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Captive insurance operations can be challenging for cannabis operators, from limited claims history data to regulation, according to panelists who spoke Thursday at Business Insurance’s virtual World Captive Forum.
“Captives are a part of the insurance industry self-correcting system,” said Chris Payne, CEO of CLIC Management LLC. “When traditional markets can’t provide adequate coverage or charge too much, buyers have the option to form self-insurance programs and captives.”
More cannabis operators are considering captives to solve the challenges of a limited insurance marketplace.
“More conversations with clients and prospects are involving our captives team,” said Scott Foster, senior vice president of NFP Corp., adding that captives have been discussed with a majority of cannabis clients.
Interest in captives among cannabis operators is growing as they take a more holistic risk management approach.
“Insurance is becoming less of a line-item expense, and people are looking at managing the total cost of risk in their business and looking at captives as part of an overall program,” Mr. Payne said.
The panelists said engaging regulators is also part of the equation.
“We are able to say to regulators that we are coming to the table to solve a problem and provide what doesn’t exist today,” said Rocco Petrilli, chairman of The National Cannabis Risk Management Association.
Access to reinsurers and, potentially, additional capacity can be achieved through a captive.
“One of the advantages of owning a captive is that the owners get direct access to the reinsurance marketplace and that’s where most of the capacity is right now and where a lot of the underwriting experience is,” Mr. Payne said.
The market for reinsurance is beginning to “expand beyond just a handful” of players to “having a broader breadth,” Mr. Foster said, based on the feedback he gets from insurers.
The lack of claims history and data can be a hurdle to the setting of rates and pricing, according to Mr. Petrilli, and can also be a challenge when dealing with reinsurers.
Mr. Foster said that although there is a dearth of claims history, the cannabis business is expected to follow other consumer products, such as nutritional products, in the types of claims produced.
For more information on the World Captive Forum, click here.
Increases in product liability capacity for the cannabis industry and related companies remain elusive amid a patchwork of regulation, speakers said at the Business Insurance cannabis webinar on product liability Wednesday.