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PrintQ&A: Insurance Coverage for Nutraceutical Products
with Joseph Adler, senior managing director, Property and Casualty Insurance
Despite the dangerous aftermath of ephedra, consumer demand is on the rise for fast cures and better health through nutraceutical products that claim to have medicinal effects. The growth in the industry over the past two to three years has also led to higher scrutiny by regulators, as well as a dramatic increase in lawsuits, both of which are expected to continue.
Joseph Adler, a senior managing director in Mesirow Financial's Property and Casualty Insurance Services department, recently shared his opinions with us on changes in the industry and how companies can proactively assess and manage the risks associated with nutraceutical products liability.
| Q: | How has the nutraceutical industry evolved recently? What are the new challenges facing nutraceutical products? |
| A: | With the enforcement of stronger government policies and safety regulations on labeling for dietary supplements, manufacturers, distributors and retailers are now rethinking their business strategies. In the most serious cases, common, unlisted allergenic ingredients, such as nuts, can prove to be fatal for consumers who are uninformed. Because of this, there have been ongoing debates about the safety of the ingredients in the billions of pills, protein drinks and energy bars marketed to consumers looking to gain muscle, boost energy or lose weight. Not only is a product vulnerable to devastating damage - the company brand name and profitability are also at stake. Some of the new industry risks are:
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| Q: | Is product recall the same as product liability? |
| A: | No. Product recall insurance, not to be confused with product liability insurance, really surfaced as a viable coverage in the 1980s as a result of the Tylenol tampering incident. Product recall is a potentially expensive proposition involving business costs such as:
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| Q: | So it sounds like nutraceutical companies may need both types of insurance. How else has insurance coverage evolved for the nutraceutical industry? |
| A: | Insurance coverage has become increasingly harder to secure for companies in the nutraceutical industry. These companies are now finding themselves the target of plaintiff attorneys, similar to the pharmaceutical industry. However, pharmaceutical liability is based on disclosure of danger to the doctor, not the consumer, whereas nutraceutical companies have no buffer between them and the marketplace. The result is higher liability and increased manufacturing costs, leading to crushed revenue. Insurance companies have either stopped covering certain products altogether or have implemented soaring premiums, leaving manufacturers without any product liability coverage at all. |
| Q: | Is it just the manufacturers who face this risk? |
| A: | Usually distributors and retailers mistakenly feel secure because they merely sell a product manufactured by another company; however, they are often the target of product liability lawsuits and may not be properly insured for the exposures they face. With product liability there is a "trickle down effect" through all parties involved in the chain of commerce: from the raw material supplier straight through to the retailer. For this reason, companies should be sure they know their business partners, and be confident that they are bona fide and reputable. |
| Q: | What can companies do to help make sure their insurance plan is effective? |
| A: | A well-designed product liability and recall plan expects the unexpected, which can mean the difference between a challenging situation and a full-blown crisis. Mesirow Financial's Property and Casualty Insurance department provides thousands of companies with product liability and product recall insurance. Our clients range from businesses with innocuous product liability exposure to high-risk companies that manufacture and distribute athletic helmets, dangerous chemicals, motorcycles, and electrical and chemical products with direct application to the body. |
| Q: | How is Mesirow Financial different from other providers? |
| A: | Many of our clients that deal with very hazardous products-and the related increase in liability exposure – look to Mesirow Financial to provide insurance solutions that include product liability and completed operations coverage. Our process includes analysis of risk, auditing the existing product liability insurance plan, and recommending appropriate coverage and risk retention that fits each client's specific needs. |
Insurance Services Provided by Mesirow Insurance Services, Inc. The opinions expressed herein are subject to change without notice. Mesirow Financial does not provide legal advice.