Major product liability insurance provider exits dietary supplements business

By Hank Schultz

- Last updated on GMT

Major product liability insurance provider exits dietary supplements business

Related tags Dietary supplement Insurance

A major product liability provider is exiting the dietary supplement field, but observers of insurance trends said it’s unlikely to have big impact on insurance rates or availability.

Lexington Insurance Company, a subsidiary of American International Group, has decided to immediately stop offering product liability insurance to the dietary supplement industry. All current Lexington policyholders will receive a notice of non-renewal when their renewal date approaches.

Cavalier attitude?

The reasons for the move were not immediately apparent. Greg Doherty, managing director of the dietary supplement practice group at Bolton & Company, a California-based brokerage, said the amount of business Lexington was writing in the industry, while substantial, could safely be characterized as a “drop in the bucket”​ when ranged against AIG’s overall portfolio. Lexington’s multi million dollar portfolio is of a size that would make the eyes of most executives at your average dietary supplement company pop, but it’s chump change in the AIG world and perhaps led to a cavalier attitude toward the whole product line. AIG, one of the companies deemed “too big to fail”​ during the 2008/2009 financial crisis, reportedly has more than 88 million customers and recorded more than $64 billion in revenue in 2014.

“The nutraceutical industry was lumped into a  larger group of industries, including pharma, medical devices and some other elements of health care. I think they were making money on the nutraceutical business but losing money on the rest,”​ Doherty told NutraIngredients-USA.

“But insurance companies don’t always think like normal companies. This is just a drop in the bucket, and maybe they were thinking we’re not making that much money on this and it could turn bad,”​ he said.

One thing is clear: Lexington did not exit the sector because of excessive liability.

The first reaction might be that supplements are seen as too risky. It’s not that at all. The claims ratios in the supplements industry are actually very favorable. There is a relatively small amount of claims paid for the amount of premiums taken in,”​ said Loren Israelsen, president of the United Natural Products Alliance. About a year ago UNPA unveiled a Platinum Program which offers enhanced insurance coverage​ for companies that can verify they are operating at the highest rung of GMP compliance.

Doherty said that Lexington in any case was not a company known for shying away from risk.

“Lexington historically has underwritten really tough accounts like lawnmowers where people could cut their hands off and ski helmets where users could get a brain injury,” ​he said.

Historically low premiums

What is true, though, is that insurance premiums lately for all industrial and commercial sectors are at or near historic lows,” ​Israelsen said.

Doherty confirmed that observation, saying the trend has been underway for a number of years.

“If you were buying product liability insurance in 2004 or 2005, not long after 911 and the ephedra episode, it was expensive. But is has dropped significantly since then. If you were paying $100 in 2005 as a premium you are now paying more like $15 to $20,”​ Doherty said.

Both Israelsen and Doherty said there is ample competition for insurance business to prevent a shortage cropping up that might help to drive up rates. Doherty added one major carrier even entered the space about six months ago.

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