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The Future of Marijuana Insurance

The Future of Marijuana Insurance

In just a few short months, the last of those Lloyds of London cannabis industry insurance policies will roll off the books and into history. What does that mean for the future of marijuana insurance? What does it mean for your policies?

Profitability vs. The Political Machine

When Lloyds left the industry, many thought it was due to high numbers of claims or revenue losses on their policies. However, the market position for Lloyds was a good one, and by all accounts the book of business was profitable. So why leave?

The company line was that Lloyds was exiting until the cannabis industry was legalized on a federal level. Of course, a major insurance syndicate pulling out of the market is indicative of some strong backstage political machinations on both sides.

Who Will Replace Lloyds?

Of course, Lloyds wasn’t the only insurer to provide policies to cannabis growers and distributors, but it was certainly the largest. Other insurers familiar to the industry are stepping up to take on the policies being nonrenewed by Lloyds.

They aren’t the only ones. New insurers are entering the marketpace, eager to get their fair share of the policies being nonrenewed. They are also looking to take on new business being created by the increasing legality of cannabis across the country.

Unfortunately, more insurers and more competition for business isn’t driving down the premium. In fact, the opposite is true.  Those businesses who lost their Lloyds policies know what you are probably going to find out soon – premiums are going up.  Here’s a good reason why:

The Industry Is Maturing

As the legal cannabis industry matures, so does the insurance industry experience with these entities.  Claims patterns are beginning to emerge, and those claims change the way policies are underwritten.

Property claims are prevalent, particularly theft of product and money. Some of these are fraudulent and may include employees in collusion with outside criminals.  Other types of property claims include damage to businesses by competing companies, such as theft and arson.

A dispensary in Michigan experienced two fires believed to be arson. A Los Angeles dispensary that went up in flames last fall is being investigated as arson, while many other dispensaries and even proposed dispensaries have burned down and are also being examined for possible arson.

Liability claims are not as frequent, though when they happen they are not usually of the slip-and-fall variety. We are seeing many product recalls  for everything from marijuana itself to edibles and oils.

Products liability claims are also on the rise, usually stemming from pesticide usage during the growing process.  Unfortunately many marijuana businesses do not purchase product recall or product liability coverage, meaning these losses are paid out of pocket.

Now would be a good time to schedule a risk management analysis with your insurance broker to discuss your operations. There are likely some gaps in your current insurance program.

Underwriting Will Be More Stringent

Familiar insurers and new insurance companies are all going to be taking a harder look at cannabis operations.  You don’t want to give them any reason to further increase premiums or deny coverage to your business.

Current underwriting guidelines may include credit checks, as well as criminal background checks for business owners and partners. Employees may also be subject to background checks depending on which aspects of the operations they handle, particularly money and product safekeeping.

On the subject of product safekeeping, insurance companies will require details on all business security procedures. The medicine safe will need to be an approved make and model, and all recommended usage procedures will need to be followed.

A solid business plan, safety program and security features will make your insurance purchase or renewal experience go much more smoothly.  However, your most important ally should be an insurance broker experienced in cannabis industry operations.  Talk to your broker about any concerns you may have, as well as any resources they may be able to provide to streamline or improve your current operations.

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