Sir Thomas Overbury is well-known for his quote, "Beauty is only skin deep," implying that a person's worth is not determined by their outward appearance. While this might hold true from a philosophical perspective, it does not hold from an economic one. A 16th-century English writer could hardly foresee the beauty industry boom in the 21st century. Today, the industry generates $100 billion in revenue globally (Howarth, 2023). This article will examine cosmetics manufacturing trends, how it has become so popular, and, more importantly, why insurance agents should seize the beautiful opportunity to write this class.
The Beautiful Expansion of the Cosmetics Industry
Cosmetics manufacturing goes beyond just makeup. It is an expanding industry that encompasses three main categories, according to the British Beauty Council and Oxford Economics in 2023:
- Personal care and maintenance: A range of products like skincare, body care, hair care, dental care, sun care, and nail care
- Personal enhancements:Â Cosmetics and accessories to fragrances, nail polish, and hair enhancements, temporary and permanent
- Services:Â Pampering such as hair services, beauty treatments, and holistic therapies that cater to well-being
With these categories fueling the self-care boom, it is no wonder that women in the United States are investing an average of $3,756 annually in beauty products and services. Men are also getting in on the beauty wave, spending $2,928 on self-care (Groupon, 2023).
So why are we investing so much in self-care? Are Americans becoming more self-absorbed, or are we striving for better lifestyles? Well, it is a combination of both. Advances in medical breakthroughs and research into healthier lifestyle choices have led to an average life expectancy of 77 years. Our awareness of what we consume and apply to our bodies has evolved from the food pyramid (now food plate) to reformed sun protection practices (ditch that tanning oil) and even our daily alcohol consumption (wine o'clock is a thing). As a result, laws and practices are adapting to these changing perspectives. For instance, the recent California Food Safety Act bans four additives, while health insurance companies consistently offer lower premiums to those prioritizing healthy living. With the rapid spread of information through social media platforms like TikTok and Instagram, beauty, cosmetics, and personal care influencers have gained massive followings, reshaping perceptions and driving consumer demand. In response to this growing trend, cosmetic manufacturers strategically allocate a substantial % of their advertising budgets (34.1%) to target online consumers (Social Samosa, 2023). The opportunities are endless, with 4,082 cosmetics manufacturing businesses (IBIS, 2023) in the U.S. alone, including an increasing number of small businesses!
Beauty and the Beast: Writing for Cosmetics Manufacturing
Consider a few things when writing this class before you treat yourself to a mani-pedi with all your new cosmetics manufacturing accounts. An agent should be informed of a few caveats to this class before taking on a new client:
- First, are they legally allowed to operate their business? Historically, the cosmetics industry wasn't regulated. Win for capitalism, bad for consumers. Food and Drug Administration (FDA) Commissioner Robert Califf explains, "The debate about regulation of the cosmetics industry to protect the public health has gone unresolved for more than a century"Â (Walsh, 2023). This led to the passage of the 2022 Modernization of Cosmetics Regulation Act (MOCRA), requiring compliance with the FDA regulations for registrations, recalls, and set standards. Cosmetic manufacturers must re-register every two years and adhere to new guidelines on safe practices, allergens, and safety reporting, and more policies and rules will be added in 2024. Failure to comply with these new requirements can allow the FDA to prohibit manufacturers from conducting business in the United States (Walsh, 2023).
- Second, understand the exemptions. There are a few loopholes a good insurance agent should know. Small businesses can be exempt! According to Section 612 of the Food, Drug & Cosmetic Act, companies in the cosmetic products industry can be classified as "small businesses" if their annual sales revenue stays below a specific cap. As of 2023, this cap is set at $1 million annually, with annual adjustments to account for inflation (Bing, 2023). There are a few product exceptions to this label noted in the act which an agent should relay to their clients:
- Cosmetic Products that regularly come into contact with the mucus membrane of the eye under customary or usual conditions of use
- Cosmetic Products that are injected
- Cosmetic Products that are intended for internal use
- Cosmetic Products that are designed to alter appearance for more than 24 hours under conditions of use that are customary or usual, and removal by the consumer is not part of such conditions of use that are customary or usual
Products like permanent makeup and tattoos, fillers, eyelash kits, and more would not apply for exemption regardless of revenue. Updating yourself on MOCRA will provide your clients with better service and protect you from errors and omissions claims for any oversights.
- Beyond legal matters, an agent should understand the risks inherent in running a manufacturing business. Consider whether your client imports goods, operates a commercial space, or works from home. The U.S. Small Business Association states that half of small businesses are home-based, many of which fall under manufacturing (Incfile, 2023). A home-based business doesn't share the same liability concerns as a storefront. However, it should still have general liability for legal fees and products liability to cover claims related to product-induced injuries.
- Consider additional exposures. Another essential, often overlooked coverage is completed operations. Usually associated with contractors, cosmetic manufacturers should include completed operations in their general liability because clients frequently use their products, potentially leading to property claims. For instance, if a curing lamp causes a house fire, resulting in substantial property damage, a comprehensive products-completed operations policy would cover legal fees, injuries, and property damage.
- Lastly, consider adding cyber coverage. As cosmetic manufacturers increasingly rely on online sales, credit card processing, and advertising, they face various cyber risks that a general liability policy can't cover. After a cyber-attack, one-third of small businesses close due to expensive claims resolutions and business interruption. A cyber policy specifically protects small business owners against such risks.
Give Your E&S Quoting a Facelift with Pathpoint
Understanding the coverages you need is one thing, but how can you find and quote them without extensive online searching? The solution is simple: Pathpoint. Pathpoint empowers insurance agents to quote over 110 cosmetic products online in minutes, making catering to personal care, beauty enhancements, and services easier. You can secure general liability quotes up to $1 million per occurrence/$2 million general aggregate, including products liability with up to $2 million products/completed operations aggregate limit. All of these are included in a single policy from Nautilus and Markel! Enter the information or upload a single ACORD for a quick quote. In addition, you can add cyber liability on the same platform, with coverage limits of up to $3 million and complimentary security check screenings from At-Bay. After receiving your general and cyber liability quotes, you can enjoy an end-to-end e-signable binding experience within the same portal. What traditionally could take a week with other E&S markets, Pathpoint can accomplish in just hours.
Facing the Risks
The significant growth of the cosmetics manufacturing industry presents a beautiful opportunity for insurance agents. Understanding the regulatory landscape, including the recent changes with the Modernization of Cosmetics Regulation Act, and recognizing the unique risks and coverages necessary for this industry are critical for success. Whether your clients are small businesses operating from home or traditional retailers, they require special coverages, including products liability, completed operations, and cyber. Leverage Pathpoint's platform to streamline your quoting process, ensuring you can provide personal care and coverage to your clients in this booming industry.
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(2021, February 8). Digital Ad Spends for Beauty category increased by 2.8% in 2020: Zenith Report. Social Samosa. Retrieved November 30, 2023, from here.
(2023, November 27). Cosmetic & Beauty Products Manufacturing in the US - Number of Businesses. IBIS World. Retrieved November 30, 2023, from here.
(2023). Small Business Forecast | 2023 Small Biz Survey. Bizee. Retrieved November 30, 2023, from here.
(2023). True Cost of Beauty: Survey Reveals Where Americans Spend Most. Groupon Merchant. Retrieved November 30, 2023, from here.
Bing, C. (2023, November 3). Do I qualify for the small business exemption under MoCRA? LinkedIn. Retrieved November 30, 2023, from here.
California Legislative Body (2023, October 7). AB-418 The California Food Safety Act. California Legislative Information. Retrieved November 30, 2023, from here.
Howarth, J. (2023, March 23). The Ultimate List of Beauty Industry Stats (2023). Exploding Topics. Retrieved November 30, 2023, from here.
Oxford Economics (2019, May 1). AN OXFORD ECONOMICS REPORT ON THE ECONOMIC IMPACT OF THE BEAUTY INDUSTRY. THE BRITISH BEAUTY COUNCIL. Retrieved November 30, 2023, from here.
Walsh, M. (2023, February 1). A Facelift for Cosmetics: Modernization of Cosmetics Regulations Act of 2022. Clark Hill. Retrieved November 30, 2023, from here.