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Many policyholders in established industries place cyber risks in captives, a risk management strategy that could become more attractive to cannabis-related operations because captives can offer greater control over coverages, experts say.
“Cyber is a conversation a lot of companies are having and they are putting their cyber risks more and more into the captive world and Vermont captives,” said Michael Pieciak, commissioner of the Vermont Department of Financial Regulation in Montpelier, which regulates banks, securities, traditional insurance and captive insurers.
Michigan’s Specialty Agriculture Risk & Financial Association, an alternative risk transfer provider to the state’s cannabis industry, is in “the research phase” of putting together a cyber policy, according to founder Kevin Cross, also vice president of captive the Specialty Agriculture Insurance Co. of Michigan in Grand Rapids.
The captive’s first product is a financial responsibility coverage mandated by the state for cannabis licensees, which comprise the groups’ memberships.
Under Section 408 of the state’s Medical Marijuana Facilities Licensing Act, an applicant/licensee must provide proof of financial responsibility in an amount not less than $100,000 for liability for “bodily injury” to “lawful users” resulting from the manufacture, distribution, transportation, or sale of “adulterated marijuana.” The group is now working on a title insurance product for real estate purchases.
A captive cyber insurance product, Mr. Cross said, would be “created for members,” and thus be more specific to their needs.
“We do have conversations with our clients about captives, and cyber risk is something we have considered putting into captives, but once you get carriers willing to write cyber in this space, the premiums are still pretty attractive, so there’s more of a transfer appetite,” said Patrick Ryder, vice president and management and professional liability segment leader in Denver for Hub International Ltd.
As the cannabis industry expands in the United States with increasing numbers of states legalizing some production and sales, firms involved in the sector often are looking to buy insurance coverages to protect their business — including cyber liability insurance.