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Insuring Cannabis and Corporate Values

October 27, 2021

The decision to insure properties where cannabis operations are present comes with a specific set of risks. Another aspect to consider is whether the decision aligns with the values of your organization as a whole. 

To insure or not to insure

In the U.S., legal cannabis sales jumped 45% in 2020 and are expected to hit $41 billion by 2026, yet the industry only wrote about $250 million in policies last year. Not many carriers offer property and liability coverage, and if they do it’s limited. The market is a bit of a double-edged sword right now. 

On one hand, there’s an overwhelming need for the right kind of insurance to cover crops, theft, worker compensation, and auto coverage. Federal entanglements are also falling to the wayside as Congress introduces new bills and more states legalize the use of marijuana. Some insurers are preparing to capitalize on new types of coverage that can be offered in states where the drug is legal.  

On the other hand, cannabis is still considered illegal under federal law. It’s also hard to challenge long-held beliefs about the drug. The market has been facing an uphill battle of stigmatization and propaganda since Reefer Madness back in the 30s. There are many insurance companies whose members wouldn’t be thrilled about their carrier of choice insuring marijuana operations.  

holding marijuana bud between two fingers
As the cannabis industry grows, insurance providers must decide whether
or not to incorporate cannabis into their books of business.

 

Related: 
How Insurers Are Reducing Cannabis Risk: Three Case Studies

 

As the industry evolves, it’s important to ensure the policies in your book are the right choices for your company. Here’s what key decision-makers should be thinking about… 

Ethical values

Every insurance company has moral principles that are developed and impacted by things like legislation and public perception. For some that operate in conservative constituencies, insuring vices like alcohol, tobacco, gaming, and marijuana is simply out of the question, whereas others may see these as viable regardless of their ethical implications.  

Financial values

For some insurance companies, there’s a financial component to their corporate value that high-risk stays in the high-risk market and they stick to more predictable avenues. The cannabis industry still has a long road ahead until it is considered mainstream. There could be long-tail liability claims that lead to financial losses; some may not want to take those kinds of risks with their company assets.  

Underwriting values

At the end of the day, you need to ensure that written policies effectively balance risk and return for your company. If there’s not enough information to properly evaluate risk, your underwriters must then search for the information or make a decision based on limited information – which, of course, is not ideal. There is currently little data on cannabis that can be used for insurance purposes. For this reason, some may want to keep away to protect their company and policy owners. This is simply a matter of not yet fully understanding the long-term effects of the product.  

Marketing values

Marketing plays a significant role for insurance companies as they decide whether to position themselves as “pro” or “against” the industry. You can either say you’re comfortable with cannabis or you don’t touch it. Wherever you land, there are values from a marketing standpoint that must be considered.   

Whether or not your company has a position on cannabis operations, it’s good to know from a rating and underwriting standpoint if any of your addresses match one of these properties.  

If your corporate values lean against cannabis, you’ll want to run your book of business against accurate data on a regular basis to ensure your organization isn’t writing any cannabis properties. There are always ways for things to crawl onto a standard company’s book of business. If your organization is unknowingly writing a cannabis property, you can find out and resolve it appropriately in accordance with your corporate guidelines.  

On the other hand, if your corporate values align with cannabis or you’re considering a new position in the market, you’ll want to ensure you are actively measuring your book of business against an accurate data set so you know exactly which cannabis properties you are writing. More accurate, comprehensive data also allows you to ensure you’re charging the right premium for the risk. 

Learn more

The choice is yours to make. You can reduce the risk that a legal cannabis business ends up in your book of business (or conversely, check that only approved legal cannabis properties are in your book of business) withBuildingMetrix Cannabis Check. The process is fast and secure. If you’re a WSRB subscriber, WA cannabis data comes free with your subscription and data for other states is available.

Make the best decision for your organization. Contact usto learn more. 

More cannabis content

Chris Barclay spent 30 years underwriting personal, commercial and agricultural lines in the Western U.S. before joining WSRB to develop innovative, easy-to-use tools that help insurers manage both entire portfolios and individual accounts. Chris lives and works in Spokane, Washington.

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