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NEW YORK — Insuring the cannabis business is no easy task, with challenges ranging from high prices and a lack of capacity to evolving forms and definitions, industry insiders and sources say.
Lack of historical data is a handicap, and crime has thus far dominated the claims picture, they add.
“We moved in kind of slowly,” said Peter McKeegan, senior vice president of the financial lines division of Hallmark Financial Services Inc., speaking Friday at the Business Insurance Cannabis & Hemp Conference in New York.
The specialty insurer’s first customers included nonprofits such as advocacy groups and medical operations, Mr. McKeegan said.
“We write it as a management liability risk,” Mr. McKeegan said. “How they deal with shareholders, investors” and employees.
“We first entered the marketplace in 2018” with a surety and a product liability product, said Wes Gilbreath, chief financial officer and vice president of corporate development with Continental Heritage Insurance Co. in Cleveland.
Continental, another specialty insurer, has expanded to include general liability and is now also “working on” programs for directors and officers coverage and cyber coverage, he said.
The availability of D&O insurance in the cannabis sector is sparse, with some “half a dozen carriers,” according to Corey Tobin, vice president at brokerage Bolton & Co. in Los Angeles.
Coverage can also be quite costly, he said, in the order of $100,000 to $125,000 per million dollars of cover generally with a $100,000 retention for private companies, with public companies paying higher.
This compares with a baseline figure of some $12,000 to $13,000 per $1 million of cover for noncannabis risks, Mr. Gilbreath said.
There has also been demand for crime policies, Mr. Tobin said, especially to cover cash in transit. Few insurers offer such coverage, however, and “a lot of safeguards” must be in place to have cash coverage.
Coverage is still evolving, often beyond existing insurance language and forms, said sources.
“Standard policies don’t work very well at all with cannabis,” said Francis J. Mootz III, a law professor at McGeorge School of Law at University of the Pacific in Sacramento, California.
The insurance forms that exist now “are insufficient in many ways to cover this space,” said Chicago-based Phillip Skaggs, assistant counsel with the American Association of Insurance Services, which has set out to create the industry’s first standardized policy form for cannabis.
Canopius US, a separately capitalized unit of U.K.-based specialty insurer Canopius Group Ltd. focused on the property sector, started writing cannabis coverage in early 2016 with one form, said Kevin Maher, senior underwriter in Chicago.
“February 2016 is when we started writing this business,” he said. “We had one policy form which basically altered ISO language. We learned some mistakes pretty quickly that way.”
Today, Canopius US has more than 70 forms that are proprietary, he said, using specialized definitions and coverage in contrast to off-the-shelf forms, adding that it is “not uncommon” for the firm to adjust its forms three to four times a year.
Swiss Re Ltd. “is not actively writing any cannabis risks” but is evaluating the risk, said Lisa Simon, Armonk, New York-based vice president of property/casualty business management for the reinsurer.
Claims and crime
Instances of theft under property policies are accounting for the vast majority of claims, sources said.
“The biggest portion of our losses, by far, are property,” said Gerrit Nagarwalla, claims supervisor with Canopius US in Chicago. Of that, “90% to 95% are theft-related.”
“That’s what we’re seeing,” said Beth Ossino, claims manager with Golden Bear Insurance Co. in Stockton, California. She said claims have ranged from grabbing some items off a shelf to more highly organized intrusions, such as when a group used a truck to back through a roll-up door and steal 683 freshly harvested plants.
She added some of the crimes seemed to show an understanding of the business and its operations.
It “almost feels like some element of an inside job with some of these,” Mr. Nagarwalla said as he recounted one case in which thieves entered a building through the roof and moved into the space between the walls to gain access to a secure area.
As coverage expands, there remains a large degree of uncertainty in the cannabis insurance sector due to the lack of data and experience, most sources agreed.
The problem is “we just don’t know. It’s new,” Mr. McKeegan said.
A bipartisan bill that would ensure legal marijuana and related businesses have access to insurance coverage has been introduced in the U.S. House of Representatives, just days after the bill was introduced in the Senate.