Why medtech firms should tread carefully when choosing insurance cover

Mark Lowther, head of financial lines and tech sector sales at UK insurer, Markel UK, outlines the risk challenges faced by many medical tech firms and some of the solutions available to help.

Starting any business comes with risk. However, for medtech companies those risks can be significantly different from mainstream organisations due to the specialist nature of the services they provide, and the rapid growth firms can experience.

The diverse and highly technical nature of medical technology firms means insurers will always seek a thorough understanding of the customer they are looking to put on cover. This is often where the role of the broker is so important, but it can also help if the customer has a good understanding of some of the more specific risks their business might be exposed to.

Certainly, during the start-up phase, and as a more general point, a medtech business can be more vulnerable than an established firm and the emphasis on getting the right insurance cover in place early is critical. This is true before a product is commercialised and even while an idea is being developed.

The nature of risk for a medtech firm can be quite specific and below are several areas that need careful consideration if a company is looking to fully protect its interests.

The risk of medical malpractice, for instance, can be very real. Automated diagnosis using AI and other technologies, device failure and other scenarios can all lead to claims against you. In these instances, medical malpractice cover can be crucial.

Protecting intellectual property (IP) is another key consideration, but one that can easily be overlooked. This type of cover is especially important for start-up companies whose technology may still be in development.

Technology can malfunction and medtech developers can be particularly exposed if their product does not perform the task it was designed to do. It’s in these scenarios that Efficacy cover—also known as failure to perform—comes into its own and, as such, is an important part of a medical technology company’s risk mitigation strategy.

A medical technology prototype is often key to the future of a business and specialist cover is needed to afford full protection. Prototypes may be covered under the Public Liability section of a non-tech-specific insurance policy, but this is unlikely to provide the protection required and more specialist cover is needed.

Other scenarios specific to medical tech firms can include deviations in controlled environments, contamination, machinery breakdown and denial of access. The failure of any can lead to serious issues and demonstrate the importance of specialist insurance cover that protects against these risks.

Looking at risk in a different way

Complex medtech companies need specialist insurance cover, but the often large investments in R&D might also come with the benefit of R&D tax credits. In these circumstances there may be a need for specific R&D Business Interruption protection. This covers interruption to R&D expenditure and loss of R&D income from funding and grants and is not available as standard under a typical insurance policy.

More generally, COVID-19 has starkly illustrated every business needs risk certainty, financial efficiency and legal compliance.

During the past couple of years Markel has seen tech businesses increasingly looking for support around risks that all too often are not provided by insurers, such as how to handle tax concerns, changing regulatory demands and creating future-proofed contracts.

Data from Markel’s legal advice line and online legal portal, Law Hub, over the past two years clearly demonstrate increased demand for business-related information and advice from firms looking for additional ways to protect their business interests. In the past year we’ve supported several UK SMEs with over 200,000 downloads in 2021 of documents on topics such as protecting IP, GDPR, and employment law.

For those who have taken the step to form their tech company it may well be the first time they have needed to address areas such as risk, taxation, and the legal demands. You can take some comfort that the issues for tech companies are not new, but they have been exacerbated by the pandemic and the UK’s departure for the European single market.

As a specialist insurer in the technology space Markel has undertaken a detailed analysis of the sector which has found the majority of tech businesses do not have the appropriate level of cover in place based on the unique requirements of this industry.

Markel has also found that tech firms value an advisory approach from underwriters and adding legal and tax services to insurance offerings are part and parcel of Markel’s approach. This helps to prevent claims, which not only reduce costs but also reduces the risk of business disruption.

Insuring technology firms is a specialist task. Working with your broker to ensure your risks are underwritten by an insurer that understands your sector and whose cover adapts as your business grows, is a vital first step in your ability to concentrate on what you do best.