverage, life sciences and tech businesses can thrive even amidst disruptions. Help secure these businesses' future—discover how to help minimize interruptions with the right coverage for technology and life sciences businesses.

Mina Rona is president of technology and life sciences at The Hanover.