The Modernization of Cosmetics Regulation Act of 2022 (opens a new window) (MoCRA) represents a significant step forward for the cosmetics industry. The new law — provisions of which take effect before the end of 2023 — brings tighter rules, more scrutiny of operations, and a host of new requirements for manufacturers.
MoCRA underscores the need for manufacturers to be vigilant in ensuring product safety, labeling accuracy, and adherence to good manufacturing practices, as defined by the Food and Drug Administration (FDA). It may also be prudent for manufacturers to examine and potentially adjust their in-house quality controls to align with new requirements under MoCRA.
MoCRA’s key provisions
MoCRA aims to modernize the cosmetics industry by introducing new regulations and standards focused on making cosmetics safer for consumers. Companies subject to the law includes those that operate facilities that manufacturer or process cosmetic products distributed in the U.S. “Cosmetic products” are defined under the law as “a preparation of cosmetic ingredients with a qualitatively and quantitatively set composition for use in a finished product.”
Specifically, MoCRA introduces:
Greater regulatory scrutiny. Manufacturers covered by the law will be subject to more rigorous inspections and stricter product safety and labeling rules.
Mandatory adverse event reporting. Manufacturers must report any serious adverse events associated with their cosmetic products to the FDA. This includes incidents such as injuries or illnesses linked to product use.
Safety substantiation. Manufacturers are now required to provide robust evidence that a product is safe for its intended use.
Good manufacturing practices (GMP) requirements. Manufacturers must ensure their facilities comply with new standards under the law, with noncompliance potentially leading to recalls and other regulatory actions.
Fragrance allergen labeling. MoCRA requires the labeling of fragrance allergens in cosmetic products. Any failure to declare allergens can trigger recalls of a product if it poses health risks.
Asbestos testing standardization. MoCRA includes standardized testing methods for detecting and identifying asbestos in talc-containing cosmetic products. If these products are found to contain asbestos, recalls may be required.
Small businesses — defined as entities whose average gross annual sales of cosmetic products in the U.S. total less than $1 million over the previous three years — are exempt from some provisions of MoCRA, provided that they do not manufacturer or process products regularly in contact with mucous membranes of the eye and those that are injected, intended for internal use, and designed to alter appearance for more than 24 hours.
Heightened safety and compliance demands
MoCRA sets a new safety benchmark for cosmetic products. To comply with the law, manufacturers must prioritize consumer safety through rigorous testing and quality control.Timely and accurate reporting of serious adverse events is especially crucial, as is adherence to GMP, which is mandatory for all facilities subject to the law.
Delays or inaccuracies in reporting or failure to follow GMP can lead to regulatory action by the FDA and other agencies, including potentially substantial fines and penalties and costly recall orders if products are deemed unsafe. Failure to comply with MoCRA’s new regulatory standards could also open manufacturers up to litigation from consumers seeking compensation for damages or injuries along with reputational damage and loss of trust in their brands, which could eat into sales and profitability.
As they seek to comply with MoCRA’s various provisions, manufacturers must be mindful of the following milestones:
Mandatory facility registration and product listing requirements take effect December 29, 2023, and each facility shall register no later than one year after the date of enactment and renew every two years.
Responsible persons must submit reports of serious adverse events — defined as events that result in or require medical intervention to prevent death, serious injuries and illnesses, disfigurements, disabilities, birth defects, and inpatient hospitalizations — associated with cosmetic products within 15 days. Copies of product labels must be included in these reports.
Responsible persons must submit a cosmetic product listing, including product ingredients, to the FDA for each cosmetic product, to be updated annually.
Product recall insurance in focus
The new complexities and potential pitfalls introduced by MoCRA — including the possibility of costly recalls — highlights how important it is that manufacturers ensure they have comprehensive product recall insurance programs in place.
Product recall coverage serves as a vital financial safety net, helping manufacturers manage expenses that are commonly incurred during a recall, including product retrieval, transportation, disposal, costs related to threats or suspicions of product tampering, and replacement along with lost income and additional costs to maintain operations. Product recall policies also generally provide coverage for third-party recall liability damages, include defense costs incurred by or on behalf of an insured in connection with defense of an actual or anticipated claim or suit.
Importantly, recall insurance can help manufacturers safeguard their reputations and shareholder value. Policies can provide coverage for crisis management and consultant costs, such as the hiring of communications experts during and after a recall, and to rehabilitate brand and reintroduce product to the market following a crisis.
While an effective product recall policy can empower a manufacturer to face regulatory challenges with confidence, organizations that purchase insurance coverage must still make compliance with MoCRA a priority. In upcoming product recall insurance renewal discussions, manufacturers should expect underwriters to ask detailed questions about their adherence to industry standards and regulations. If a manufacturer faces a product recall, it should expect even greater scrutiny going forward.
Current policyholders should also be mindful that intentional failure of a company to comply with government regulations may hinder coverage.
Working with the right advisor
As manufacturers look to comply with MoCRA and optimize their insurance coverage, choosing the right insurance broker is key. An experienced broker can help you understand and address MoCRA’s complexities and tailor a product recall insurance program to meet your unique needs.
Among other things, the right advisor can help you:
Thoroughly assess your operations and unique risk management needs.
Review the key risks presented by MoCRA, including GMP compliance — once more specifics by the FDA are released — and the broader regulatory landscape for your organization.
Provide insight into how you can ensure your approach to risk management aligns with industry best practices.
Understand the state of the product recall insurance marketplace and the options available to you.
Design a tailored insurance solution — with the right limits, sublimits, overall program structure, and choice of insurer, informed by industry benchmarking — that provides comprehensive coverage to safeguard your company against product recalls, liability, and other risks.
For more information, contact a member of your Lockton team.