WASHINGTON-A group of biotechnology companies have agreed to form a captive insurance plan to help them cope with the rising cost of liability insurance.
The captive plan will give participating companies both product liability and directors and officers' coverage, explained Jeffrey Gibbs, associate general counsel for the 175-member Association of Bio technology Companies. It will provide the 24 companies now interested in the plan with an aggregate limit of $2.5 million in liability coverage, a figure that will rise as more companies join.
The company will be incorporated in Vermont because of favorable tax laws in that state. Partici pants are expected to seek bids for underwriting the plan early next year and will compare them to the cost of self-insurance.
Regardless of the approach chosen, each participating company will pay considerably less than it would for individual coverage, Gibbs estimated. Firms will pay ac cording to the risk posed by their products, he said. A company specializing in vaccines, for example, is considered to pose a greater risk to the insurer than one whose products remain inside a research laboratory. Several of the firms expected to participate already have products on the market and might be placed in a separate risk category.
The companies, mostly small and fairly new, are facing higher premiums for increasingly limited coverage by commercial insurers. But the executive director of a second biotechnology group, the Industrial Biotechnology Association, believes that cost, not availability, is the problem. Richard Godown, whose 50 members are in general larger and more established than those in the ABC, said his Association has no plans to establish a captive plan.
"If you can pay the premium, you can get the insurance," he re marked. "I am unaware of any bio
technology company that is flat-out unable to get insurance."
Biotechnology firms are not alone in their search for affordable product liability insurance. But their problem is complicated by the extent to which their products may present unknown risks to the insurer.
Lawyers for the insurance industry noted that products are evaluated individually and that the presence of genetically engineered organisms is not an issue. Rather, new products are inherently more risky for any industry because they do not have an actuarial history. A risk management system will ac company the ABC plan.
Walton is a science writer based in Washington, D.C.