One product should not define an industry but ephedra has had a decidedly negative effect on the ability of the nutraceutical industry to obtain insurance coverage. John Gaskill, senior vice president of MarketScout, states that coverage for nutraceuticals is available primarily through nonadmitted carriers. Denise Pepin, of CRC Insurance Services who has earned the endorsements from The American Herbal Products Association, the Natural Products Association and the United Natural Products says that product coverage is available only on a claims-made basis.

Mr. Gaskill states that, “Underwriters underwrite the ingredients.” Ms Pepin states, “Coverage for products with ephedra was very difficult to place and is no longer available so companies continue to add ephedra exclusions to their policies. Companies have been unwilling to remove the ephedra exclusion even on discontinued products policies.” But ephedra is not the only ingredient causing concern. Cole Palmer at General Star Management Company suggests that all agents should, “pay careful attention to designated product exclusions contained in the policy they are offering to assure that their clients are getting the coverage they need.”

Ms. Pepin points out that weight loss and sports nutrition are still considered tough classes to place because they are the ones from which a majority of claims evolve. She says, “Some companies will not consider businesses if sales are high for bitter orange. Bitter orange speeds the body’s metabolism but not to the extent of ephedra. A few companies offer a buy-back of the exclusion, depending on the dosage of bitter orange in the product, the percentage of the company’s overall sales composed of weight loss products, the manufacturer’s loss history and the distribution method. Also, products that contain thermagenic formula or muscle enhancement are more difficult to place with only a limited number of markets willing to write them.”

Bill Ambler of SHG Insurance Services, who works with six different markets, brings up another issue of concern. “The purity and quality of products imported from China have raised questions as of late. There have always been some concerns in regards to importation of ingredients and the need for country of origin labeling.” Ms. Pepin agrees with the geographic concern, saying, “All products from China are being more closely scrutinized given the quality control issues that have come to light in the past six months. Many of the natural products being sold today have their origins, or are manufactured in Asia, primarily in China and India, and are distributed worldwide.” Brenda Craig, vice president, health and life sciences of James River Insurance Company states it very clearly. “Products manufactured in the United States will typically be preferred over imported ones.”

The most important insurance coverage for any nutraceutical business is commercial general liability. Each of our experts agrees that products liability is the most important aspect of it and policies written on manufacturers and distributors should always include broad form or blanket vendors coverage. According to Mr. Ambler it is important to, “Have as few limiting endorsements as possible.” Ms Pepin says that, “Broad additional insured coverage can be very important as well as worldwide coverage for suits brought in the United States and any other country with which it has diplomatic relations.” In addition, Mr. Ambler recommends product recall coverage but points out that, “Such coverage, at a reasonable cost, is virtually non-existent.” Mike Pellittieri, vice president of Tri-City Insurance Brokers NYC, states that, “Excess underwriters are also taking a closer look at the delivery system (gel-caps, packaging, etc,), along with labeling and efficacy issues.”

Ms. Pepin observes that, “Pricing is becoming more competitive as additional insurers become more comfortable with the class of business after the ephreda ban." Mr. Ambler totally agrees, noting that, “Pricing is down dramatically. The scares of the recent past have faded from short term memories and many markets with a need to generate premium income are venturing into multiple market segments.” Ms Craig agrees, saying, “Some standard markets are pricing high limits for lower premiums than expiring.” Mr. Palmer comments, “Market pricing is down approximately 20% but varies based on size, nature of the products and other risk characteristics.”

Coverage limits are not a major concern. Our experts agree that limits of $1MM/$2MM/$2MM are fairly typical and limits up to $5MM/$5MM/$5MM are available. Higher limits are often needed to satisfy the demands of larger retail department and discount stores although, according to Ms Pepin, “Some retailers will accept a $2MM limit for non-invasive personal care products.” Mr. Pellittieri informs us that a market providing him with exclusive excess coverage on Life Sciences and Nutraceuticals has recently increased his capacity from $10MM to $20MM. He says other excess markets are also available for certain nurtraceuticals, including some admitted markets. Both Ms. Pepin and Mr. Pellittieri indicate that they have been able to fill coverage requests up to $100 million.

One indication that the nutraceutical market is opening up is that new products are being launched to target it. Mr. Palmer announced that General Star Management Company is launching the NutraAdvantage™ product. This policy provides occurrence coverage for premises and operations and claims-made coverage for products/completed operations on a non-admitted basis through designated surplus lines brokers. It is specifically designed for the nutraceutical and dietary supplement Industry. It is also launching a program targeted at businesses with less than $1,000,000 in sales that will have lower minimum premiums requirements and a number of additional special features.

This good news does not mean that the nutraceutical market is risk free or will be written by standard markets. Our experts continue to be concerned about the regulatory environment and lack of consistent standards. As Mr. Ambler observes, “The need for independent third party or United States government certification and testing of ingredients from a purity and qualitative standpoint has been resisted by the nutraceutical industry. Though Ms. Pepin points out “This isn’t to say that there hasn’t been a great deal of research and testing from the nutraceutical industry but it all lacks FDA approval.” Mr. Palmer adds, “We believe that the imposition of Good Manufacturing Practices (GMP) by the FDA will play a role going forward.”

A final comment by Ms. Craig is an important reminder for all who work in this market because the nutraceutical industry is not static or easily defined. She says, “These risks tend to be fast moving targets. They may be in and out of business and back again under another name or purchased by a larger entity. They can have a hit product that doubles or triples sales overnight and then have dramatically reduced sales when the trend fades.”