Global Courant
It had to happen.
Product liability insurance rates for the supplement industry, which have been declining sharply for about seven years, have bottomed out in the past 90 days and are almost certain to rise in the near term.
Why? By some estimates, rates have fallen by 80%. They could not perish indefinitely. Insurers have been hit by catastrophic losses and an increasingly litigious social environment. Interest rates are historically low and the end is not yet in sight. The ebb and flow, rollercoaster effect of commercial insurance premiums has historical precedence and is destined to rise again.
However, there are several practical steps you can implement to increase your chances of surviving the seller’s insurance market and staying on to take advantage of the next buyer’s market when it comes along.
Here are a few tips.
Don’t wait until the last minute
Start talking to your broker about your renewal at least 90 days before the renewal date. Underwriters will ask more questions about your business that they didn’t bother to ask last year. Since the process will be more difficult, it will take more time.
Consider coverage – in addition to price
Take a moment to understand your coverage. And not just for product liability insurance (although for most supplement companies this is by far the most expensive policy they buy). Are the risks you are most concerned about covered by your current cover? Do you know areas where you have exposure but no coverage? Read your policies, or better yet, meet with your insurance professional and do a comprehensive review of coverage. Be prepared, because another hallmark of a “hard” or seller’s market is that insurance companies invariably try 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. Middle managers at larger companies should prepare bosses for higher premium rates. Insurance buyers should communicate with internal senior management about the company’s tolerances for uninsured risks, as deductibles may rise and high limits on liability insurance may no longer be an affordable luxury.
Step into your Underwriters shoes
Try to imagine yourself as the product liability insurer for your company. What questions would you ask and how can your company respond? You received a 483 warning letter this year (it’s on the internet and your insurer will find it) – do you have a ready and plausible explanation? Can you provide copies of the certificate of insurance you maintain for your suppliers or do you even have one? Are there elements on your website that would put off an otherwise interested insurer (sports nutrition companies should pay special attention to this suggestion). Have you jumped from carrier to carrier each year (red flag for an insurer) or does your data show that you’ve shown some degree of loyalty to one or two carriers?
If you have had insurance claims in the past five years, are you prepared to tell your side of what happened and provide supporting documents when asked?
Choose a broker who specializes in your industry and work together
Have you ever said to yourself, “my broker clearly doesn’t understand what we’re doing”? 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 provide raw materials, finished products, or both, in a hard market, the insurer will still place you in the dietary supplement arena, where some unscrupulous characters still thrive. The reality is that you are going to pay for that association, and a skilled broker has the skills to set you apart from the rest of the pack.
In addition, most insurance buyers are unaware that all insurers offering product liability to the dietary supplement industry require a wholesale insurance broker to pick them up. So the broker you select (hereinafter referred to as the “retail broker”) will need to transfer your account to a wholesale broker who will in turn submit it to viable insurance companies. Most people are under the impression that their retail broker is talking directly to the insurers. This is not the case. As a result, the introduction of yet another party in the purchasing chain makes the insurance purchasing process more vulnerable to something falling through the cracks. With two brokers (wholesale and retail) in the picture, it is even more important for a company to select a skilled and knowledgeable retail broker to coordinate the marketing of its insurance policies.
So choose your broker carefully – and don’t wait until the last minute!
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