Insurance cover is rightly seen as essential to many organisations. However, where research & development is a significant or primary part of your operations, it is important to understand the limitations of general business insurance compared to a policy tailored for R&D.
It is crucial to recognise how physical property and not just intellectual property is created through research and development and take into consideration how that work is funded.
Your R&D property must be valued correctlyR&D can take time and expertise to reproduce, even if you avoid the dead ends identified the first time round. The raw materials may cost pennies, but the investment of time and money required to transform it in to usable R&D can be significant. The value of the property sum insured needs to reflect the cost of this re-creation, not just the value of the raw ingredients. A specialist policy will take this into consideration. A specialist policy will offer specific cover for R&D property Standard property cover may exclude spoilage or change in temperature if not as a result of an insured peril e.g. fire. Property produced from R&D has significant value to a business and is often stored in fridges, freezers or in liquid nitrogen and processed in a clean room. It is vital to consider if changes in these environments would damage the R&D and that appropriate covers included. Controlled environment Deviation, Contamination Event and Machinery Breakdown covers are available on a specialist policy.
You need to make sure you protect your business against a loss that interrupts the R&D process. The type of insurance cover you need is dependent on how your R&D is funded. Broadly speaking, there are two scenarios:
R&D costs are self-fundedWhere R&D is funded from ongoing sales and services, the R&D forms part of the existing income of the business and can be protected by traditional business interruption insurance which includes gross profit or gross revenue cover. R&D costs are funded externallyIn this case, business interruption has the potential to be far more serious. You need to consider:Loss of income streamMany externally funded R&D projects are subject to staged payments. Missing a key milestone due to a business interruption could cut off your income stream with immediate effect, ultimately leading to significant losses or even business failure. Ongoing costs and expense Even though there is money in the bank, long interruptions to the R&D process, either through recovering the R&D samples, recertifying clean rooms or awaiting for agreement from regulators, can mean that fixed costs and expense of business can eat into your funds. Without enough money to finish the planned research the business could fail.
This is a specialist business interruption cover that provides a stopgap, maintaining the income stream until the project is sufficiently back on track for staged payments to resume.
Good R&D cover will be able to accurately account for the research time and assets lost, and compensate the organisation accordingly.
Posted by Ryan Legge on
7 April 2017 at 12:00 AM
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