By Jonathan Saul and Carolyn Cohn
LONDON- Speedy global delivery of COVID-19 vaccines by air and sea in ultra cold conditions will lead to a jump in cargo insurance rates and spur demand for new areas of coverage, leaving underwriters on high alert.
Pharmaceutical companies normally manage the risks of transporting their products through buying insurance or relying on an in-house insurer, known as a “captive” insurer. But as Pfizer Inc and other drugmakers start to roll out vaccines more broadly, existing companywide annual cargo insurance programs are likely to be insufficient, industry sources say.
“Where manufacturers or logistics providers see gaps in their coverages, they may look to the insurance markets to plug those gaps,” said Charlie Netherton at broker Marsh.
The first US vaccine shipments departed Pfizer’s facility in Kalamazoo, Michigan this week, while tens of thousands of people in Britain have had their first dose of the Pfizer vaccine, which was developed with Germany’s BioNTech.
Moderna Inc is also due to roll out a COVID-19 vaccine once regulatory approval is secured, as is Britain’s AstraZeneca which has developed a vaccine with Oxford University.
Transporting vaccines, however, is already high risk, with around 30 percent of vaccine consignments globally lost to damage or theft, insurance sources say.
Prices for new contracts in the transport insurance market were climbing sharply even before the pandemic following rising claims and reduced competition, and industry sources expect insurance rates to jump when pharma companies involved in COVID-19 vaccines renew their annual policies next year, given the additional risk.
“Vaccine producers which do not have long-term contracts in place must expect additional insurance costs of up to 20 percent compared to the previous year,” said Reiner Heiken, chief executive of US-headquartered Hellmann Worldwide Logistics.
Those companies are also expected to take out more cover for added risks including extra-cold transport and increased likelihood of cyber attacks or old-fashioned theft, sources said.
To rein in their insurance costs, drug firms are likely to take on more of the initial risk themselves, or make more use of in-house captives, which have become increasingly popular in large firms.
Pfizer, Moderna and Astra-Zeneca did immediately respond to requests for comment via email.
Insurers, for their part, also risk claims under liability policies if the vaccines are administered after being damaged in transit, and cause major side effects, Nicky Stokes at broker New Dawn Risk said.
A consignment carrying tens of thousands of packs of a COVID-19 vaccine that is lost, stolen or damaged from a truck or refrigerated container has an estimated value of $15-$50 million, industry sources say.
Such losses compare with total claims on cargo insurance of $563 million last year, the International Union of Marine Insurance said.
The US and British governments have said they will take on liability risk if the vaccines cause side effects but it is not clear if that includes side effects caused by damage in transit.