News Risk Management19 Sep 2018

Global:"Toxic Trio" in cosmetics creates possible emerging liability risks-Allianz

19 Sep 2018

Scientists have found that three chemicals used in beauty products are hazardous and could potentially place manufacturers and suppliers at significant liability risk, according to a new report from Allianz Global Corporate & Specialty (AGCS) and analytics company Praedicat.

The cosmetics industry uses hundreds of chemicals in manufacturing, dozens of which can be present in the final product, leading to potential consumer and workplace exposure, particularly in nail and hair salons.

The Emerging Liability Risks:  The ‘Toxic Trio’ report looks at how three particularly notorious nail polish components-- dibutyl phthalate (DBP), toluene and formaldehyde could result in bodily injuries to users. DBP is likely a reproductive system toxin, toluene is a neurotoxin, and formaldehyde is a known carcinogen. They are also used in perfumes, body lotions and other personal care products.

The report found that DBP, for example, has approximately a 1% probability of generating greater than $100bn in mass litigation-related losses to the US economy over multiple years. Toluene is so common that its global market volume was $16.6bn in 2016 and projected to increase in the future.

Meanwhile, exposure to excessive amounts of formaldehyde among nail salon employees presents significant potential workplace liability.

With global sales for skin care products estimated to grow by 40% to $180bn by 2024,  manufacturers and suppliers face latent liability risks due to the confluence of increasing consumer exposure with the potential discovery of bodily injuries linked to “Toxic Trio" exposure:

  • Product recalls if a product containing one of the “Toxic Trio” is deemed risky to consumers by regulators, whose attention is increasing.
  • Product mislabelling is a growing threat. Manufacturers who market their products as being “three-free” could be held liable if their products contain any of these chemicals, even if it is not their fault—due to reasons such as contaminants in materials from upstream vendors.
  • Latent liability from DBP affecting both consumers and workers has the potential to generate in excess of $100 billion in losses to the U.S. economy, based on Praedicat’s model estimates, due to the broad exposure.

“Companies need to implement rigorous testing to reduce the risk of mislabelling and proactively monitor scientific literature to identify future risks rather than reacting to public perception or regulatory action,” said AGCS global head of liability Michael Hohmann.

Insurance companies currently offer general liability and standalone product recall policies, which could assist companies with the significant costs that could occur from a “Toxic Trio” event.

The report from AGCS and Praedicat can be found here.

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