Placing You First Insurance Podcast by CRC Group
The Placing You First Podcast spans a diverse spectrum of insurance industry issues to keep you and your clients informed.
Placing You First Insurance Podcast by CRC Group
Crafting a Safety Net for Cosmetics Recall Challenges
Learn how to traverse the evolving cosmetics industry regulatory landscape with CRC Group Casualty Brokers John O'Malley and Chris Martin. They discuss the changes brought into effect by the Modernization of Cosmetics Regulation Act as well as its ripple effects across the industry. From increased reporting and FDA registration to the increased risk of product recalls, this episode is a specialist’s guide in how product recall insurance can be your client’s safety net. Listen in and fine tune your approach to risk management and business resilience for your cosmetic industry clients.
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A recent law signed in 2023 expands regulations and reporting requirements for cosmetics manufacturers, giving the FDA greater insight of the industry. Today, scott and I are joined by John O'Malley, an associate broker with CRC Group's Minneapolis Office, where he specializes in product recall exposures, as well as Chris Martin, also a casualty broker with our Minneapolis office, specializing in product recall. They're going to talk with us about how the Modernization of Cosmetics Regulation Act, also known as MOCRF, may impact the cosmetic sector. This is the Placing you First podcast from CRC Group.
Scott Gordon:This podcast features news and insights from a vast knowledge base of over 5,100 associates who write more than $35 billion in premium annually.
Amanda Knight:Plus, we give you the latest information on what's happening at CRC. This, this, is the Placing you.
Jon O'Malley:First podcast and now the hosts of the podcast, Amanda Knight and Scott Gordon.
Amanda Knight:Welcome to the podcast. It's good to have you both back.
Jon O'Malley:Thanks so much for having us.
Scott Gordon:Thank you, yes, thanks, for being with us and we're going to launch right into it, guys. So, as of 2024, the US beauty and personal care products market worth is estimated at $93.74 billion and it's expected to reach more than $106 billion by 2029. It seems like a law change in this area could be a big deal. Is that right?
Jon O'Malley:Yes, certainly it could be a big deal within any industry when there's regulation in law changes, certainly for the cosmetic industry. In this law in particular, manufacturers, processors and distributors will now be responsible for registering their products and facilities with the FDA, as well as adhering to other requirements. So whenever we see increased regulations and oversight, we often see this lead to higher risk of costly recalls.
Amanda Knight:So what specific requirements does Mocha, the Modernization Act, impose on cosmetics manufacturers, processors and distributors that maybe they didn't have to adhere to before?
Chris Martin:Yeah, I can jump in on that one. The Act creates new reporting and registration requirements and good manufacturing processes, as well as new labeling and documentation rules. Those are major changes for cosmetic manufacturers and processors. Before the passage of Mocha, cosmetic manufacturers had few reporting, registration or labeling requirements and past product recalls were primarily based on consumer reports. So now, for the first time, manufacturers, processors and distributors will all be responsible for registering their own products and facilities with the FDA. And I think another good thing to kind of frame this a little bit is that the FDA receives about 5,000 reports each year about health problems related to cosmetic products. So under this new law the agency now is going to have updated instructions for reporting these types of adverse events. So to the extent that any of those didn't get previously reported, they sort of now will all have to. So just by that math alone you can see that the increase of likely recalls is going to be there.
Scott Gordon:I mean a lot of this compliance is new stuff. So, historically speaking, have cosmetic manufacturers or distributors typically employed risk managers or other people responsible for quality compliance. Who does this responsibility for compliance usually fall to?
Jon O'Malley:Most likely. Many of the companies have quality control departments in place, Probably to make sure their products are safe, what they are going out the door, so probably pretty hard to sell a green lipstick when it's supposed to be red. Outside of this, I'm sure larger companies might have dedicated risk managers that might be able to help them and walk them through things like this, but probably for the majority they're going to be responsible to make sure they're in compliance just on their own, and I think one of the benefits of having a product recall policy in place is they can utilize the crisis consultants which are provided within the policy to help them and get their expertise in following these new regulations that are passed.
Amanda Knight:Well, when we raise a risk, we also want to talk about how to mitigate it. When we can. We've just mentioned the crisis consultants. But outside of the ability to do pre-incident consulting work or assist with some sort of incident after the fact, what is the role of insurance in these scenarios for cosmetic industry companies?
Chris Martin:Yeah, so the product recall, product contamination insurance space is definitely willing to ensure cosmetic risks and those options are there to mitigate these manufacturers and distributors' exposure.
Chris Martin:So product recall coverage can help them protect from the financial fallout of a recall. It's primarily a first-party coverage, you know coverage can definitely vary by policy but generally recall insurance covers I guess I'll list a few of the major categories that it covers but it would cover the cost to replace the recalls or contaminated products. It would pay for business interruption or loss of gross profit that stems from a recall or contamination event, rehabilitation expenses, which would be things that a manufacturer or distributor could do to get their level of sales back to where it's supposed to be before the incident occurred. So those could be things like increased advertising or discounts to key customers that have been affected, promotions, those types of things. It covers third-party recall liability, which would be kind of, I guess, what's usually termed as compensatory damages that we would cause to any third parties. And then you know back to the consultants and you know that type of thing as well as crisis response. So like some help consulting and corresponding with them in the wake of one of these incidents occurring.
Amanda Knight:You know, as you were talking about those different elements of coverage that can really make a difference. I was. I don't know if y'all saw this on the news Maybe we follow different people on Instagram we probably do but this made me think of one I saw recently and I won't name any names, but there was a large cosmetics company that somebody on TikTok claimed that their lotion or one of their products attracted wolf spiders and the internet lost its mind because of this accusation that this cosmetic was attracting spiders to people. The company ended up having to like come out and refute this and know we, you know, our product does not attract spiders, because everyone was losing it. Situations like that made me think of man. I really hope they had a good insurance policy place.
Chris Martin:And that actually brings up a very, very good point that I forgot to mention, which is another major category of coverage, which would be adverse publicity coverage. So that fits right in there. So that would be the kind of situation where there is publicity out there, whether it's, you know, some kind of newspaper, tv, internet, you know even the FDA itself in some cases, but publicity that suggests that there's something wrong with our product that could cause injury or harm and that has an actual effect on our business interruption or whatnot, even if it's does not prove to be true. So that's another coverage in the policy.
Amanda Knight:That seems highly relevant to me, especially for this sort of company the cosmetics crew because I don't know if you have daughters or girls old enough to care, but these makeup tutorial videos and like it's a whole thing, guys, and you could very easily you know, if you're an influencer on TikTok or whatever all the kids are doing these days those things go viral quickly and kids, everyone watches these things like I can see how that would be highly relevant specifically for this industry.
Chris Martin:I definitely have a daughter who's you. I can't even remember what product it was, but she used something the way that she was not supposed to use it and ended up making her face sting for 10 minutes. Now I, you know, I did not want to, you know, sue anyone or I kind of thought that was. That was like a very teachable moment and you know, sort of a what they would call a natural consequence, but you know, but I can definitely see how it's a problem.
Amanda Knight:You know, I was out over the weekend with family and we ended up in one of the retail stores, one of these large cosmetic companies, and the sheer volume and number of options and by the name, I couldn't tell what some of them were like. There are just a lot of things out there, products that I know didn't exist to three years ago. So it seems like not only is it growing, but the different number and types of products like, obviously, the more you have, the more chance there is for something to go wrong, right? So if there was ever a time for a cosmetic company, large or small, to invest in some quality product recall insurance, now seems like a great time to do that. So, knowing that these companies previously didn't have to register with the FDA, is product recall coverage that is something that they're used to buying? Has this been on their radar? Or is there work for agents and brokers to do around? Hey, cosmetic companies, this is coverage you now want to invest in in light of these FDA changes.
Jon O'Malley:I definitely think any company that manufactures a product definitely has an exposure and they maybe maybe they don't know it's available, but I'm sure they've thought about product recall before, so maybe it's just not something they know about. Maybe it's just not on their top list of insurance to buy right now. I think for agents and brokers, I think the work lies in creating awareness, making sure every manufacturer and processing distributing client knows that this coverage exists.
Chris Martin:Yeah, and I think you know. I think two things can be true. I think you know we definitely place this coverage for a number of cosmetics manufacturers and distributors now and I definitely think a majority of them do not buy it. So, you know, while we're placing these policies already and a lot of them see the exposure and see the value in the policy, I definitely think a lot of them, you know, aren't there yet and this is probably going to be a big difference maker, because I really think you know that that responsibility shift that the FDA is going for is going to be meaningful. And you know, when they change rules like this and make new processes and have responsible party requirements and all those types of things, they definitely increase their presence in the space and that will usually lead to more recalls.
Scott Gordon:Well, and at CRC Group you know we pride ourselves on being specialists that can get the job done for our retail partners. How can partnering with a CRC group producer help agents with cosmetic industry insurers?
Jon O'Malley:Yeah, that specialization is key. I think being a specialist means that we're trying to stay on top of market trends and changing regulations, just like this. So we strive to do that and we want to get ahead and advise our retail partners accordingly. I think that all falls under being a specialist in this particular coverage.
Chris Martin:Yeah, and just being in the space between John and I and our other CRC partners, we've got a lot of experience and knowledge in this space and a lot of time with the marketplace evolving and coverage evolving, so I think that's a lot of value to bring to it.
Scott Gordon:I always learn a lot. I didn't know what Mocha was. Amanda sent me the podcast outline and I was like Mocha, are we doing a podcast on a Godzilla monster? I didn't know what it was. So thanks for enlightening us and I guess we're done with like all the nuts and bolts of this podcast. But would you guys like to do something a little fun before we leave? Sure, always.
Amanda Knight:I knew it.
Scott Gordon:Well, you're in luck because Amanda has crafted this wonderful segment we like to call Rapid Fire, and this is just. We're going to ask you questions and you just tell us the first thing off the top of your head and our first rapid fire question today is if you could time travel, would you go to the past, the future and why? And I specifically want to know what year it would be if you go to the past or the future.
Chris Martin:I would say. So I'm going to answer that I would go to the past. And the thing that immediately pops into my mind is the second back to the future movie, when he gets a hold of, like the sports almanac from like 19, whatever, and you could go back and bet on the outcomes of the Super Bowl and you know, and the World Series and things. So that seems like a great call. So I go to the past.
Jon O'Malley:That's funny. You say that, chris. I actually was thinking the exact same thing, and the reason why I would go to the past as well. I think having the future unknown is just kind of cool in itself. So I don't think I want to go to the future any quicker than I already am.
Amanda Knight:I feel the same way.
Scott Gordon:No one wants to go to the future. Nope, I have it. I don't think have we had anyone want to go to the future, not one person. Nope, nope, no. But I also love that, instead of like going back and like steering the Titanic away, you know saving lives or killing Hitler that you guys want to go back and make money with the sports almanac. I mean you said the first thing that popped, and it's the first thing that comes into my mind too. It's like how can I profit.
Chris Martin:It's not the only thing, but it was the first thing You'd be saving orphans along the way Right after I make that back Give them all their own houses.
Scott Gordon:You've got tons of money. You can change the world. Okay, and our second question in rapid fire is what's the best piece of advice you've ever received?
Chris Martin:I don't know, I think I don't know. It makes me giggle. I think my father-in-law tells all of us quite often to make sure that we throw the first punch. So always throw the first punch, I think, beyond the offensive. Yeah, that's pretty good.
Jon O'Malley:I think the best advice I ever got was probably just listen before you speak. That's always steered me the right way.
Amanda Knight:Scott, what about you? I want to know your best advice.
Scott Gordon:I don't know. I like what Gandalf said in Lord of the Rings. He said Frodo's like I wish none of this had ever happened to me. And Gandalf said so do all who live through such times. But that's not for us to decide. All we can decide is what to do with the time that is given to us.
Chris Martin:There you go. Easy for Gandalf to say.
Amanda Knight:Right, he was a wizard.
Chris Martin:Right.
Amanda Knight:My favorite is probably from my dad. I was a kid and I mean, it's something we've all heard. But I have to tell myself all the time, even as an adult don't sweat the small stuff. In the end, those small things don't matter. Unless of course it's like a small thing in your cosmetic that's going to cost you a bunch of money, Right? You didn't catch it.
Chris Martin:Bring it for a whole cycle, unless it's Wolf Spiders.
Amanda Knight:Wolf Spiders. Unless it was a Wolf Spider, in which case you better sweat that.
Amanda Knight:Run for your lives, yeah, Well, thank you both for being here. We love having repeat guests. If John and Chris sound familiar, they have also been guests on our episode about changing FDA rules for farmers and food producers, so if you have not given that one a listen, definitely go back and do that. If you're a listener, we appreciate you too. Providing current insights into the marketplace is just one more way CRC group is placing you first. Don't forget to subscribe and share.
