Natural Foods Merchandiser

Insurance tougher, more expensive for retailers

It wasn't just the hurricanes.

That's what David Cohen, owner of Nutrition World in Fort Pierce, Fla., found out when he set out to renew his store's insurance policies.

Cohen, like any Floridian, expected premiums to increase in the wake of three damaging hurricanes in two years. Instead, his longtime insurer, Florida Farm Bureau, decided it didn't want his business anymore.

"They didn't want to insure health food stores," Cohen says he was told.

This was bewildering news to someone who hasn't had so much as a slip-and-fall suit since opening his 3,000-square-foot store 20 years ago. But he wasn't worried at first, because his personal and business loss history were both pristine. "Since 1972, other than hurricane claims, I have not had a claim," Cohen says.

Cohen's longtime insurance agent got on the phone, but only two underwriters were even willing to consider making a quote. Each declined to offer coverage when they found that Cohen's store, "like every other health food store on the East Coast of Florida," sold private-label supplements.

Lloyd's of London's quote was almost triple his existing rate. "It was almost a joke," Cohen says. "Sixteen thousand a year and it covered nothing."

By the end of January, Cohen was beginning to panic. "We went to five different insurance brokers in Florida. My policy was expiring Feb. 24," he says. "And I had nothing."

To add insult to injury, Farm Bureau notified Nutrition World's landlord that it was going to cancel coverage. Now the landlord was calling him too.

Insurance problems for natural foods retailers are popping up with increasing frequency, and not just in Hurricane Alley.

"Some national insurers have decided to discontinue writing vitamin retailers," says Adam Finney, vice president of membership for the National Nutritional Foods Association in Washington, D.C. "If you're working with a local agent who may not be familiar with the industry, you may have trouble finding coverage." Finney advises retailers to look for a national broker with access to a large number of insurers. Retailers are more likely to get coverage from bigger companies, he says.

Finney referred Cohen to Anthony Bernato, one such broker who works with nutrition retailers and manufacturers at The Halland Cos., an insurance brokerage in Plainview, N.Y.

Halland began its Life Sciences division more than 30 years ago to cover the pharmaceutical industry, but has expanded to include the nutrition industry, including manufacturers and retailers. It insured the first Vitamin Shoppe and the first GNC store, Bernato says, plus such supplement manufacturers as Sabinsa Corp. and Tishcon Corp.

"I work with all the mom-and-pop stores," he says.

As a specialist, Bernato says, he can give retailers an overview of what's going on in the insurance industry and how it relates to the health business.

Insurance companies—and the 10 giant reinsurers who actually pay most claims—have had some tough times, beginning with the tremendous liabilities incurred by the destruction of the World Trade Center in 2001 and followed by several years of devastating summer storms.

In Florida and other states, insurers are requiring business to bring pre-1995 buildings up to higher code standards, install sprinkler systems and sometimes buy generators to protect their stock from power outages, Bernato says. Retailers near the beach are being told to move inland or pay a lot more. While not happy news, none of this surprises anybody.

But many small retailers are surprised to discover that their standard business owner's policy, or BOP, can exclude liability on certain products. Their insurer may have been renewing the policy but carving out exclusions in the fine print that the agent or broker didn't catch.

Those excluded products include controversial supplements such as ephedra, bitter orange, creatine or kava. Sometimes whole categories such as weight loss or weight gain products are excluded, Bernato says. Retailers tend to believe any potential product liability will be covered by the manufacturer, but plaintiffs "sue everybody and let the judge sort it out," which becomes very expensive to defend, he says.

"I'm involved in a case right now where [a manufacturer] has 113 lawsuits against them. In almost all of the cases, the judge has excluded the retailer" from liability. In several cases, however, Bernato says retailers were included because they "did not use prudence in selling products to children, or in large quantities."

Along with knowledge of the underwriters who do insure supplements companies, Bernato says, Halland offers strategies and coaching for retailers to prepare their stores so they will be more attractive to insurers. The strategies cover the gamut from a safe, clean store appearance to merchandise check-in policies that guard against product tampering.

Dropping a product can also be required. Citrus aurantium, or bitter orange, is the newest ingredient to draw insurers' attention, Bernato says. "There is one company out there that will write coverage for it," he notes. Most companies decide it's not worth the risk.

Cohen offers his story as a learning experience for other retailers. "I suspect these issues are going to be appearing everywhere," he says.

Joining the NNFA should be first on every store owner's agenda, he advises.

The Nutrition World insurance story has a happy ending—sort of. About 48 hours after he called Bernato at Halland, Cohen reports, he had a policy. But while the old Farm Bureau policy cost $5,500 a year for a basic BOP, his new policy from CNA Insurance costs $11,200 for identical coverage. At Bernato's suggestion, Cohen added a $1 million umbrella liability clause for an extra $300 a year.

He knows he's lucky to get it. "It's going to be a very expensive year," he says.

Insurance advice

The U.S. Small Business Administration offers the article, "Buying Insurance for Your Small Business," in Vol. 6 of its "Success Series" of how-to publications at the SBA's Web site,

"The Smart Approach to Protecting Your Business," a brochure published by the SBA and insurer The Hartford, includes checklists for risk reduction ranging from fire safety to Internet security. It's downloadable at

The Hartford also offers online classes in risk management for small businesses. Check them out at


Natural Foods Merchandiser volume XXVII/number 5/p. 14, 18

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