As life science leaders look ahead to the foreseeable future, what business risks should they be thinking about? What could go wrong? What surprises could pop up and hurt their operations or finances?
In part 1 of this post, we listed five of the top 10 risks life science companies face in 2021:
1. Issues with Outside Companies
2. Management Liability
3. The Fourth Industrial Revolution
4. Employee Mental Health
5. Regulators Everywhere
Now, here are the remaining top 10 issues.
6. Federal Changes
A new administration in Washington always means sweeping changes through the executive branch. New leadership in agencies from the FDA to the EPA to the SEC could significantly rewrite the rules for doing business as a life science company. That’s particularly true given the transition from an administration that sought to reduce burdens on companies to one that generally distrusts the business sector and may encourage antitrust actions.
Nobody knows exactly how those changes will play out, so how can companies prepare for what’s ahead? It’s important to pay attention, remain nimble and leverage relationships you have with lawmakers. Remember that uncertainty creates subjectivity and will always result in higher prices and more restrictive terms from insurance carriers.
7. Workplace Communication
In-person miscommunications happen all the time. When you move those inherently imperfect exchanges from face-to-face settings to virtual environments, you increase the potential for mistakes. Those misunderstandings can create delays, cost overruns and other problems for the business.
As you interact with external members of your supply chain, the risks increase. Whether you’re trying to solve a production issue or negotiate contracts, the changing workplace environment presents new levels of risk.
Finally, consider that much work is now being conducted in homes rather than at the business location. As companies reconfigure their operations to create greater flexibility for where work is performed, they also may be creating new cyber exposures, which they need to assess and mitigate.
8. Third-Party Contracts
Read. The. Fine. Print. Contracts with outside parties may contain terms and conditions that impose risks beyond what you feel is appropriate. That’s especially a concern when you’re seeking funding or are involved in a merger or acquisition. It’s critical to make the extra effort to perform due diligence to identify any unforeseen risks that could impact your company’s well-being.
Pay particular attention to the insurance section of contracts. Often, this section contains boilerplate language that hasn’t been modified for years or decades, so it doesn’t reflect the current environment or carrier limitations.
9. Operational Funding
If your company expects to seek outside funding in the foreseeable future, become comfortable with the changes in the funding environment. Often, corporate leaders are accustomed to a long process of romancing funding sources in person and methodically convincing them to provide capital. Thanks to the pandemic, many recent deals have involved virtual negotiation, making it more difficult to establish those all-important personal relationships and build a sense of trust.
10. Unfunded Mandates
The pandemic not only disrupted the business world, it also created a broad range of new costs businesses weren’t expecting. Examples of these “unfunded mandates” include everything from spending on hand sanitizer, cleaning supplies and personal protective equipment, to investing in hardware (e.g., Plexiglas shields) and additional technology needed to support remote work. Companies may also face COVID-related liabilities, insurance increases and even potential operating losses.
If you haven’t examined your insurance policies in the last 18 months, you may be surprised to discover new exclusions and restrictions. Keep in mind that an insurance company’s first responsibility is to protect its shareholders, so it may modify coverages in ways that create greater risk funding responsibility for you.
It All Comes Down to Risk Management
These top 10 risks vary, but all have one thing in common: they require attention and action from your management team. Company leadership must be proactive about identifying the specific risks that threaten your business and finding ways to manage or mitigate them. Don’t count on your insurance carriers to do the heavy lifting for you: how well your company withstands this new normal rests squarely on your shoulders.
The above information does not constitute advice. Always contact your insurance broker or trusted adviser for insurance-related questions.