US litigation environment leading to pharma liability rate increases

By George Abbott

Feb 28 - (The Insurer) - The current liability landscape in the U.S., driven by nuclear settlements and litigation finance, is causing pharmaceutical insurance rates to rise, members of Allianz's liability team told The Insurer.

Arne Holzheuer, expert claims specialist at Allianz, noted that the scope of liability claims against pharmaceutical companies in the U.S. is increasingly driven by plaintiffs' attorneys having more "skill".

Kristel De Jonghe, global practice group leader and CUO of liability at Allianz, attributed this increase in skill to third-party litigation funding injecting more money into the plaintiffs' side of pharmaceutical liability cases.

“Third-party litigation funding has a very big part to play in this scope growth (in pharmaceutical liability claims). There is much more money available to the plaintiffs' bar, and we see that also in the outcome of the litigation,” said De Jonghe.

A recent Swiss Re report argued that social inflation pushed U.S. liability claims up by 57% over the past decade.

The increased scope and funding behind pharmaceutical liability litigation have strained insurers in the sector. De Jonge said that Allianz has responded by changing its underwriting practices.

“To keep ahead of that loss trend (in pharmaceutical liability), disciplined underwriting is key through controlled capacity and rate increases,” said De Jonghe.

In addition to increasing rates and limiting capacity, De Jonghe added that Allianz is also utilising pharmaceutical companies' data to predict where litigation issues might arise.

"The good thing about the pharmaceutical industry is it provides high-quality information to its insurers. This allows us to communicate effectively with our clients and support them in early risk management based on the things we see coming," she explained.

Even with smart use of data and higher rates, De Jonghe believes that regulatory intervention is necessary in the U.S. if insurance is to remain affordable for the pharmaceutical industry.

“But in the end, there will be a change needed from the regulators to reduce what we today perceive as the legal system abuse, because that's not going to go away on its own, and we I think the ultimate aim should be that that insurance remains an affordable risk management tool.”