The Risks of Insuring Cannabis Properties: A Case Study

A series of explosions and fires

A commercial building at the Port of Shelton was declared a total loss after a three-alarm fire burned through the historic structure. An explosion in Centralia damaged a building and burned one person on the head, face and legs. In Arlington, a building exploded, sending one person to the hospital. Incidents like these weigh heavily on underwriters’ minds and can cost insurers substantial sums of money.

These three recent losses all occurred at marijuana growing or processing facilities, occupancies most standard insurance carriers seek to avoid of but struggle to efficiently identify and locate. These incidents, which happened in Washington state, all caused significant property damage, as have several similar incidents in other states, including Arizona, California, New Mexico and Oregon.

They also highlight a mounting burden facing property insurers. As more states legalize recreational marijuana, and cannabis growers, processors and retailers become more common, understanding whether you’re unknowingly insuring one of these businesses is proving difficult.

“Explosions, fires and the resulting property damage highlight a mounting burden insurers face: tracking cannabis businesses in states that have legalized recreational marijuana.”

The time-consuming process of locating cannabis businesses

Cannabis businesses end up in an insurer’s book in a few ways:

A property owner applies for insurance and provides a list of tenants, none of which are cannabis businesses. Later, an occupant changes to a cannabis business, but the property owner doesn’t notify the agent or insurer.
A business applies for insurance but isn’t yet growing, processing or selling cannabis. Instead, it grows apples, roasts coffee, retails cosmetics or engages in any number of business activities standard carriers insure. Later, the business switches to cannabis and doesn’t notify the agent or insurer.
The cannabis business provides incomplete information on its application, and the underwriter doesn’t have sufficient data to accurately identify the business.

To address the first two cases, underwriters — or other skilled employees — would have to regularly contact every policyholder in the insurer’s book to try to identify customers that now house or operate cannabis businesses.

To address the third case, insurance company teams might rely on free online data sources, such as mapping applications, to gather additional data on what the business does. Unfortunately, these sources aren’t always helpful. The building in Shelton was a warehouse on the port’s grounds and had no distinguishing features or signage. The facilities in Arlington and Centralia were plain-looking, metal-walled industrial buildings.

In addition to being difficult to identify using conventional tools, these three buildings had something else in common: the insurer covering them could have avoided the losses by leveraging the right data. WSRB identified all these properties as cannabis businesses as part of our CannabisFind book review, which is available coast-to-coast at no charge for WSRB Subscribers.

“Insurers covering cannabis businesses can avoid major losses without investing countless hours of employee time — if they have the right data.”

A faster, easier, more accurate approach

With a CannabisFind book review, you get updated, validated data on whether each insured location in your book is near a cannabis grower, processor or retailer. Your teams can then save countless hours by focusing on addressing just those policies that need attention rather than scrutinizing every policy individually. You can also quickly and easily estimate your total insured value at risk.

In short, you’ll have the data you need to avoid major losses and save employee time.

One insurer used CannabisFind and used the data to identify and eliminate more than $50 million in cannabis-related property risk in just one state. Another insurer, after it suffered a $1 million loss, used CannabisFind and saved substantial amount of underwriter time while it took steps to prevent future losses.

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