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Some insurers have left the marijuana insurance market after a warning memo sent by Attorney General Jeff Sessions earlier this year, but others are staying and even planning to increase their involvement in the sector, say observers.
Insurers who have left the business include Glen Allen, Virginia-based Markel Corp. and Munich Reinsurance Co. unit Hartford Steam Boiler & Inspection Co., observers say.
Mr. Sessions referred in his Jan. 2 memo to a memo issued in 2013 by then-Deputy Attorney General James M. Cole, which said law enforcement should focus on certain priorities with respect to marijuana, including preventing its distribution to minors.
Mr. Sessions said, “previous nationwide guidance specific to marijuana enforcement is unnecessary and is rescinded, effective immediately.”
“There’s been a mixed reaction,” said Ian A. Stewart, a partner with Wilson Elser Moskowitz Edelman & Dicker L.L.P. in Los Angeles. “On the insurance side, we saw a couple of carriers leave the space,” but “there are other carriers thinking about getting in, in 2018, who have taken a pause to see how things play out,” while others already in the business see this as an opportunity, he said.
Justin Lehtonen, assistant vice president at Los Angeles-based wholesaler Worldwide Facilities Inc., said “probably one of the most severely handicapped areas at the moment” is coverage for equipment breakdown.
A spokeswoman for Hamilton, Bermuda-based XL Group Ltd., which does business as XL Catlin, said it has not withdrawn from this market. “We review submissions on a risk-by-risk basis,” she said.
Hartford Steam and Markel did not respond to queries on reports they had withdrawn from this market.
“There have been markets that have pulled out, and some are just kind of tightening up,” said Ronnie Cabral, cannabis group practice leader at San Francisco-based wholesaler Crouse & Associates Insurance Co.
The Cole memo’s withdrawal created “a little bit of a skittish marketplace that’s unsure about what they’re getting into,” said Rafael Haciski, a producer with Philadelphia-based broker The Graham Co.
However, Stephen Pate, a member of law firm Cozen O’Connor P.C. in Houston, said despite the Cole memo’s withdrawal, “to date I haven’t seen anything that indicates to me they’ve done anything to try to enforce the federal marijuana laws.”
Mr. Pate said insurers “right now are in a wait-and-see status, to see whether, in fact, the Trump administration is really, really going to do anything about this.”
Seth A. Goldberg, a partner with Duane Morris L.L.P. in Philadelphia, said the memo has caused most industry participants to “pause and consider their involvement. But that said, the space has continued to grow and flourish,” and “the opportunity for insurers to profit from the space also remains.”
Galen Hayes, president of El Sobrante, California-based Hayes Insurance Agency, the broker for Stockton, California-based Golden Bear Insurance Co., which became the first admitted market to offer marijuana coverage in California, said with regard to insurers’ involvement, “This is a drama that has played out every day since around 1996.” Insurers have “been rethinking things constantly,” influenced by various government actions, he said.
In February, Mayfield Heights, Ohio-based Continental Heritage Insurance Co. became the first insurer in California to be approved to offer surety bonds for the cannabis industry, according to the California Insurance Department.
Camille Dixon, a Sacramento-based director at the California Insurance Department, said the department plans to soon announce two additional admitted insurers, whom she did not identify, that will write marijuana-related business in the state.
“We believe the risk of federal enforcements is low for the insurers” that follow proper risk management practices under federal priorities, including not selling drugs to minors, and “take an active role in knowing what their client does,” she said.
Other insurers in the market include Birmingham, Michigan-based Conifer Insurance, which insures all lines of marijuana-related business, aside from workers comp outside of Michigan, according to reports. A company spokesperson did not response to a request for comment.
Steve Shapiro, Chicago-based executive chair of Baldwin & Lyons Inc., said its wholly owned subsidiary, Carmel, Indiana- based Protective Insurance Co., provides workers comp coverage in all states where marijuana has been legalized for recreational or medicinal purposes.
Mr. Shapiro said the insurer plans to expand into other lines as well but could not immediately provide details.
Another possibility that has been discussed is the formation of captive insurers to insure the cannabis business.
For instance, Jeffrey Rosen, president of San Francisco-based Tailored Benefits Inc., said he is working with a group seeking to form a captive for workers comp risks.
Meanwhile, Robin Westcott, vice president of government affairs, legal and compliance for the Lisle, Illinois-based American Association of Insurance Services Inc., said the organization is in the process of developing a standardized form for admitted insurers for marijuana-related sales and distribution that it will soon file with the California Insurance Department. Excess and surplus lines insurers have expressed interest in it as well, she said.
The association also plans to develop forms for other marijuana-related segments of the industry, such as farm and agricultural, she said.
Medical marijuana is now legal in 29 states and the District of Columbia. Eight states and the District of Columbia now have legalized marijuana for recreational use. Recent polls indicate 61% of Americans believe marijuana should be legalized.