The Cannabis insurance market remains limited. Whether you own a dispensary, grow facility, processing operation, or testing lab, for the most part, cannabis businesses can only buy insurance from a handful of insurers. Additionally, cannabis entrepreneurs are often surprised to learn that their cannabis insurance policies are much more restrictive than policies covering their other businesses.
Despite the high-growth nature of the industry, most insurers remain on the sidelines, nervous about regulatory and legal issues related to Cannabis, but they also feel uneasy about the lack of claims data. There simply have not been enough claims, particularly on the liability side, to accurately predict future losses.
Insurers in the space remain skittish, and they are adjusting their offerings as the cannabis marketplace and political environment shift. For example, due to two very large property losses (one was over $20 million), several insurers reduced the amount of maximum property coverage they would offer at each location. As a result, a large cultivator needing $35 million in property coverage might have a difficult time finding enough coverage. On a month by month basis, we are seeing some insurance companies offering new coverages, while others are removing coverages.
Understand your business’ risk and determine what coverage is available
It’s not fun to think about what can go wrong with your business, but all smart business owners spend some time on risk management. No insurance policy, particularly in this field, will cover every potential exposure, so it is worth taking a few minutes to take a hard look at your current policies, review potential risks, and determine whether or not you have adequate protection in place. After doing so, you can adjust your coverage, if possible, and concentrate on building alternate strategies to respond to events that might not be eligible for coverage.
A good way to start is to work backwards. Take a few minutes and write down risks you are worried about as a business owner. Then, work with your broker to determine whether or not such exposures are covered. For example, if you are concerned about theft, identify what limits of coverage are available. If you are worried about investors suing you for alleged misrepresentation, ask if a Directors and Officers policy would be a good coverage for your needs.
Develop trust with the insurance company to get your best deal
The underwriter at the insurance carrier will ultimately determine your Cannabis insurance premium and perhaps whether or not to offer any coverage enhancements. Most underwriters have been burned by dishonest brokers or policy owners, so developing trust with the insurer is paramount. Take the time to fully complete applications and provide any additional information that will make an underwriter more comfortable with your business.
Work with a reputable, honest Cannabis insurance broker
Choose a broker that will advocate for you aggressively, but also with integrity. Be wary of brokers claiming to have access to a “unique” program—a good Cannabis insurance advisor will have access to all of the markets, which is what you really need in order to find the best coverage. Look for a consultative broker, not just one looking for the next quick sale.
The cannabis industry is exciting and rapidly-evolving, with plenty of risk for business owners. By proactively working with your insurance professional, you can better protect your business. If you need assistance evaluating your current policies or selecting a comprehensive coverage, contact me at 443-722-7467 or ssherman@psafinancial.com
