Munich Re, Marsh Announce New Pharma Product to Insure Against Regulatory Actions

Munich Re and Marsh & McLennan Cos., the largest insurance broker by market value, introduced a product to insure U.S. pharmaceutical companies against regulatory actions that could cause them to suspend manufacturing.

The product would cover as much as $10 million in non-damage business interruption costs tied to violations of federal manufacturing standards, Munich Re said Wednesday in a statement. The Munich-based company is the world’s biggest reinsurer.

“The question is always, ‘Where do you find kind of the next blockbuster?’” Claudia Hasse, head of special enterprise risks for Munich Re, said in a phone interview. “We saw that this is really a huge danger for pharmaceutical companies.”

Traditional business interruption insurance covers losses tied to events such as fires or natural disasters. The new coverage from Munich Re and New York-based Marsh protects against income loss from shutdowns like the one Johnson & Johnson’s McNeil-PPC Inc. experienced in 2011. The U.S. Food and Drug Administration barred the company from making drugs at a Pennsylvania plant because it failed to comply with manufacturing standards.

“There is a need for this product as inspections that result in a suspension of manufacturing, whether voluntary or enforced, can be extremely costly for life-sciences companies,” Loretta Worters, vice president of communications at the Insurance Information Institute, said in an e-mail. “FDA- mandated manufacturing suspension isn’t typically covered by traditional business-interruption insurance, because the event doesn’t stem from physical damage to the insured’s property.”

(With assistance from Anna Edney in Washington.)