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The specialty marketplace for cannabis operators and the broader insurance market as a whole are tightening, and policy language is being revised as insurers respond to COVID-19, speakers said during a Business Insurance webinar Wednesday.
Despite the challenges, there are steps cannabis operators can take to make themselves more insurable, they said.
From a coverage standpoint, one of the key changes since COVID-19 arrived is that insurers are “not so zealous about writing business that they would usually write,” said Summer Jenkins, Sacramento, California-based senior product development manager at Cannasure Insurance Services.
“Underwriting guidelines are tightening up, and insurers are also responding with coverage form changes. Clarity in the coverage language is always helpful for the insured and the carrier during the claims process. We’ll continue to see things like that develop,” Ms. Jenkins said.
Business income insurance, also known as business interruption insurance, is one area of change since COVID-19, panelists said.
Insurers are not necessarily looking to write business income on all accounts, Ms. Jenkins said.
“We need more underwriting questions, much more scrutiny as far as providing information to actually value the business income,” she said.
Many insurers have either “pulled out” of writing business income or are offering some kind of sublimit, said Corey Tobin, senior vice president at Bolton & Co. based in Pasadena, California.
Insurers are not offering any new endorsements on current policies either, he said.
“That’s a big hurdle if the lease requires it, or the landlord requires it,” Mr. Tobin said.
In specialty lines, management liability coverage applications now include specific questionnaires related to COVID-19 that have to be filled out, he said.
Cannabis operators have also made changes to their operations to ensure business continuity amid COVID-19.
Certain states have pivoted quickly to allow policyholders to change their operations to a curbside and delivery model, which has been great for the industry, Mr. Tobin said.
Session moderator Chris Boden, cannabis practice group team leader at Crouse & Associates Insurance Brokers, said: “COVID-19 gave us a glimpse into how retailers will have to make changes and adjust. It definitely helps that we are a newer industry to make those changes.”
While many cannabis operators understand the requirement and need for general liability, product liability and property insurance coverage, there is now a need for specialty coverage for this expanding business, Mr. Boden said.
The cannabis industry needs broader coverage and higher limits for directors and officers, errors and omissions, employment practices liability insurance, cargo and cyber risks, panelists said.
Employment practices liability coverage is “highly recommended” for most businesses, especially those doing business in California and the West Coast in general, as well as states with a litigious reputation, Mr. Tobin said.
Some insurers offer employment practices liability insurance as a standalone product, while others write it on a shared limit basis with D&O coverage, he said, adding that It changes daily.
Wage and hour claims are growing, but coverage for this exposure is “tough to get on any business, and in cannabis is just not offered at the moment,” Mr. Tobin said.
Cyber is another area where cannabis operators need to consider coverage, especially given the rising exposures they face amid the COVID-19 pandemic, speakers said.
Many cannabis operators have shifted from straight cash to online operations and remote working, and these hybrid operations may not have proper VPNs and firewalls in place, Mr. Boden said.
“We’ll see a heck of a lot more attacks in the future,” Mr. Boden said.
Businesses are facing growing cyber exposures, such as ransomware and extortion attacks, since their operations have moved online, Ms. Jenkins said.
This is one of the areas where coverage is lacking in the cannabis industry, she said.
“People in the cannabis industry — operators, ancillary businesses — take online payments. That’s one thing that would be covered under cyber liability,” she said.
“From a claims perspective we haven’t seen any yet, but a lot of curbside and delivery goes directly into the tech space,” Mr. Tobin said. “We’ll see more and more cyber exposure.”
There are only a couple of insurers offering cyber coverage for the cannabis space, he said.
Cannabis operators can take several steps to make themselves a more attractive insurance risk, speakers said.
As retailers, the hiring of human resources consultants or having human resources staff in-house can make a big difference, Mr. Tobin said.
“Are they following the employee handbook? Do they even have an employee handbook?” he said.
Just as for any other line of coverage, employment practices liability insurers are looking for “proactive management, for systems and management measures to be in place,” Ms. Jenkins said.
Hiring systems, how operators evaluate employees, and whether they have accident and injury prevention programs are some of the things insurers are looking at in submissions and applications, she said.
“The more proactive the management, the less likely they are to have a loss,” Ms. Jenkins said.
EPLI policies often include free services such as access to HR attorneys and provision of documents, and partnering with a trusted, reliable broker is key, she said.