I am frequently asked if there is any correlation between GMP certifications and lower product liability insurance premiums. Common sense says there probably should be. Then reality sets in and establishing the correlation becomes murky.
Let’s briefly review the current “certification” arena.
FDA does not certify compliance to its own regulations. Rather, its role is to enforce those regulations by identifying “deficiencies” and requesting corrective actions to fix identified deficiencies.
There are an abundant number of independent GMP consultants servicing the industry but they have no “certification program”—at least that I am aware of.
NSF International has a GMP auditing and product certification program, where testing is conducted for compliance to the accredited NSF/ANSI Standard 173 for Dietary Supplements, as well as the specialized Certified for Sport program where products are tested for athletic banned substances. NSF is a private, not-for-profit, product health and safety organization.
The Natural Products Association (NPA) has a GMP auditing and certification program and is the oldest and largest non-profit organization dedicated to the natural products industry. NPA established its own GMP standards in 1999, eight years before FDA published its final GMP regulations for dietary supplements.
United States Pharmacopeia (USP) has a GMP auditing and product certification program where testing is conducted for conformance to dietary supplement standards found in the U.S. Pharmacopeia-National Formulary. USP is a scientific, private, non-profit organization.
Impacting Your Premium
Let’s get back to how earning one or more of these certifications may lower your product liability insurance premium.
If you were an insurance underwriter, what factors would you examine that would differentiate one risk from another? In other words, what would make your company look like a better insurance risk (read that as “deserving a lower premium”) than other companies in your space—all other factors being equal?
Lisa Thomas, general manager, Dietary Supplements and Sports Nutrition, with NSF International has some answers.
“If I were an underwriter, the first and probably easiest thing to look for would be FDA warning letters. If you look at the top 10 reasons companies receive warning letters following an FDA Dietary Supplements GMP audit, there exist detailed clues for comparing risks. The Top 10 GMP alleged violations/risks that generate FDA warning letters are:
- Specifications & Identification Testing
- Master Manufacturing Records
- Batch Records
- Procedures and Records
- Qualification of Vendors
- Quality Control
- Cleaning Control
“On the flip side,” she continued, “some companies have FDA inspections and pass without getting a warning letter, which would be something to brag about to an underwriter! Furthermore, and in fairness, just because a company received a warning letter does not automatically mean that it is a poor insurance risk.”
So what other criteria exist that your insurance underwriter should consider?
Critics and supporters of the industry alike are constantly pointing out three product categories that generate injuries, recalls and ongoing FDA scrutiny: weight loss, sexual enhancement and sports nutrition. Insurance underwriters already know this, and some steer clear of one or more of these categories based on reputation alone. But there are ways to differentiate safe supplements in these categories through third-party certification, such as the NSF International “Contents Tested & Certified” label claim and contaminant testing program.
Ms. Thomas added, “To alleviate insurance underwriters’ concerns about their processes and products, dietary supplement companies should seriously consider third-party certification to assure underwriters of their commitment to mitigate risk. This is why NSF International developed the only American National Standards Institute (ANSI)-Accredited Dietary Supplement Standard—NSF/ANSI 173—for label claim and contaminant testing and GMP auditing. We raise the bar even further with our NSF Certified for Sport program, where the GMP-audited and label claim/contaminants-tested products are then also tested on a lot-by-lot basis for athletic banned substances and illicit drugs.”
The Insurer’s Side
So if you have spent the money to get and maintain a GMP certification from those organizations that offer them, then how does this information, which may well influence a lower premium for your company’s insurance, reach the underwriter, who is contemplating how much he will ask you to pay for his insurance? The answer is: It normally and unfortunately does not.
The professional you have hired to place your insurance, your broker, has a responsibility to you to differentiate your company from the rest of the pack. That responsibility includes having knowledge of the impact of having GMP certifications, which is the probability that your company is a better risk than those that don’t have such certifications. For the underwriter, there is of course no guarantee that a GMP certification will prevent a company from having an insured product liability loss. But an in-depth explanation of the GMP certification you have, properly framed by your broker, gives the underwriter an excuse to give you a lower premium on the front end, even if he does have a fortuitous loss after the fact.
So that’s the “definitely…well maybe” conclusion to this article. If your insurance broker has expertise in the industry and understands the potential negotiating advantage your GMP certification brings to the table, then the money you spend earning and maintaining the certification will be better spent. And you will most likely pay a lower premium because your broker facilitated that communication with your insurance company.