Product Liability Insurance Rates on the Rise

It had to happen.

Product liability insurance rates for the supplement industry, which have been in a steep decline for about seven years, have bottomed out in the last 90 days, and are probably headed upward in the near term.

Why? Rates have declined by 80 percent by some estimates. They couldnt go down forever. Insurers have been hit by catastrophic losses and an increasingly litigious social environment. Interest rates are at historic lows with no end in sight. The ebb-and-flow, roller-coaster pattern of premiums for commercial insurance has historical precedence and is poised once again to climb.

However, there are a number of practical steps a company can implement to improve the odds that it will survive the sellers market for insurance and be around to take advantage of the next buyers market when it comes.

Dont Wait Until the Last Minute

Start talking to your broker about renewal at least 90 days before the renewal date. Underwriters will be asking more business questions, questions they werent bothering to ask last year. Since the process is going to be more difficult, it will take more time.

Focus on Coverage, Not Just Price

Invest some time in understanding the coverage. And not just for product liability insurance, although for most supplement companies, this is far and away the most expensive policy they purchase. Are the risks you are most concerned about insured in your current coverages? Do you know of areas where you have exposure, but no coverage? Read your policies or, better yet, meet with your insurance professional and conduct a comprehensive review of coverages. Be prepared, as one more characteristic of a hard" or sellers market is insurance companies invariably attempt to reduce coverage by adding exclusions and endorsements that conflict with what you thought you were buying.

Prepare Management for Higher Premiums

Nobody likes surprises. Mid-level managers at larger companies need to prepare the bosses for higher premium rates. Insurance buyers should communicate with internal senior management about the companys tolerances for uninsured risk, as deductibles may rise, and high limits of liability insurance may no longer be an affordable luxury.

Step Into an Underwriter's Shoes

Try to imagine yourself as the product liability underwriter for your company. What questions would you ask, and how can your company respond to them? You received a 483 warning letter this year (it's on the Internet and your underwriter will find it)do you have a ready and plausible explanation? Can you provide copies of the certificate of insurance program you mange for your suppliersor do you even have one? Are there any elements of your website that would scare away an otherwise interested underwriter (sports nutrition companies should take special note of this suggestion). Have you jumped from carrier to carrier each year (red flag for an underwriter), or does your record show that you have demonstrated some level of loyalty to one or two carriers? If youve had insured claims in the past five years, are you prepared to tell your side of the story as to what happened and present supporting documentation if asked?

Team Up with a Specialist

Have you ever said to yourself, My broker clearly does not understand what we do"? Make it a top priority to find a broker who understands the supplement industry and will be an effective advocate for your insurance interests. Whether you supply raw material, finished products or both, in a hard market, the underwriter will still put you in the dietary supplement arena, where some unscrupulous characters still thrive. The reality is you are going to pay for that association, and a competent broker will have the skills to differentiate you from the rest of the pack.

In addition, most insurance buyers are not aware that all insurers offering product liability to the dietary supplement business require the use of a wholesale insurance broker to access them. The broker you select (hereafter called the retail broker") must submit your account to a wholesale broker, who in turn will submit it to viable insurance companies. Most people are under the impression that their retail broker is talking directly with the insurance underwriters. This is not the case. Thus, the introduction of yet another party to the buying chain makes the insurance procurement process more vulnerable to something falling between the cracks." With two brokers (wholesale and retail) now in the picture, it is even more important that a company selects a competent and knowledgeable retail broker to coordinate the marketing of its insurance

Greg Doherty is a commercial insurance broker based in Los Angeles. He specializes in the dietary supplement industry and is a member of the Consultants Association for the Natural Products Industry (CANI) and the American Herbal Products Association (AHPA). Doherty can be reached at (818) 449-9317 or [email protected].

Morgan Moore is the life science practice leader for NutraRisk, a division of Worldwide Facilities, a wholesale insurance broker. NutraRisk specializes in the dietary supplement/natural product industry. NutraRisk is a member of AHPA and the Natural Products Association (NPA). Moore can be reached at (213) 236-4566 or [email protected].

Industry's Understanding of Insurance Needs

Product liability insurance is designed to cover a company from potential losses associated with allegations of harm from the use of the company's products; however, the dietary supplement industry has other specific issues to address. Companies must also review various levels of coverage, as well as possible exclusions. INSIDER fielded a survey in late 2011 to industry execs on the topic of product liability insurance, asking about the deciding factors when industry execs purchase product liability insurance and what risk management tools companies are using to ensure they are covered.

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