Forecasts suggest the global food supplement market could be worth $90bn by 2013. Shaun Randell examines the opportunities and risks insuring this market can bring.
The start of each new year is marked by many resolutions. Great ambitions to join a gym are often realised, with the enthusiastic pounding on treadmills and a renewed sense of optimism — despite this ebbing away for some within the first quarter. UK gym operator Fitness First has, for example, reported a 20% surge in membership applications during January compared to other times of the year.
But whatever the season, our general heightened pursuit of health, fitness and well-being supports a range of profitable industries. It is estimated that the food supplement market, which produces vitamin pills and herbal supplements, will reach a worldwide value of $90.5bn (£58.2bn) by 2013. Research published by the Food Standards Agency in 2008 found a third of people in the UK were taking vitamin or mineral supplements, and the market in the UK is estimated to be worth more than £330m per annum.
Over recent years, retailers like Holland & Barrett have managed to retain their foothold on the UK high street, fending off the recession, while other chains such as Woolworths — which, of course, sold confectionary among other things — have failed. The popularity of health supplements, vitamins and 'functional' foods (those claiming to have a health-promoting or disease-preventing property beyond the basic function of supplying nutrients) has propelled this industry towards becoming a noteworthy contributor to the economy.
Struggling for cover
From an insurance perspective, this market presents significant opportunities, particularly with regard to the SMEs that operate within it. Until recently these companies struggled to obtain specialist cover for their business risks but schemes are now available, designed to meet the specific needs of producers, importers and retailers of a full range of non-pharmaceutical health foods.
Underwriters and brokers alike typically approach this industry with caution. But experience shows it is well-regulated in the UK under the European Commission's Food Supplements Directive 2002/46/EC, which has applied since 2005. In national law this was implemented by the Food Supplements (England) Regulations 2003 (as amended; Scotland, Wales and Northern Ireland all have separate national legislation relevant to their own administrations).
In addition to legislation that regulates food supplements specifically, they must also comply with any other food law applicable to the product concerned, including general labelling requirements. This is because these supplements fall under the definition of 'food' according to general law.
By developing knowledge of the legislation, understanding the associated risk exposures and selecting companies that adhere to good risk management standards, specialist insurers can find that this industry represents a good book of business. So, what are the liability risk exposures facing this industry?
Liability risk exposures
Injury to consumers due to contamination or food poisoning is one of the most significant risks the market faces. Product recall is also a substantial risk. This does not have to be triggered by an incident of a claim. If a manufacturer or distributor wants to take precautionary measures and voluntarily recall a product, because it may have a defect or represent a health hazard, it is important they are covered under their policy to create the incentive for adopting best practice and protecting consumer health.
In the UK, the FSA issues 'product withdrawal information notices' and 'product recall information notices' to let consumers and local authorities know about problems associated with food. In some cases, a 'food alert for action' is issued, which provides local authorities with details of specific action to be taken on behalf of consumers.
One recent recall example involved British manufacturer Vitabiotics. On 12 November 2010, it withdrew six food supplements because the products contained higher levels of folic acid than mentioned on the product labels. In response, the FSA issued a product withdrawal information notice.
The availability of health food and supplement products both online and on the high street has risen in parallel with society's interest in health and well-being. But this growth may slow in the UK and Europe because European Union regulations that were introduced to ensure consumers are not misled by unsubstantiated, exaggerated or untruthful claims about foodstuffs are starting to impact the industry.
These regulations require health food claims made in the EU to be backed up with scientific evidence. Although the rules came into force four years ago, it is only now — as the European Food Safety Authority begins to clear the significant backlog of claims submitted for evaluation — that the food industry has realised it can no longer make unsubstantiated or unproven claims.
Rejected health claims
EU member states have together submitted more than 44 000 'general function' health claims on the part of manufacturers. These were reduced to 4637 claims for consideration by the Parma-based EFSA — of which around 80% have been rejected.
To date, rejected claims include dairy foods, such as milk and cheese, which seek to promote dental health in children; cranberry products purporting to help reduce the risk of urinary tract infection in women; and black tea alleging to aid concentration.
While the products making these claims will not be recalled on safety grounds, manufacturers will be forced to amend their labelling and marketing materials. Without such perceived health benefits these products may become less desirable and sales may fall, leading to the product potentially becoming commercially unviable.
However, today's market remains strong and is likely to see a surge in sales as many people stock up for their post-Christmas detox. So, looking forward into 2011, a good dose of risk management, a prudent eye and a little underwriting appetite is still likely to lead to a healthy book of business.
Shaun Randell is liability underwriter at Amlin UK
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