Finding D&O coverage remains a challenge for cannabis firms
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Directors and officers coverage for companies engaged in cannabis and hemp businesses is difficult to place due to a lack of capacity and available insurers, according to speakers Wednesday at the Business Insurance Cannabis & Hemp Conference, held virtually.
Benjamin Sibthorpe, vice president for management liability at San Diego-based CannGen Insurance Services, said the dichotomy of the cannabis industry being heavily regulated and federally illegal creates a potential “minefield” for directors and officers trying to exercise judgment on a company’s activities.
Alan Devey, Chicago-based vice president and producer for Lockton Cos. LLC, said that due to cannabis’ explosive growth as a new industry, many potential insureds are first-time insurance buyers that require additional time to educate about complex matters including D&O.
Both agreed that market conditions for cannabis D&O coverage remain challenging. Mr. Sibthorpe referred to being on a panel in April in which cannabis D&O was described as “a hard market in a hard market,” which Mr. Devey said is still true.
Mr. Devey said that of the 60 or so insurers offering D&O coverage, only about 12 will speak to a broker once it mentions cannabis. That drops to six or seven for plant-touching businesses, and to even fewer for public companies with a large market capitalization. “There is not enough capacity to create pricing efficiency,” he said.
Mr. Sibthorpe joined CannGen earlier this year to help launch its pro division to offer management liability products. He noted CannGen offers a suite of products such as property and stock throughput coverages to cannabis operators and that D&O cover is an addition to that.
“A D&O offering is something that the market has been really crying out for,” he said.
Mr. Sibthorpe said insurers largely function on data and that as the cannabis industry matures and generates its own data, more capacity will enter the market.
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