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Tuesday, Nov 29, 2022
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Vape Insurance Looking Risky

Calco Commercial Insurance has developed the niche business of covering e-cigarette manufacturers and retailers for product liability. But with the entire vaping industry under siege by lawmakers seeking to ban flavors, the specialty business may go up in smoke. “They’re banning flavors which are not killing anybody,” said Sarkis Kaladzhyan, owner of Calco in Sherman Oaks. “People are getting sick and dying because of drug dealers who pack THC cartridges with vitamin E acetate … to make it look like their product is high quality.” He said the flavor ban, which applies to products he believes have no connection to the recent slew of pulmonary health issues, will cripple his business and many others if left in place for the long term. “Around 95 percent of my business comes from the vape industry,” Kaladzhyan said. “If there’s a flavor ban, we’ll go bankrupt.” Calco is a brokerage that writes most of its business with Lloyd’s of London. Kaladzhyan declined to disclose any of its big-name clients but said Calco works with the majority of the industry’s well-known manufacturers, as well as small mom-and-pop shops and importers. The company covers vape businesses if their products malfunction and injure someone, like if a battery shorts and blows up in a user’s pocket. Kaladzhyan said Calco has received about 150 claims for this problem. But it also provides coverage if customers suffer health problems after long-term, intended use of the products. Kaladzhyan said Calco has received zero of these claims so far, despite the growing media spotlight on health perils. “Ten years without a single health lawsuit,” he said. Kaladzhyan founded Calco in 2008, at the height of the recession and the beginning of the vapor industry’s explosion into the U.S. market. At the time, vape companies were the only ones approaching him for new policies, and he was making money when others were losing it hand over fist. But in the months since the surge of reported deaths from vaping, the public’s growing fear of the devices has resulted in declining sales for his clients, and therefore slower business for Calco. “Eventually (clients) shrink, their policies shrink, we shrink. New York, Michigan and a couple other states are moving towards total and complete bans. I have orders right now from New York to cancel policies. Just in the state of New York, I have $75,000 in commissions I’d have to pay back (in a statewide ban),” Kaladzhyan said. “We have 50 states. If all these bans are successful, I’m going to have to shut down.” Death increase The number of people hospitalized with lung injuries related to the use of vape or e-cigarette products has surged to 1,080 in 48 states with 19 confirmed deaths, including two in California, according to the Center for Disease Control. The epidemic has led legislators in Massachusetts, Rhode Island, Michigan, Oregon, San Francisco and elsewhere to pass restrictions on the sale of flavored vape products. The L.A. County Board of Supervisors passed an ordinance earlier this month that will ban the sale of all flavored tobacco products in unincorporated territories of the county. Sales are still allowed in L.A. for now, but the city is considering a complete ban. Kaladzhyan and other businessowners in the nicotine vapor industry are telling lawmakers that the health problems don’t have anything to do with flavored nicotine vapes — rather, they are caused by additives present in some black market THC vape products derived from marijuana. Today, Kaladzhyan said, the $4 billion vape industry is “hanging by a thread.” One of Kaladzhyan’s clients is Vapor Shop & Lounge of Sherman Oaks, owned by his cousin Mher Mailyan. The shop stocks an array of e-cigarettes, vape devices and juices in hundreds of flavors, but does not sell traditional tobacco products like cigarettes. For 29 years, Mailyan was a die-hard cigarette user, but in 2013 he was hospitalized after suffering a life-threatening heart attack due to his use. Doctors and family urged him to find any alternative. Kaladzhyan, having worked in the industry for five years, suggested a nicotine vape. “That was May 10, 2013. From then I haven’t smoked even one cigarette,” Mailyan said. “I’m 51 and I feel so much better. I exercise five days a week and have no problem running.” He started his store to help others make the same change, but said mass perception of e-cigarettes and vaping as deadly may drive eager-to-quit smokers back to cigarettes. And a comprehensive flavor ban would be a death knell for his store. Kaladzhyan fears flavor bans would result in bankruptcies beyond vape shops, including merchant services companies and importers and exporters, and mass vacancies for retail property owners in the San Fernando Valley. Chemical culprit Proponents of nicotine vaping have posited that the true culprit responsible for the slew of respiratory injuries, which a recent study from the nonprofit Mayo Clinic described as similar to “mustard gas burns,” is vitamin E acetate, a fatty oil used as a thickening and cutting agent in some illegal THC vape products. Kaladzhyan referred to a study from the CDC which polled more than 570 patients and found that 78 percent of them had used THC vape products. But according to the same report, 17 percent of patients polled said they’d exclusively used nicotine vape products, which do not contain vitamin E acetate. For Katharine Van Tassel, professor at Case Western Reserve University, a private research school in Cleveland, Ohio, that’s proof enough that nicotine vape products are not as safe as the industry wants consumers to believe. “Are we just going to ignore the rest of these people?” she said. “The people selling vapes are under a misimpression that these ingredients are somehow safe. The FDA and CDC have been very clear — they don’t know what’s causing this. It could be two different toxins.” She pointed to the variety of chemical compounds used in nicotine vape liquid, and the relative uncertainty of their safety when combined, vaporized and inhaled. Kaladzhyan suggested the study’s discrepancy may have something to do with the meteoric rise of Juul — an e-cigarette company founded in 2015 that became popular with youths in recent years because of its discreteness and high-nicotine content, which gives users a brief but intense head high. “For the last 10 years, we didn’t have this epidemic. All these flavors, all these devices, why didn’t we have an epidemic? What did the youth epidemic coincide with? What product? The Juul,” he said. Kaladzhyan maintained nicotine vapes are safe but admitted Juul devices may be an exception. The amount of nicotine in them is high and if users abuse the Juul for months or years on end, he said it’s conceivable for them to suffer health problems. Instead of cracking down on flavors, the FDA should be restricting the amount of nicotine allowed in vape juices. Van Tassel countered that the signs and symptoms of nicotine poisoning are vastly different than the mustard gas-like injuries doctors are seeing. “I’m not seeing a connection between pulmonary injuries and nicotine.” She added Juul is positioning itself well to ride out the wave of flavor bans by working closely with the FDA and changing their marketing tactics. Prohibition problems Kaladzhyan suggested a permanent flavor ban would result in the emergence of a black market for nicotine vape products and that such a market would be far more detrimental to public health than the current products. “Prohibition never works,” he said. “People are going to make this stuff at their house.” Van Tassel agreed. “I’m not fond of bans,” she said. “You lose control of the supply chain.” Rather than drive the industry underground, she supports a measure the FDA plans to enact in May 2020 that will heavily restrict the ingredients companies can use to make vape juice. If the epidemic wanes, we’ll know the triggering substance was among those banned. “The decreased number of ingredients means decreased risk. And increased regulation means increased oversight of the supply chain. Decreased risk means decreased costs for insurance companies,” she said. That could be good news for Calco in Sherman Oaks. Van Tassel conceded that some small businesses will likely go belly up because of a flavor ban, but for vape companies that can weather the storm, as well as new entrants, the new legislation will make insurance cheaper. And insurers will incur lower payout costs simply because the risks are lower. “In the long term, regulations will be good not only for public health but for business,” she said.

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