From Class Actions to Cyber Threats: CIS’ Ken Hegel on the New Realities of Cosmetic Insurance

As lawsuits, compliance pressures, and operational risks expand, IBA Strategic Partner Cosmetic Insurance Services (CIS) helps beauty companies of all sizes secure protection beyond standard product liability. No protection is absolute, but measures can be taken to help plug the gaps. CIS head Ken Hegel discusses.

In today’s beauty industry, risk is no longer limited to the occasional allergic reaction or product recall. From class actions and greenwashing claims to cyberattacks and global regulatory hurdles, the challenges confronting cosmetics and personal care brands have multiplied over the past decade.

Cosmetic Insurance Services (CIS), a division of Epic Brokers and an IBA Strategic Partner, has built its practice around one mission: delivering specialized insurance and guidance to beauty companies—whether a startup just hitting the market or a household name expanding overseas.

At the head of CIS, Kenneth Hegel, Jr., recognizes the financial pressures that budget-strapped indie beauty brands face in today’s expanding risk landscape.

But cutting corners on protection today can lead to devastating costs tomorrow.

Why Insurance Matters from Day One

Many entrepreneurs wait until they’ve landed a contract or built sales momentum before seeking coverage. That can be a costly mistake. As Hegel noted, “As soon as you’re about to release products into the general public—even if you’re giving out free products for testing—you should have insurance in place.”

The cornerstone is product liability coverage, which protects against bodily injury or property damage claims.

“Once you start operating and distributing products to the masses, you could have a product liability claim. And if the product liability claim is significant enough, you could be bankrupt before you’re even up and running,” Hegel warned.

Common Pitfalls for Startups

Young brands often try to save money by skimping on coverage—but that strategy can backfire. One recurring problem is failing to insure inventory stored in third-party warehouses.

“Unless you’ve got a contract from the 3PL stipulating that it’s their responsibility to insure your finished goods, they are not legally responsible,” Hegel said. “What we saw during Hurricane Sandy is a lot of those smaller companies had, say, $400,000 in finished goods sitting in a warehouse, and that warehouse was in a flood zone in New Jersey. And now all of a sudden you’ve lost $400,000 with no feasible way of collecting on that claim.”

Another issue arises with big retail contracts. “If you sign a contract with Amazon and they’re requiring $5 million in liability coverage and you don’t have $5 million of coverage, now you’re in breach of contract and scrambling to put an umbrella policy in place, and the costs can be substantial,” Hegel said.

Class Actions Get Creative

Insurance for cosmetic and personal care brands has always been a challenge. Even 40 years ago, insurers were wary of covering products with the potential for class action lawsuits, often lumping cosmetics together with pharmaceuticals. Policies were scarce, coverage limited, and premiums high.

And compared with just a decade ago, consumer plaintiff litigation against beauty companies has grown more sophisticated in its designs, escalating risks and creating new insurance and risk-mitigation needs.

“This industry has always seen claims,” Hegel noted. “Product liability claims probably were the most prominent, and we still see those on a consistent basis. What we’re seeing now over the past five or ten years is a spike in claims that aren’t necessarily product liability-driven.”

Those include false advertising suits targeting companies for marketing claims ranging from “natural” and “hypoallergenic” to “biodegradable” and “Made in USA.”

“The most important part of an insurance policy is not only its ability to pay a claim when and if you’re found guilty or you decide to settle,” Hegel said. “It’s the defense costs that you pick up.” Defense alone can drown a small company without proper coverage.

Hegel acknowledged, though, that insurance isn’t a blanket solution. Many beauty entrepreneurs assume that once they’ve bought liability coverage, they’re protected against all risks. Not so.

Hegel identified an increasingly common argument used in complaints against beauty brands, in which plaintiffs claim economic injury from purchasing—or paying a premium for—products marketed as “clean” or “natural” that allegedly contain synthetic or hazardous chemicals or impurities.

“There is no insurance product out there to cover that,” he said.

The rise of litigation financing—private investors bankrolling lawsuits in hopes of sharing in payouts—may fuel even more claims, though legislation is emerging at the state and federal levels to place guardrails on the practice.

Hot Spots for Risk

Certain product categories are subject to heightened scrutiny. Hair-straightening products rely on strong chemicals to achieve their effects, which can cause burns. Depilatory creams can lead to injury if misused. Even acne treatments containing benzoyl peroxide are being reexamined in light of reports drawing potential links to benzene formation, Hegel noted.

Beyond formulations, cyber liability is emerging as a pressing concern. Many indie beauty companies now operate virtually—outsourcing manufacturing and warehousing while relying on digital systems to tie it all together. If a cyberattack disrupts that chain, the business can grind to a halt.

The Case for Trusted, Specialized Coverage

Bottom line? While insurance coverage is essential, some exposures can’t be covered by insurance. “That’s the common misconception that a lot of clients have,” Hegel said.

He continued, “Insurance is only part of the risk mitigation process. Loss prevention is another. Probably loss prevention is the best way to remove yourself from those potential claim scenarios.”

Education is key. Hegel noted, “Our relationship with IBA goes back to the 1970s. The real synergy is that the Cosmetic Insurance Services program likes to see cosmetic companies that are well versed in the rules, the regulations, and the pitfalls with regard to certain ingredients. A more informed cosmetic company tends to be a safer company in terms of losses and, in partnering together, we make sure that we keep customer premiums down.”

He cautioned against hasty coverage decisions.

“Insurance companies now that don’t understand this business are starting to put exclusionary wording buried deep within the policy. If you’re only focused on the price and you’re dealing with a broker that really doesn’t understand the cosmetic industry, you can be buying a product that – when you look at the 50 exclusions for ingredients – you’ve just knocked out coverage for every single product you have on your shelf.”

Specialization matters. “If you had a heart condition,” Hegel said, “you’d go to a cardiologist. Insurance is no different. If you’re not dealing with a specialist that can actually walk you through the exposures and how the picture changes as you scale and grow, you’re in the wrong church and the wrong pew, as they say.”

CIS’s deep focus on cosmetics allows them to anticipate risks, structure policies that fit, and educate clients on what is—and isn’t—covered.

For Hegel, insuring beauty brands is about more than risk management. It’s about supporting an industry where entrepreneurial dreams can flourish.

“It’s not uncommon to see someone go from hairstylist or makeup artist to millionaire after years of grit,” he reflected. “Only in America. We’re proud to support that journey. We believe this is a fantastic industry.”