It’s nearly impossible to pass a grocery or convenience store counter without coming face-to-face with some type of dietary supplement. From energy drinks and weight-loss pills probiotics, vitamins and herbal supplements, the types of dietary supplements available have exploded in recent years.
This growth has been a lure to many that have sought to capitalize on consumers’ desire to shed pounds, build muscle mass, boost energy or improve general fitness, and—at least in the past—these startups have had few regulatory barriers to surmount before entering the market.
Under the Dietary Supplement Health and Education Act of 1994 (DSHEA), product safety and efficacy have been left to the determination of supplement makers. And, for years, manufacturers’ primary regulatory requirement was to ensure that their product labeling was not misleading the consumer.
This dramatic market transformation has not gone unnoticed by legislators and regulators, who have drastically stepped up oversight of the supplement market. And, while the increase in regulation may make dietary supplements safer for consumers, it is far from a cure-all for dietary supplement insurers that still need to look beyond compliance.
An unhealthy misconception
For years many have known that dietary supplements can interact with prescription drugs and lessen their effectiveness, or that some may contain high concentrations of pharmacologically-active ingredients.
And, while the large majority of supplement makers produce their products using pure ingredients in controlled environments, the industry is still dogged by repeated complaints, including poisonings, liver failure, stroke, heart attacks, respiratory problems and more.
Despite this information, the general public has often unquestionably equated natural with healthy—a sentiment that dietary supplement makers have latched onto in their marketing.
This created an obvious need for dietary supplement makers to carry product liability insurance, but the problem many insurers faced was being able to accurately assess the risk these supplements might pose. Without this assessment, it was difficult to write an insurance policy that reflected the needs of the company and the risks to the insurer.
Stepped up oversight
Before 2007, officials lacked a reliable way to assess the extent of dietary supplement problems because supplement makers were not required to report serious adverse reactions to the FDA. But, this loophole was closed in 2006 with an amendment to Federal Food, Drug and Cosmetic Act that required supplement makers to report any life-threatening experience, inpatient hospitalization or birth defect, or any procedure to prevent one of these events to the agency.
After years of debate, the FDA addressed this issue in 2007 with the release of new rules known as the current good manufacturing practices (cGMP). The rules, which were phrased into effect over a three-year period, establish standards for purity, quality and strength of ingredients.
Among its provisions, the rules set standards for manufacturing procedures, quality control, designing and constructing plants, and the sourcing and testing of ingredients. Supplement makers are required to test the identity of all ingredients or obtain certificates of testing from suppliers to ensure that the identity and quality of ingredients match the makers’ labeling claims.
The insurance angle
In many cases, supplement-related insurance claims ultimately stem from the expectations or failed expectations of the consumer.
With the implementation of cGMP, dietary supplement insurers have a powerful measure by which they can assess the risks posed by a supplement maker. But, relying on cGMP standards alone misses the big risk picture. That picture can only be fully drawn by digging deeply into the characteristics of the risk and asking questions that go beyond compliance, such as:
- How pharmacologically active are the supplement’s ingredients?
- Are the ingredients trade names or a new ingredients?
- What is the company’s role in the stream of commerce? Are they are retailer, wholesaler, or bulk supplier?
- How aggressively does the supplement maker market its product?
- Does the advertising match the product’s labeling claims?
- How are the ingredients sourced, and do the suppliers of outsourced ingredients or services also meet cGMP standards?
Evaluating suppliers is a key component of evaluating risk, as suppliers can have a wide-ranging impact in terms of leverage, which can give rise to large losses in the tens of millions of dollars.
Additionally, the maker’s profitability, experience, marketing and product offerings—among other factors—should start to fill in the company’s risk profile, which cannot be entrusted solely to compliance with a set of regulations.
In the years ahead, the ability to effectively discriminate among risks will become more critical, even if the increase in oversight raises the quality and integrity of the supplement market and helps to develop better buying habits among customers. With increased scrutiny and public awareness, there is also the possibility of increased claims.
Managing the evolving terrain of the dietary supplement market will take more skill than just monitoring a maker’s compliance. It will take a deep understanding of what drives risk.
Obtaining insurance for dietary supplements
Admiral Insurance Group is a leading provider of product liability insurance for dietary supplements.
If you are a wholesale broker in need of an insurance partner with deep expertise in the dietary supplement and nutraceutical industry, contact us to become an appointed broker.
If you are a retail agent or broker with clients in the dietary supplement industry, we encourage you to connect with one of our wholesale broker partners. And if you manufacture or sell dietary supplements, we encourage you to ask your insurance broker about Admiral's product liability coverage.
Products and services described above are provided through various surplus lines insurance company subsidiaries of W. R. Berkley Corporation and offered through licensed surplus lines brokers. Not all products and services may be available in all jurisdictions, and the coverage provided by any insurer is subject to the actual terms and conditions of the policies issued. Surplus lines insurance carriers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds.