It’s nearly impossible to pass a grocery or convenience store counter without coming face-to-face with some type of dietary supplement. From energy drinks to weight-loss aids to performance-enhancement powders, the types of dietary supplements have exploded from what were little more than vitamin tablets to now include increasingly complex compounds. This market transformation has not gone unnoticed by some legislators and regulators that have stepped up oversight in recent years. And while the increase in regulation may make dietary supplements safer for consumers, it is far from a cure all for insurers that still need to look beyond compliance.
Touted for their health, beauty and nutritional benefits, dietary supplements have much to boast of on the revenue side as well. With revenues climbing to $32 billion in 2012, up 20% over the past three years, according to the Nutritional Business Journal, the dietary supplement market has become a powerhouse of growth. Last year’s result however may just be a forerunner of the next nine years when revenues are projected to nearly double to $60 billion.
This growth has been a lure to many that have sought to capitalize on consumers’ desire to shed pounds, build muscle mass, boost energy or improve general fitness, and at least in the past, these startups have had few regulatory barriers to surmount to enter the market.
Under the Dietary Supplement Health and Education Act of 1994 (DSHEA), dietary supplement makers do not have to obtain approval from the Federal Drug Administration (FDA), the federal agency responsible for their regulation, before selling their products. Product safety and efficacy have been left to the determination of supplement makers. For years, manufacturers’ primary regulatory requirement was to ensure that their product labeling was not misleading.
But the botanical ephedra – once used as an ingredient in weight-loss supplements that caused a number of serious adverse reactions including heart attacks and stroke – began to fuel suspicion that all was not right in the dietary supplement market. The substance was later banned by the FDA, but only after years of debate during which the agency had to demonstrate the substance was unsafe.
An Unhealthy Misconception
For years many have known that dietary supplements can interact with prescription drugs and lessen their effectiveness or that some may contain high concentrations of pharmacologically active ingredients.
But the larger general public has often unquestionably equated natural with healthy – a sentiment that dietary supplement makers have latched onto in their marketing. Were it not for their widespread use – by some estimates, between 50 percent and 70 percent of the U.S. adult population takes supplements – the public’s notions about supplements would probably not be as much of a concern as it is.
While the large majority of supplement makers produce their products using pure ingredients in controlled environments, the industry is still dogged by repeated complaints such as poisonings, liver failure, stroke, heart attacks and respiratory problems, as well as other serious problems allegedly caused by products that contain harmful or tainted ingredients.
Before 2007, officials lacked a reliable way to assess the extent of the problem because supplement makers were not required to report serious adverse reactions to the FDA. This loophole was closed in 2006 with an amendment to the Federal Food, Drug and Cosmetic Act that required supplement makers to report any life-threatening experience, inpatient hospitalization or birth defect, or any procedure to prevent one of these events to the agency.
The number of adverse events reported to the FDA more than doubled to 6,300 incidents between 2008, a year after the amendment went into effect, and 2011, according to a report by the General Accounting Office (GAO). Most reports were for supplements that contained a combination of different types of ingredients or unclassified supplements. According to the GAO, this finding reflected the “growing number of complex supplements on the market.”
While huge increases in reported adverse events can be attributed to regulator’s relatively recent requirement, the GAO’s tally may actually underestimate the extent of the problem, says the report. The chronic or cumulative effect of some supplements may cause some consumers or physicians to look elsewhere for the source of a health problem.
What may be even more of a reporting conundrum stems from the propensity of many consumers to turn for help to poison centers when a serious problem surfaces. Between 2008 and 2010, these centers received nearly 150,000 calls related to dietary supplements from consumers or other individuals, far exceeding the number of serious adverse events reported to the FDA. The FDA has initiated talks with the American Association of Poison Control Centers to gain access to its database in an effort to better understand the extent of the problem, but at this point, it is difficult to determine overlap or categorize these events.
As the use of dietary supplement in the U.S. has spread, so has supplement makers’ reliance on an increasingly tangled supply chain that sources most of its raw ingredients from far-flung places such as China, India and countries in South America among other places where herbal or other natural ingredients are indigenous.
This growing use of raw ingredients from overseas has coincided with a string of discoveries of contaminated ingredients imported from China and used in pet food and health and beauty products sold in the U.S. market. If a tainted ingredient were to find its way into a widely used supplement, the harm to human health could be devastating, some officials fear.
This situation is especially a concern for insurers in the case of contract manufacturers that by their very nature may be involved in blending, processing, manufacturing or packaging of perhaps hundreds of nutritional supplements under different brand names. The contamination of something as seemingly innocuous as an incidental filler or other common product ingredient that is used in millions of tablets could give rise to complaints that far exceed the monetary value of the market sales of the problematic ingredient and trigger tens of millions of dollars of losses for insurers.
The issue of contamination was the subject of an FDA letter in 2010 that advised supplement makers of the worry trend posed by the increase in ‘spiked’ supplements, which contain undisclosed steroids, stimulants or prescription drugs. The agency pointed out that the increase now constitutes “a significant public health problem.”
Stepped up Oversight
The FDA released new rules in 2007, known as the current good manufacturing practices (cGMP), to tackle the contamination dangers. The rules establish standards for purity, quality and strength of ingredients, and were phased into effect over a three-year period.
The FDA’s main tools of enforcement are still post-market surveillance and inspections, however, the cGMP strengthens the agency’s oversight by aligning some supplement makers’ manufacturing practices with those of pharmaceutical drugs. This is meant to address the fact that many supplements are processed as tablets or capsules and resemble prescription drugs more than they do food.
The rules also set standards for manufacturing procedures, quality control, designing and constructing plants, and the sourcing and testing of ingredients. Supplement makers are required to test the identity of all ingredients or obtain certificates of testing from suppliers to ensure that the identity and quality of ingredients match the makers’ labeling claims – which drive the FDA’s regulations.
Going forward, contracted ingredients are likely to increasingly be held to the same cGMP as those that have recently been implemented for the supplement manufacturers. Other quality controls, such as membership in trade organizations, third party testing of producers and controls on sourcing ingredients, will continue to influence carriers underwriting and appetite for dietary supplements.
The Big Risk Picture
The implementation of cGMP has given insurers a powerful measure by which they can assess the risks posed by a supplement maker. But relying on cGMP standards alone misses the big risk picture.
That picture can only be fully drawn by digging deeply into the characteristics of the risk and asking questions that go beyond compliance, such as:
- How pharmacologically active are the supplement’s ingredients?
- Are the ingredients trade names or new ingredients?
- What is the company’s role in the stream of commerce? Retailer? Wholesaler? Bulk supplier?
- How aggressively does the supplement maker market its product?
- Does the advertising match the product’s labeling claims? Something as simple as misspelled words on the supplement maker’s website can be a red flag.
The maker’s profitability, experience, marketing and product offerings – among other factors – start to fill in the company’s risk profile, which cannot be entrusted solely to compliance with a set of regulations.
In the years ahead, the ability to effectively discriminate among risks will become ever more critical – even if the increase in oversight raises the quality and integrity of the supplement market, and helps to develop better buying habits among customers. With increased scrutiny and public awareness, there is also the possibility of increased claims. Managing the evolving terrain of the market will take more skill than just monitoring a maker’s compliance. It will take a deep understanding and experience of what drives risk.
Curtis Fletcher is regional vice president of Admiral Insurance Co. and leader of the company’s Seattle branch office. In addition, he is the product manager for Admiral’s newly launched products liability policy which is targeted at dietary supplements in the health, wellness and lifestyle market place. Fletcher has also worked for General Reinsurance and earned his BA in business from the University of Washington.