Customizing Your Asset Protection Program

Natural products companies are varied in what they do. The best way to develop an appropriate Asset Protection Program is to first identify the company’s assets and then determine the most effective way to protect them. Risk transfers using insurance are one of the most common methods to do just that.

First, remember there is no “one” insurance program to cover everyone—a retailer has a very different program than a manufacturer, along with a different set of insurance carriers. The majority of the time, a manufacturer’s product liability insurance will be underwritten by a surplus lines insurer, whereas a retailer may be underwritten by standard insurance carriers on a package policy combining property and liability coverages.

For identification purposes, assets can be broken into four major classifications: property, human resources, liability and net income.

Property

Exposures include building, personal property, inventory/stock, computers, manufacturing equipment, tenant improvements, fine arts, valuable papers, accounts receivable, cargo, business income, extra expense and product recall. For instance, many companies have specialized equipment as part of the processing operation. This equipment may be difficult to replace quickly in the event of a fire. The processing done at a company may include heating, cooling, freezing, blending, mixing, grinding, etc.

Areas identified that can affect your operations:

The insurance solution to addressing these areas could include property policy, special perils and replacement cost (with appropriate limits). Cargo, infringement, product recall and copyright may be separate policies.

Human Resources

This component is a valuable asset to any company. Exposures here include employment practices, accident and health, resignation, termination, retirement, business continuation-buy/sell agreements, key employee, stock purchase agreements and workers’ compensation. Again, there are many areas that can affect operations. Hazards would include unclear personnel practices, non-adherence to safety practices and labor laws among others. There are several perils to address, such as key employees leaving for a competitor, death of a partner or terrorist action. Losses could be lawsuits linked to discrimination or injuries. The solutions to these issues, from an insurance perspective, would include some combination of workers’ compensation, employment practice liability, key person life insurance and health insurance products.

Liability

Some exposure types in this category include products and operations, professional, auto, clinical trials, directors and officers, employment practice, general (premises) operations, and products. However, there are also exposures due to employee actions, relative to basis torts, contract law and statutes. Other areas of concern: poor quality control, inadequate employee training, perils linked to a “chain” of causes, and losses connected to accidents or product recall situations. Again, an insurance solution could address some or all of these issues specifically with a range of product, general, professional, auto, clinical trials, directors and officers, employment practice, and product recall policies.

Specific to product coverage, companies must be aware each insurance carrier has its own list of excluded ingredients. Depending on a company’s product line, insurers are able to negotiate exceptions for those products needing to be included for coverage. Don’t share the limits by adding additional "insureds" to your policy. Also, identify any services the company provides, such as formulating for a fee and consulting. There are a variety of liability exposures.

Net Income

Exposures here include property, liability and human resources, among many others. For example, poor positioning in the stock markets or a lack of equipment could be hazards on the path to greater income. Hurricanes, blizzards or other severe weather are perils not only to a facility, but could cause road closures, affect supply chain and delivery times, and otherwise adversely affect contracted production times. The losses in decreased revenues and increased expenses, such as those seen in the recent rocky economy, are another concern. However, insurance coverage such as business income and investment income solutions could provide a shelter.

Other Considerations

There are several other steps a company can take to ensure it is covered appropriately:

Kathy Francis, CIC, CPCU, senior vice president, Wells Fargo Insurance Services, has provided insurance and consulting services in the dietary supplement industry for 13 years. Contact Francis at (800) 332-9256 or [email protected].