Beazley has insured dietary supplement companies in the past, but the effort was housed within the company’s generalized health care coverages. The growth of the market and the evolving specialized needs of these companies required something different, said John Livatino, an underwriter at Beazley.
Greater focus needed
“We have been writing coverage for this industry since about 2006,” Livatino told NutraIngredients-USA. “We were offering a variety of basic general liability coverage. After I came on board in 2010 with a background in healthcare we saw a need for greater focus, and we started developing the new program which we released this year.
“We wanted to make sure that it was specific to the nutraceutical industry and offered all of the coverages that a company like that would want to have,” he said.
Livatino said among the specific provisions of the policy are coverages of operations and premises, copyright issues and liability arising from human resources practices. But those are side issues, he said.
“The main liability is of course the products that our clients put out,” Livatino said.
Qualifying their customers
Figuring out how to underwrite that liability was a challenge with the new policy, Livatino said. The company came up with a 13-page application form that looks deeply into a company’s operations and tries to assemble a picture of the company’s corporate culture.
“We ask things like, are they GMP compliant? We want to know if they have written standard operating procedures for number of quality control metrics. If they are a contract manufacturer or if they are a company using a contract manufacturer we want to know who’s responsible for formulating. We will want to see a copy of the agreement. It’s important for us to know who has agreed to what indemnifications,” Livatino said.
The liability arising from a company’s business practices was highlighted recently by a warning letter sent by FDA to the maker of the KIND line of whole-food ingredient nutrition bars that said among other things that the macronutrient profiles of the company’s products don’t match the agency’s definition of what can be called “healthy.” The warning letter is likely to give rise to a number of class action lawsuits observers have said, and in the wake of the affair some experts have questioned whether the company had done a thorough enough review of its labels, as some the errors it made were of a basic nature.
“We definitely want to know how they handle labeling. Have they consulted outside counsel? We ask to see the labels. We are not acting as counsel in any way but if there are gross errors we should be able to pick that up, and that might make a difference in how we price the coverage. We do offer coverage for class actions, but we do not supply coverage for a company’s own labeling errors for for false advertising,” Livatino said.
Push from retailers
Livatino said a big impetus for the program comes from the retail side. Retailers are increasingly sensitive to the risks posed by the products they feature on their shelves and are more and more stipulating specific coverages as a condition of doing business.
“We do write some reatilers and we want to make sure that all their vendors are carrying product liability insurance. For the most part the retailers are doing a good job of this. Some retailers are now requiring $10 million in coverage per claim and $20 million overall,” Livatino said.
Weeding out the bad actors
Livatino said the rapidly shifting landscape in the supplement industry can be a challenge for an underwriter. How much risk do new formulations pose? One approach the company takes to managing those risks is to have a list of banned ingredients that would be deal-breakers if they are openly included in formulations or would void coverage if they are found to be in a product after the fact.
“We have a standard schedule of excluded ingredients. That will change as certain things bubble up. DMAA would be on there; yohimbe and kava kava would be on there. Some of them are ingredients we would not offer coverage for. This are almost entirely illegal products, where the FDA has said as in the case for DMAA and ephedra that these should not be on the market,” he said.
“Other things like kava kava, yohimbe or chaparral, we would be willing to carve back an exception but we will want to see the dosage and we would want to have some idea of the annual sales so that we can assess the risk,” Livatino said.