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CEO’s message

Life science sector:

Future and cyber risk landscape

Life science companies may need to adapt

to the new reality

Other news and insights

Marsh events

CONTENT

NEWS&VIEWS August 2017

Dear all,

As we celebrate and look forward to the festivities that herald the last few months of the year, we are happy to share the August edition of our newsletter, News&Views.

India’s economy continues to grow, with a surfeit of liquidity, both from domestic and foreign sources. In addition, the goods and service tax (GST) appears to have been widely adopted. Although, the effect of this tax change will become more apparent in the next few months.

The world economy also continues to improve, albeit cautiously, as reported in the media. And there was another terrorist attack. Spain, one of the few European countries that were spared terrorist attacks, experienced one in Barcelona, where 15 people were killed.

In another development, the government expects India’s rank in the global index of ease of doing business to improve, according to a media report. The World Bank is likely to announce the rise in the country’s rank soon.

However, emerging risks, whether it is terrorism, civil strife, natural calamity, or cyber, continue to affect people, businesses, and economies across geographies, from Mumbai to Houston and Havana.

Climate change can no longer be discounted. Given it magnitude and spread, climate change is becoming a corporate governance issue, with increasing calls for

disclosure about climate mitigation efforts of companies by large shareholders, regulators etc.

Cyber risk is another risk that can potentially affect many prominent industries. One such industry is the life science, where typically the value of intellectual property is higher than in most others.

The life science industry spends millions to research, develop, and commercialize drugs and processes. In such a scenario, the theft of crucial intellectual property and disruption of supply chain etc. can erode millions in lost revenue and loss of reputation.

In this edition, we study cyber and other emerging risks in life science companies. There is also our regular news and events section.

We hope that you enjoy reading the newsletter. Please let us know your views or email your feedback to contact.india@marsh.com.

Warm regards,

SANJAY KEDIA Country Head and CEO Marsh India

News&ViewsMessage from the CEO

INDIA

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LIFE SCIENCE SECTOR: FUTURE AND CYBER RISK LANDSCAPE

Manufacturers

• DSN• E2E• Block Chain• AI• Big Data• Patient Data

Distributors

• DSN• Online

Pharmacy Stores

Consumers

• Social Media• Remote

monitoring• Sensor developed

med devices

Internal Company Data Patient Data

R&D Data

Internal Company Data Patient Data

Prescriptions

Personal Data Patient Data

Medical Records

Technological advancement

What is at Risk?

Solutions CYBER RISK COVERS

CYBER RISK FRAMEWORK FOR LIFE SCIENCES COMPANIES

DIGITAL PLATFORMS

Life science companies have always operated in a world of uncertainty. Challenges around cost and pricing, clinical and operational innovation, customer and consumer engagement, and regulatory compliance issues have existed for decades. In addition, new and evolving technologies and processes, including blockchain, digital supply networks (DSN), and data analytics have meant that the life science sector is a prime candidate for disruption.

In this article, we look at new technological advancements that affect different stakeholders of the life science sector—manufacturers, distributors, and consumers—and the risks associated with such changes.

Most life science companies face the challenge of focusing on cutting edge research and development and innovation. At the same time, they need to keep costs low, without compromising on patient safety in all the geographies that they operate in. They also have to be compliant with local and global regulations.

How should life science companies invest and operate to thrive in today’s world of uncertainty? What capabilities do they need to leverage the large (and growing) electronic health information data across the enterprise, from R&D through product commercialization? How can they develop incremental and breakthrough strategies that de-risk clinical, business, and operating models and create added value for patients, manufacturers, and shareholders?

EMERGING TECHNOLOGIES AND STRATEGIES IN THE LIFE SCIENCE SECTOR

Some of the technologies that manufacturers in the life science and healthcare industries are likely to adopt are the following.

Manufacturers and suppliers

1. Digital supply network: The DSNs integrate information from different sources and locations to drive production and distribution. Many life science organizations are now trying to use DSNs to focus more holistically on how the supply chain can better achieve business objectives, while informing corporate, business unit, and portfolio strategies.

2. Blockchain: Blockchain technology has the potential to drive life science innovation, strengthen security efforts, and increase company and industry accountability. As drugs are manufactured, patents filed, and clinical trials carried out, blockchain technology could be used across the product lifecycle and provide visibility among pharmaceutical companies, clinical research organizations, regulators, distributors, and patients.

3. Health care digitalization: The collection and electronic exchange of vital biological and clinical data (e.g., disease statistics, patient population statistics, electronic patient dossiers) among life science companies, providers, health plans, and patients can improve drug and device R&D, manufacturing, distribution, adoption, and use.

Source: Marsh India life science team

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4. Artificial intelligence (AI): Technical advances by collaborating robotics and medtech companies are enabling semi-autonomous patient care and robot-assisted surgeries.

5. Big data and analytics: Sophisticated data sharing, processing, and mining techniques can support the development of personalized medicines, rapid commercialization of new drugs and devices, and create a competitive advantage.

6. Digital platforms: Digital platforms have the potential to substantially lower the cost of patient-physician engagement.

Consumers of life science products and health care services

Social media: Peer-to-peer reviews through closed groups and open groups of friends and relatives, as well as social media platforms open to all, are rapidly emerging as a useful tool in consumers’ choices of life science companies’ offerings. Almost everyone uses these platforms to inform their decision making on almost each field of the life science sector, from drugs to which doctor to consult.

Life science companies may need to adapt to the new reality

Given these trends, life science companies need to strengthen their interaction with the users of their products and services by developing online information resources, mobile applications, and personal health devices. In addition, streamlining and harmonizing all their digital channels to provide a consistent customer experience and reduce costs is important.

OTHER STRATEGIES DRIVEN BY EMERGING TECHNOLOGIES

1. Evidence management model: An insight-driven E2E (end-to-end) evidence management model is becoming a necessary operating strategy in the life science sector. The advantages include better data transparency; the design of less expensive, targeted clinical trials; and the acceleration of product approvals.

2. Lifetime patient data management: Lifetime patient datasets can be used to develop an integrated understanding of patients and help de-risk the process of discovery through a better focus on unmet needs; improve selection of biomarkers/sub-populations; and support earlier/ faster identification of trial patients.

3. Collaborative product development: Life science industry is joining other industries in which companies have turned to open innovation (OI) and other collaborative models as a way to fill in-house capability gaps and overcome R&D and marketplace challenges by externally sourcing innovative ideas, knowledge, skills, and technologies. It has become an effective way for biopharma and medtech companies to offset mounting R&D costs, funding shortfalls, increasing disease complexity, and rapid-fire technology advances.

References:

1. Cybercrime in the pharmaceutical industry: a booming business, Pharmaceutical technology”, http://www.pharmaceutical-technology.com/features (assessed on August 1, 2016), and https://www.mcafee.com/in/resources/reports/rp-economic-impact-cybercrime2.pdf “Net Losses: Estimating the global cost of cybercrime”, Mcafee, http:// www.mcafee.com/inhttps://www.mcafee.com/in/resources/reports/rp-economic-impact-cybercrime2.pdf (assessed on August 1, 2016).

2.Economic times

3. 2017 Deloitte Life Sciences outlook; https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/life-sciences-outlook.html.

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ADVANCED TECHNOLOGIES MAY LEAD TO NEW KINDS OF RISKS IN LIFE SCIENCE COMPANIES

Together with these trends that are affecting all stakeholders, from the manufacturers to distributors, and customers, there are a new set of emerging risks.

Intellectual property (IP): Safeguarding valuable IP is a growing challenge, especially in countries such as Russia as well as Southeast Asia and other emerging economies, due to a rise in prices of innovative drugs and protectionist policies that favor national market players. Most innovative drugs with IPs are expensive and they loose out to the local “copy cats.” Sometimes, such companies are protected against litigation in law courts of their home countries from the original IP holder.

One of the biggest concerns is sensitive commercial information leak, amid the operational shift for collaboration with third-party companies, suppliers, and scientists to spread R&D costs and risks. The loss of information may damage business prospects and help competitors. Further, leak of information about clinical trials may introduce bias and hinder the development of life-saving drugs.

Cybersecurity: Cyber-theft and cyber-espionage continue to threaten sensitive R&D and patient information as well as reduce life science companies’ profits. Organizations in developed markets, including the USA and UK , have suffered economic losses of more than US$279 billion due to cybercrime. A substantial proportion of this loss was borne by life science companies. Source 1.

The issue of sensitive information security will become even more prevalent in the future. Many life science regulators across the globe are waking up to the fact that the industry is more vulnerable to cyber-attacks than any other industry.

The broad spectrum of cyber and privacy risks — which pose the potential for significant economic loss and reputational damage — include:

• Orchestrated attacks intended to disrupt or cripple networks and critical infrastructure.

• Organized crime targeting valuable customer, research and development, and employee data.

• Increased regulatory demands, such as adherence to payment card industry data security standard (PCI DSS) and a variety of privacy breach notification laws.

Due to a targeted cyber-attack, a leading UK biotech company lost research data eight months prior to a new product launch. A foreign competitor accessed this data, and as a result released a cheaper replica ahead of the UK company. The UK company suffered financial loss (having invested GBP1 billion in research and development), future funding was compromised, and foreign competitors introduced further products based on the stolen research data.

Organizations in developed markets, including the USA and UK , have suffered economic losses of more

than US$279 billion due to cybercrime.

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Cyber security measures, including implementing frameworks, integrated systems management programs, and security patch applications to identify data breaches have strengthened companies’ ability to respond to threatened and actual cyber incidents. However, the security infrastructure needs to be even more robust, as life science and health care companies experience 59% more security incidents than the average industry percentages.

HOW THE NEW-AGE CYBER INSURANCES CAN HELP LIFE SCIENCE COMPANIES

Such policies can be customized to include any or all of the following coverages:

• Information Asset Coverage The policy offers reimbursement for the costs incurred to recreate, restore, or recollect an organization’s information and computer system assets that were damaged or corrupted by a cyber-attack.

• Business Interruption Coverage Including Extra Expense The policy provides reimbursement for lost revenue, including extra expense, resulting from a failure of technology, computer system outage, or cyber-attack. Coverage can be

According to findings from the Deloitte 2016 Survey of US Health Care Consumers, there is growing consumer appetite for using technology-enabled care:

• Seven in ten consumers are likely to use at least one of the technologies presented in the survey (e.g., telemedicine, remote patient monitoring, drones).

• Telemedicine, in which half of the respondents show interest, is the most popular technology. Respondents are most interested in using it for post-surgical care and chronic disease monitoring.

• Particular subgroups are especially keen on these technologies, especially those with chronic diseases, Millennials using telemedicine, and Seniors using remote monitoring.

• Caregivers are a key population. Consumers who are caregivers say they are most likely to use sensor technology when caring for others rather than for themselves. Experienced caregivers are more likely to use telemedicine and remote monitoring technology than non-caregivers.

• Consumers demand high-quality, personalized care. They also want assurance that their personal information will be safe.

expanded to include contingent business interruption due to an issue with a vendor, such as a cloud service provider.

• Cyber Crime Coverage The difference-in-conditions (DIC) coverage fills gaps for “theft of data/information” in crime policies as well as indemnification for theft of information or computer system assets. The coverage can be more than a computer crime policy.

• Cyber Extortion Coverage The coverage for ransom or investigative expenses associated with a threat to release, divulge, disseminate, destroy, steal, or use confidential information; to introduce malicious code into the computer system; to corrupt, damage, or destroy the computer system; or to restrict or hinder access to the computer system.

• Criminal Reward Fund Coverage The fund for the reward for information that leads to the arrest and conviction of any individual(s) committing or trying to commit any illegal act related to coverage under the policy.

• Crisis Management Coverage The fund for public relations and crisis management in connection with any crisis event relating to a failure of computer security or breach of privacy resulting in a loss or claims under the policy.

References:

1. Cybercrime in the pharmaceutical industry: a booming business, Pharmaceutical technology”, http://www.pharmaceutical-technology.com/features (assessed on August 1, 2016), and https://www.mcafee.com/in/resources/reports/rp-economic-impact-cybercrime2.pdf “Net Losses: Estimating the global cost of cybercrime”, Mcafee, http:// www.mcafee.com/inhttps://www.mcafee.com/in/resources/reports/rp-economic-impact-cybercrime2.pdf (assessed on August 1, 2016).

2. Economic times

3. 2017 Deloitte Life Sciences outlook; https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/life-sciences-outlook.html.

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OTHER NEWS AND INSIGHTS

REGULATOR MULLING INTRODUCTION OF REFORMS AND IS USHERING MORE CHANGES IN THE INSURANCE INDUSTRY

In an indication of further transformation of the insurance industry, the insurance regulator, Insurance Regulatory and Development Authority of India (IRDAI), was reported as saying that insurance costs of good drivers may come down with the use of telematics. Currently, motor insurance is based on parameters, such as the “make and model of the car”, capacity, and geographical use.

Please read more here:

http://timesofindia.indiatimes.com/business/india-business/telematics-can-cut-insurance-cost-for-good-drivers-says-irda/articleshow/59944056.cms

The regulator, IRDAI, also may soon introduce risk-based capital method to calculate the solvency ratios of insurance companies, according to a newspaper report. Currently, the solvency ratio is based on reserves and the sum at risk for life insurance companies. The risk-based method is the standard adopted in developed countries.

The implementation, however, may not be easy. The panel has recommended a “Twin Peak” approach whereby the current reporting structure would continue with the new system operating in parallel.

IRDAI MAY INTRODUCE RISK-BASED CAPITAL NORMS FOR INSURERS BUSINESS LINE

In another change, the IRDAI has asked all insurance companies that have unclaimed funds of policyholders for a period of more than 10 years as on September 30, 2017, to transfer that to the Senior Citizens’ Welfare Fund (SCWF) on or before March 1, 2018.

As part of the Finance Act 2015, the government has brought in the Senior Citizens’ Welfare Fund Act, 2015 (SCWF). This mandates the transfer of unclaimed amounts of policyholders to the fund (SCWF) after a period of 10 years.

Read more at:

http://www.deccanchronicle.com/business/companies/250717/transfer-unclaimed-money-to-senior-citizens-welfare-fund-irdai.html

Irdai asks insurers to transfer unclaimed money to Senior Citizens’ Welfare Fund

INSURANCE COMPANY LAUNCHES INDIA’S FIRST TRAVEL INSURANCE CHATBOT

Apollo Munich, the private health insurance company, has introduced Travel Ninja, a travel insurance chatbot, which will enable its customers to easily and quickly buy insurance.

According to the company, the chatbot is designed in a way that if customers realise they need travel insurance even as they are waiting for their flight at the airport, they will be able to buy that, as it would just take them 5 minutes.

Read more at:

Apollo Munich: Apollo Munich launches Travel Ninja,a travel insurance chatbot - Times of India

INSURERS

THE MONTH OF JULY 2017 UP TO JULY 2017MARKET SHARE UP TO

NOVEMBER 2016

GROWTH OVER THE CORRESPONDING

PERIOD OF PREVIOUS YEAR

2017-18 2016-17 2017-18 2016-17

PRIVATE SECTOR GEN. INSURERS TOTAL 4588.11 3937.5 19558.28 15685.29 45.4 24.7

STAND-ALONE PVT HEALTH INSURERS 551.82 385.4 2002.84 1393.430195 4.65 43.73

PUBLIC SECTOR INSURERS TOTAL 4213.71 4502.87 20748.75 18613.08 48.17 11.47

SPECIALIZED PSU INSURERS 437.4 149.59 767.16 602.49 1.78 27.33

PRIVATE TOTAL 5139.94 4322.9 21561.12015 17078.71712 50.05 26.25

PUBLIC TOTAL 4651.11 4652.46 21515.91 19215.57 49.95 11.97

GRAND TOTAL 9791.05 8975.35 43077.03 36294.29 100 18.69

INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA FLASH FIGURES -- NON LIFE INSURERS ( PROVISIONAL & UNAUDITED) GROSS DIRECT PREMIUM UNDERWRITTEN FOR AND UP TO THE MONTH OF JULY, 2017 RS. IN CRORES)

NOTE: COMPILED ON THE BASIS OF DATA SUBMITTED BY THE INSURANCE COMPANIES * FIGURES REVISED BY INSURANCE COMPANY ** COMMENCED OPERATIONS IN OCTOBER 2016

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MARSH EVENTS

MARSH IN THE NEWS

Emerging risks, such as cyber and non-damage business interruption, are increasingly becoming important in the current business environment. A spate of cyberattacks in past few months –WannaCry and Petya —has alerted the world to the perils of this risk. Cyber risk is an evolving enterprise risk, and no organization can afford to ignore this risk.

Other non-damage business interruption risks, such as pandemics, political strife, etc. also have become more important given the changes in the socio-economic polity of the world. For example, a number of losses following the Tianjin explosion are the result of subsequent interruption of flow in stock and production because the port was closed by authorities.

Non-traditional risks are becoming increasingly important, and Marsh India organized a round table conference comprising risk experts, representatives of leading companies, and consultants in two cities, Vadodara and Ahmedabad.

The topics that were covered include:

• Cybercrime and increasing white collar fraud

• Business Interruption not related to Material Damage - Innovative covers for Connected & Complex Business enterprise

LIFE SCIENCE SECTOR: FUTURE AND CYBER RISK LANDSCAPE

A report on the life science industry, Life Science Sector: Future and Cyber Risk Landscape, by Marsh Asia Leader Prashansa Daga was published on MoneyControl on August 31, 2017. The link to the article is http://www.moneycontrol.com/news/business/economy/life-science-sector-future-and-cyber-risk-landscape-2374087.html.

ROUND TABLE ON EMERGING RISKS VADODARA AND AHMEDABAD

Marsh India Communications Team.

For any information, please contact: ANGANA BHARALI DAS angana.das@marsh.com

MARSH IS ONE OF THE MARSH & McLENNAN COMPANIES, TOGETHER WITH GUY CARPENTER, MERCER, AND OLIVER WYMAN.

The information contained in this publication provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation, and should not be relied upon as such. Insured should consult their insurance, legal and other advisors regarding specific coverage issues. All insurance coverage is subject to the terms, conditions, and exclusions of the applicable individual policies. Statements concerning financial, regulatory or legal matters should be understood to be general observations based solely on our experience as risk consultants and may not be relied upon as financial, regulatory or legal advice, which we are not authorized to provide. All such matters should be reviewed with appropriately qualified advisors in these areas. Marsh cannot provide any assurance that insurance can be obtained for any particular client or for any particular risk.

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About Marsh

Marsh is a global leader in insurance broking and risk management. Marsh helps clients succeed by defining, designing, and delivering innovative industry-specific solutions that help them effectively manage risk. Marsh’s approximately 30,000 colleagues work together to serve clients in more than 130 countries. Marsh is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy, and people. With annual revenue of US$13 billion and approximately 60,000 colleagues worldwide, Marsh & McLennan Companies is also the parent company of Guy Carpenter, a leader in providing risk and reinsurance intermediary services; Mercer, a leader in talent, health, retirement, and investment consulting; and Oliver Wyman, a leader in management consulting. Follow Marsh on Twitter, @MarshGlobal; LinkedIn; Facebook; and YouTube.

PH 17-4222_ASM_India Newsletter August_2017