Better Pricing, More Competition, and Innovate Insurance Products
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The non-admitted insurance market has been the only provider of insurance products to the cannabis industry since the beginning. These carriers have served an important role for cannabis companies who’ve required insurance to meet lease obligations, licensing, and as a matter of public policy. At the same time, they’ve had the cannabis industry jump through many underwriting hoops ranging from how to store your product during non-business hours to declining applications for either deficient testing or foreign made vape pens. Plus, the pricing for certain products has not been favorable
However, if California Insurance Commission Dave Jones has his way, the non-admitted insurance market could be replaced by admitted carriers that would allow increase competition, reduced pricing, and possibly insurance products customized for the pot industry. For retail insurance brokers and their clients, the act of completing difficult insurance applications could be replaced by an online application would be nothing short of miraculous.
For those who may not know the difference between admitted and non-admitted carriers, you may think of offering insurance to main stream versus high risk. The admitted insurance market are typically well known companies who insure “mom and pop” businesses to large sophisticated corporations. Non-admitted insurance carriers insure everything the admitted market has little to no interest insuring.
Currently, the variety of different insurance products available through non-admitted insurance markets has been slim to none. While commercial general liability is more readily available, the other lines of insurance such as product liability, crop insurance, directors & officers insurance, workers compensation, and commercial automobile may have one insurance carrier offering that particular product line. Requesting high liability or property limits typically requires approval from the carrier. Cannabis in Colorado has become a billion dollar industry, but yet there are not enough insurance carriers to offer coverage. This means the majority the cannabis industry is either uninsured or not insured. Or, many cannabis clients have stated they don’t trust the insurance industry to pay their claims and opting out was their most viable option.
Insurance premiums and coverages will have dramatic impact on cannabis companies
The opportunity for admitted insurance carriers offering customized insurance products will benefit cannabis business owners in many ways. The increased competition should reduce pricing. With more competition, the insurance carriers will be required to compete for market share with more innovative products. Currently and depending on which surplus lines broker the retail insurance broker accesses, the premium for general liability is based primarily on either revenue or square footage. In our opinion, the use of revenue has disadvantages particularly if the carrier requests mid-term audits based on your sales as these types of policies are usually more expensive. To provide a sense of price for marijuana insurance, the basic stripped down commercial general liability insurance policy may start at $1,000 per year for limits of $1,000,000 per occurrence, $2,000,000 per aggregate, and products and completed or product liability removed from the policy.
The Admitted insurance carriers may “package” the insurance through what is known as a business owners policy or “bop” to the cannabis industry. Typically, these policies include the general liability, products and completed operations, and property with coverage additions including cash, signage, business income/extra expense, hired and non-owned auto or extended replacement cost. A main street mom and pop business with a major admitted insurance company may pay as little as $500/year . When compared with a non-admitted cannabis policy, the annual premium for coverages reasonably similar may be $4,000 per year. Both business types will depend on the sales revenue and scope of operations to determine a final price, but the benefit to the cannabis business will be a comprehensive insurance program with reasonable pricing. In addition, these admitted insurance carriers may be able to offer other lines of insurance such as directors & officers, employment practice liability, workers compensation, and commercial automobile.
Product innovation doesn’t exist in the cannabis insurance market
There is no product innovation with the current insurance markets for cannabis, but a regurgitation of other products from different insurance carriers. The same policy forms and coverages duplicated with the carrier’s own spin of what may not be covered or modified leaving the insured to base their decision strictly on price, unless they are using a competent retail insurance broker for guidance. Innovate insurance products may entail recognizing different grow cycles and their values as the plant reaches harvest. Or, the transportation of product does require limits of insurance to properly indemnify the risks of driving with thousands of dollars worth of cannabis.
Admitted insurance markets will have the opportunity to redefine and create insurance products that will benefit the cannabis industry in a variety of ways.
Biggest benefactor of the admitted insurance market will be on ancillary companies
Those business who provide product and service to cannabis licensees known as ancillary companies will be the biggest benefactor of an admitted insurance market. This industry segment has been virtually uninsured when Lloyds of London decided to no longer offer coverage. The admitted insurance market will realize the true size of the cannabis industry is beyond licensees as ancillary companies seek coverage for consulting, trimming, packaging, technology, and other services.
Lastly, the availability of insurance products will be important as a matter of public policy. The indemnification of risk by insurance companies allows compensation for those have been harmed or damage for medical, loss of income, or other forms of compensation. Other industries participate in a vibrant insurance market.
The cannabis industry shouldn’t be any different.