Cannabis underwriting evolving dramatically: Experts

Underwriting coverage for the cannabis industry has evolved substantially in just a few years, according to players on the property/casualty side speaking Wednesday on a webinar.

Capacity issues, they said, are not as dire as thought while typical exposures such as fire and theft top claims activities.

Kevin Maher, senior underwriter in Chicago for Canopius U.S., a separately capitalized unit of U.K.-based specialty insurer Canopius Group Ltd. focused on the property sector, said the U.S. group has been writing cannabis since 2016.

Erich Bublitz, vice president, cannabis underwriting and chief regulatory compliance in Philadelphia for Admiral Insurance Group, said his company has been active in the cannabis sector since 2018, focused largely on the casualty side.

Bublitz added, however, that Admiral had been active in the hemp and cannabidiol area for five to 10 years under its health, nutraceuticals and lifestyles book, and that activity and expertise helped facilitate the move into cannabis.

“What drove us to the cannabis side was the CBD and hemp experience we had built,” Bublitz said. “There’s absolutely nothing I think more suited for excess and specialty than cannabis,” he said, especially since it requires so much judgment in underwriting.

Both men said cannabis coverages had evolved substantially in the past few years.

When Canopius U.S. first started writing business, Mr. Maher said, the company had about half a page of language and guidance, which has since grown into an underwriting manual of more than 100 pages.

“A couple of years ago, it was very much of a ‘make it up as you go’ kind of thing,” Mr. Bublitz said, and underwriters looked to proxy industries such as liquor and e-cigs to help understand exposures.

“Now, it stands on its own,” Bublitz continued, with data and expertise and underwriters looking less now to the proxy sectors than in the past.

Regulation plays a large role in the underwriting of cannabis as state rules and requirements set the bar for insurers in some cases.

“The states do some of our underwriting for us,” Mr. Bublitz said, adding he sees it as an advantage that cannabis is such a highly regulated industry.

“Cannabis is a better risk (than CBD/hemp) because it is so regulated,” Mr. Bublitz said. While CBD and hemp are now federally legal, they have a much lower barrier to entry both in terms of capitalization and compliance.

“There is a capital investment that has to be made if you’re an operator in the cannabis space,” Mr. Bublitz said, as opposed to CBD and hemp, in which one sees more “mom and pop” and sole proprietor operations, he said.

Mr. Maher agreed.

“For us, the cannabis risks are, due to regulation, generally the better risk,” Maher said. “When we first started doing this, we treated everything sort of the same, but we’ve had to evolve with the industry. Cannabis and hemp are different.”

Both men also sought to dispel the notion the cannabis market lacks insurance capacity.

On the general liability and product side, Mr. Bublitz said there is ample capacity to meet his clients’ needs. “I don’t think it’s hard to find coverage,” he said.

On the property side, where Canopius US focuses, Mr. Maher said there is “plenty” of capacity, but cautioned that the quality of the policy is also critical.

“Not all policies are created equal,” said moderator Charles Pyfrom, chief marketing officer at CannGen Insurance Services LLC in Livermore, California.

Mr. Bublitz said that buyers should make sure that any exclusionary language is a fit with that buyer’s operations. “Make sure you match up which exclusions fit and which don’t,” he said.

An audience poll showed the largest group of respondents, 48%, would like to see additional capacity for outdoor crop protection, as opposed to other lines including cyber, which garnered less support.

“I think that’s something that’s a good opportunity,” Mr. Maher said. “I think you’ll see something evolve with the outdoor crop piece,” although he did acknowledge there is “a lot more to get your head around” with such coverage.

From a claims perspective, cannabis businesses reported activity similar to that of other businesses, with some claims cannabis-related and some not.

“Fire can be cannabis-related, but we also had a faulty bathroom fan cause a large fire. You have standard fire losses which occur in this business,” Mr. Maher said.

“There are cannabis claims and non-cannabis claims which come through on the cannabis form,” Mr. Bublitz said. Slip and fall has probably been the largest in terms of numbers of claims to come in, he said.

On the property side, theft claims topped the frequency column while fire was tops in severity, according to Mr. Maher.

Cannabis Underwriting: The Good, Bad & Ugly