An insurer that covers property in several states where growing marijuana is legal had what every insurer dreads: a major, avoidable loss.
The insurer wrote a policy for a commercial warehouse that, at the time of application, did not house any cannabis-related businesses. However, after the policy was written, a tenant moved into one of the suites and grew marijuana. A fire later ignited in the suite, probably due to an electrical problem with the grow lights, and caused so much damage the building was a total loss. The resulting claim topped $1 million.
Like many insurers, the company has a policy against insuring any cannabis-related businesses so it can avoid incidents like this one. But the insurer also ran into challenges keeping these businesses out of its book.
A key challenge stems from the fact that commercial tenants change, and property owners only provide updated tenant lists if they’re asked. The insurer regularly reviews accounts, a process that includes a request for an updated tenant list. But there’s always the chance that tenants will change between reviews and introduce cannabis risk.
To track all potential tenant changes, the insurer’s team would have to regularly delve into every policy in its book and contact the policyholder or agent to ask for an updated tenant list. To accommodate such a time-consuming process, the insurer’s team would have had to put aside the work of underwriting new policies and other business-critical tasks.
To prevent similar losses in the future, the insurer went looking for a more efficient solution that would provide reliable, up-to-date data on cannabis business locations.
Prior to the loss, the insurance company had requested WSRB to check its Washington state book of business for cannabis property risk. As a WSRB Subscriber, the insurance company received data — at no charge — on whether each insured location in its book was near a cannabis business, making it easy and efficient to estimate total insured value at risk.
After the loss, which occurred outside Washington, the insurer invested in a comprehensive check of its book by purchasing Cannabis Check from BuildingMetrix, a WSRB subsidiary. The insurer accessed updated, validated data on all the properties it insured in states where recreational marijuana is legal.
With that data, underwriters saved substantial amounts of time. Rather than combing through every policy, they were able to focus on just those policies that needed immediate attention. The insurer’s team reviewed the policies the Cannabis Check flagged and determined the best next step.
With the help of the BuildingMetrix Cannabis Check, the insurer is now in an ideal position to avoid another $1 million — or potentially larger — cannabis-related loss.