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Cannabis insurance market diversifies

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Cannabis insurance market diversifies

Admitted markets for cannabis industry coverage got a boost last week when Golden Bear Insurance Co. received approval to cut rates and broaden coverage with a new endorsement, industry sources say.

The approval from the California Department of Insurance was the result of the insurer gaining experience in the market, according to Michael Brown, vice president and property department manager for Golden Brown in Stockton, California.

“The impetus for our revised rate filing was improved knowledge about the industry as it is developing in California,” Mr. Brown said.

Golden Bear was not a market for medical marijuana dispensaries prior to Jan. 1, “so this is a class of business that was entirely new to us,” Mr. Brown said. “We set our rates and guidelines based on the decades of experience that our underwriting team brings to bear. Over the course of 2018, we have had the opportunity to review hundreds of applications, to meet a number of participants in the cannabis marketplace and to tour a variety of facilities. We have assembled what we have learned and used the newfound understanding to refine (and in some cases reduce) our rates and minimum premiums in targeted areas.”

The average range of decreases for premises and operations liability will be 13% to 30% for a mercantile storefront, 17% to 42% for mercantile with grow operations, 2% to 19% for grow operations and 67% for manufacturing, a Department of Insurance spokeswoman said in an email said.

The amount of any decreases will depend on the territory, size and type of business, according to the spokeswoman.

The average range of decreases for premises and operations will be 13% to 30% for a mercantile storefront, 17% to 42% for mercantile with grow operations, 2% to 19% for grow operations and 67% for manufacturing, the spokeswoman’s email said.

The average range of decreases for products liability will be mercantile 38%, mercantile with grow operations 40% to 50%, grow operations 50% and manufacturing 47%.

The average range of decreases for products liability will be mercantile 38%, mercantile with grow operations 40% to 50%, grow operations 50% and manufacturing 47%.

The move is a positive development for the cannabis industry insurance sector, said a leading broker.

“Golden Bear is the first standard carrier to offer a wider range of offerings besides property,” said TJ Frost, U.S. cannabis segment leader for Hub International Ltd. in Bothell, Washington. “In my opinion, there will continue to be more and more carriers coming into the industry. When all this first came to the market place years ago, there was only one carrier. That is not the case anymore, and it’s a very exciting time.”

As the cannabis industry continues to emerge in California and elsewhere, finding insurance for operations from growing to dispensing can be challenging.

The admitted coverage will be a welcome and needed addition to a market that is now largely surplus lines and facing capacity and coverage constraints, said Kyle Burnett, regional vice president of property, head of excess and surplus property for XL Group Ltd. in New York.

The admitted coverage also helps build credibility.

“Admitted paper adds a stamp of legitimacy to what has, for decades, been an industry largely operating in shadow,” Mr. Brown said. “Having a domestic, admitted insurer provide coverage under the auspices of the California Department of Insurance sets cannabis on a level playing field with any other industry in California.”

Some, however, are not as bullish on the admitted market.

“The admitted market on a national scale so far does not appear to be interested in this space,” said Morgan Moore, vice president for Worldwide Facilities LLC, a Los Angeles-based wholesale broker.

“As a surplus lines broker with 20 years handling life sciences, I can’t see when or where admitted markets would get involved with cannabis,” Mr. Moore said. “It’s possible they will show interest with property exposures, but not general liability products. Cannabis is a surplus lines play all the way.”

Still, efforts continue to build the sector.

“I spend a good amount of time every day trying to get more and more carriers in the industry,” Mr. Frost said.

Since November 2017, when California Insurance Commissioner David Jones first approved a Golden Bear filing, making it the first admitted commercial insurer for the cannabis business insurance in the state, the department has approved five additional insurers to offer surety bonds to cannabis-related businesses in California, according to information from the Department of Insurance.

In October 2017, Mr. Jones held a public hearing to identify insurance gaps faced by the cannabis industry.

“The regulatory environment in California, at least as far as the insurance market goes, has been very supportive and encouraging,” Mr. Brown said.

In August, the National Association of Insurance Commissioners established a cannabis insurance working group to address the issue of insurance availability for the legalized cannabis industry and named Mr. Jones its chair. In May, Mr. Jones hosted a webinar titled “Weeding through the Unique Insurance Needs of the Cannabis Industry” with the NAIC Center for Insurance Policy and Research.

“From our perspective as an insurer, it appears that the market is maturing,” Mr. Brown said. “We see more and more corporate capital entering the space; the risks we underwrite are increasing in complexity and sophistication. The trajectory seems very favorable for the industry and for insurers providing coverage to the industry.”

He added that Golden Bear continues to look for opportunities to expand its presence in the cannabis insurance space, most recently having added equipment breakdown coverage as well as earthquake and earthquake sprinkler leakage to its program.

“As time goes on and we identify other coverage enhancements or classes of business that would improve our program, we will endeavor to bring those online,” Mr. Brown said.

Some say the industry still must develop a relevant data set to further encourage insurers.

“The cannabis industry is considered a new industry, and it needs some time — five years or more — to develop history with claims,” Mr. Moore said.

 

 

 

 

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