An increase in new markets, and better brand recognition and distribution from existing markets, has led to more competition in the insuring cannabis space.
That’s a good for the insurance consumer, and that trend seemed to please a group of cannabis insurance experts giving their take on the market in 2023 and beyond.
“I also think 2023 will be a year where claims contract certainty and accurate and fair law settlements being made is going be really important,” said Erich Schutz, vice president at Jencap. “I think in the past, capacity was king and having high property was sort of the end all and be all. In my opinion, having high, high property limits is great, but if you’re not paying claims in the first $5 million of the tower, what’s the point in having it all? So I think there’s going to be a lot more focus on the quality of coverage claims handling. And it’s going to be interesting here.”
Schutz’s assessment and that of the group were among the highlights of a panel titled Insuring Cannabis Foresights & Intelligence for 2022 and Beyond.
The panel was hosted by Jim McErlean, business development manager at Cannasure. Also on the panel were Jay Virdi, chief sales officer for Hub International’s cannabis specialty practice, and Matt Engle, vice president with Insurance Office of America.
They were among more than 30 speakers appearing during Insuring Journal’s annual virtual Insuring Cannabis Summit on Oct. 26 and 27. The two-day event featured panels on cannabis laws and lawsuits, a panel with carriers, experts tackling tough questions, and a large roundtable panel.
Virdi oversees some 200 brokers who work in the cannabis specialty. He believes ligation is coming to the space soon.
“You know, there’s going to be a lot of lawyers that are jockeying for position or looking for ways to really put themselves out there and attack this emerging space,” Virdi said.
Engle, who has been in insuring cannabis since 2013, has seen the market go from a highly limited and narrow line of insurance products for cannabis companies to a more competitive space. He believes that evolution will continue.
“Nowadays you’ve got probably five different specialty programs through MGA programs and a host of other carriers both in the E&S and now the admitted market space that that are coming into play here,” he said. “So, the evolution of the markets and what’s available from a customer standpoint, from the operator side is getting better. And I would say even on those specialty programs, they’re starting to add some of the management liability lines and your D&O, your EPL, your cyber to their offerings.”
It won’t all be positive changes for insureds. Engle noted that Hurricane Ian is likely to impact an already tough property market for cannabis operators.
“You’re talking about a $60 to $75 billion catastrophic loss that the reinsurers are going to be paying out,” Engle said.
“So capacity is going to shrink up, the reinsurers are going to charge more, which trickles down to the MGAs, the markets, ultimately the cannabis operator,” he added. “So, property I see as a real topic to talk about. And not just the rate either. The other big deal with so many of these cannabis operations, they’re heavy on property limits because they invested millions to build out their cultivation facilities or do whatever they were doing to build out.”
The panel also gave its take on how potential federal legalization would impact insurance coverage and prices.
Virdi, who works in Canada, where cannabis is federally legal, explained what has occurred there.
“Four years into legalization here for adult recreational use and it’s still very much a specialty MGA, very niche play,” he said. “There’s not a lot of domestic carriers or a lot of movement here. So, I do anticipate that there’s going to be a lot of entrants that are going to be interested, because that whole legality of cannabis-related money transactions is going to be out the door with the SAFE Act or with federal legalization, but there’s still going to be a very large learning curve.”
Many of the audience questions the panel fielded revolved around best practices, and advising clients on matters like security.
Schutz took a question about armed guards.
“We always advise our friends and clients in the cannabis industry to sublet that to a third party company,” he said. “Reason being is that you don’t want to assume that liability of hiring people with armed security guards. You know, with all the tumultuous times that we’re living in, with the civil unrest and previously the pandemic, it’s just something that I would a avoid and really transfer that risk over to a professional company that assumes that liability and has the appropriate insurance coverage for any kind of mishap that may happen.”