A recent law could increase the scope and frequency of product recalls within the cosmetic and beauty supply industries. The Modernization of Cosmetics Regulation Act (MoCRA) was signed into law by President Biden on December 29, 2022, and it significantly expands the Food and Drug Administration’s (FDA) ability to monitor, track, and recall cosmetic products.¹

The act creates new reporting and registration requirements and Good Manufacturing Processes (GMPs), as well as new labeling and documentation rules, marking major changes for cosmetics manufacturers and processors.¹ Prior to the passage of MoCRA, cosmetic manufacturers had few reporting, registration, or labeling requirements, and past product recalls have been primarily based on consumer reports.

For the first time, manufacturers, processors, and distributors will be responsible for registering their products and facilities with the FDA. It will also be the producer’s responsibility to report issues and potential violations. Many cosmetic producers may find this transition challenging. Increased requirements often lead to a higher risk of costly recalls.

Agents with accounts in the cosmetic space can help their clients manage the transition and minimize risk by initiating a conversation about securing adequate product recall insurance. Product recall coverage does more than pay for financial losses related to a recall. The pre-incident consulting and crisis response services provided as part of these policies can help guide insureds to make smart decisions that can reduce the chance of loss. The pre-incident consulting services available can ensure that all quality control procedures and regulatory requirements are in place

WHAT DOES MOCRA CHANGE AND WHEN DOES IT TAKE EFFECT? 

There are a few key policies that will present significant challenges and changes for cosmetic producers and distributors.

FDA REGISTRATION 

First, all cosmetic products and facilities must register with the FDA. Under the original draft of the law, cosmetic manufacturers and processors were required to register their products and production facilities with the FDA by December 29, 2023. That deadline has since been pushed to July 1, 2024.² This registration deadline applies to all facilities and products that existed before MoCRA was signed into law. A production facility is defined as any location that “manufactures or processes cosmetic products.” Small businesses and downstream partners like distributors and vendors are exempt from registration. Facilities and products created after the enactment of MoCRA must register with the FDA within 60 days.²

LABELING REQUIREMENTS

Labeling is another important point of the new law. Prior to MoCRA, cosmetic labels were only required to include general safety warnings, but this act changes labeling requirements in three specific ways:

• Labels must now include domestic contact information enabling consumers to report adverse effects or reactions.
• Fragrance allergens must be included on labels.
• Cosmetics intended for professional use, such as in salons, must be clearly labeled to that effect.¹

Under MoCRA, an inaccurate label could initiate a recall because companies now have to include an additional quality control step to review labels. This leads to an additional phase where an error can occur if the quality control process misses something.

UPDATED MANUFACTURING PRACTICES 

Good Manufacturing Practices (GMPs) are also a new requirement for all cosmetic manufacturers. These are practices that are “consistent, and to the extent practicable, and appropriate, with national and international standards.” ¹ The FDA will publish GMPs within two years, but manufacturers can plan for their release by reviewing guidance the FDA has published over the past several years. In future, the absence of GMPs could lead to product recalls or other consequences for manufacturers.

MANUFACTURER AND DISTRIBUTOR REPORTING 

Finally, MoCRA creates a greater reporting burden for manufacturers and distributors when it comes to adverse reactions. Cosmetic manufacturers and distributors, also known as “responsible parties,” in the law, are now required to report possible adverse effects to the FDA within 15 days after becoming aware of the issue. The responsible party could be made aware through a consumer report or their own quality assurance checks. Either way, the manufacturer is required to report the issue to the FDA.¹ This is a major change that will force manufacturers to implement strict record-keeping and reporting systems. Like many of the other policies within MOCRA, the failure to report an issue could lead to serious consequences for a manufacturer.

STRATEGIES TO MANAGE RECALL RISK

While recalls for cosmetic products may not be as common as food or prescription drug recalls, they do happen. Even large, experienced manufacturers with established processes have suffered cosmetic product recalls. In January 2023, a specific Banana Boat sunscreen spray was recalled because it was found to contain benzene, a cancer-causing chemical.3 In 2019, Johnson & Johnson baby powder was recalled after it was found to contain asbestos.⁴

The registration of products and facilities allows the FDA to more easily track the distribution path of a product. The shift of reporting responsibility from consumer to manufacturer means the FDA may also learn about issues that previously went unreported. A product recall could lead to hefty costs and serious consequences for a cosmetics company. The good news is there are steps cosmetic manufacturers can take to reduce their risk and minimize their potential losses in a recall. Product recall insurance covers a wide range of financial losses related to a recall, including:

• Replacement costs
• Refunds
• Business interruption or loss of profit
• Brand and sales rehabilitation
• Third-party liability
• And much more

Product recall insurance also often provides proactive consultation services and guidance to minimize recall risk. Many insurers partner with leading global providers of risk mitigation and crisis management services to offer pre-incident and post-incident support. Pre-incident guidance may include advice on processes, record-keeping, labeling, and more to minimize the chance of a recall.

Post-incident, the crisis consulting service may help a manufacturer communicate with distributors about pulling the product from shelves. They may interact directly with the FDA to meet reporting requirements and help avoid further consequences. A crisis consultant may also provide support in communicating replacement or refund options to consumers to assist in resolving the incident quickly.

BOTTOM LINE

Historically, product recalls haven’t been as prevalent in the cosmetic space as they have been in other industries, like food, automobiles, and prescription drugs. However, MoCRA brings added reporting, labeling, and record-keeping requirements to cosmetic manufacturers, which could transform the recall environment across the industry. Agents can help their cosmetic industry clients get ahead of the legislation by reviewing their recall protection. If a cosmetic manufacturer does not have recall insurance in place, now is the time to address any coverage gaps. CRC Group’s Casualty Practice Group is home to brokers highly experienced in recall insurance coverage. Reach out to your local CRC producer today for help finding the right coverage for your cosmetic industry clients.

CONTRIBUTORS

• Jonathan O’Malley is an Associate Broker with CRC Group's Minneapolis office where he specializes in Product Recall exposures.
• Chris Martin is a Casualty Broker and the President of CRC Group’s Minneapolis office.

END NOTES

1. Revamping of Cosmetics Regulation and Safety, The National Law Review, February 3, 2023. https://www.natlawreview.com/article/revamping-cosmetics-regulation-and-safety
2. FDA Delays Enforcement of MOCRA Deadlines for Facility Registration and Product Listing to July 1, 2024, The National Law Review, November 22, 2023. https://www.natlawreview.com/article/fda-delays-enforcement-mocradeadlines- facility-registration-and-product-listing
3. FDA warns of new sunscreen recall over traces of cancer-causing chemical, Local10.com, January 31, 2023. https://www.local10.com/news/local/2023/01/31/fda-warns-of-new-sunscreen-recall-over-traces-of-cancer-causingchemical/
4. FDA Advises Consumers to Stop Using Certain Cosmetic Products, U.S. Food & Drug Administration, October 18, 2019. https://www.fda.gov/cosmetics/cosmetics-recalls-alerts/fda-advises-consumers-stop-using-certain-cosmeticproducts
5. Bacterial contamination behind most cosmetics recalls, MDEdge, December 12, 2018. https://www.mdedge.com/pediatrics/article/191072/health-policy/bacterial-contamination-behind-most-cosmeticsrecalls
6. Revenue of the cosmetic and beauty industry in the United States from 2002 to 2022, Statista, September 11, 2023. https://www.statista.com/statistics/243742/revenue-of-the-cosmetic-industry-in-the us/#:~:text=The%20 revenue%20of%20the%20U.S.,billion%20U.S.%20dollars%20in%202022.&text=Since%20the%20early%20 twentieth%20century,handful%20of%20multi%2Dnational%20corporations