The rollout of coast to coast recreational cannabis legalization in Canada hasn’t come without its challenges, from supply shortages to mouldy weed, and long line-ups for retail stores that had customers tripping out over high prices.
On the other hand, seven months after the official legalization date has passed, the insurance market is continuing to evolve and change for the better.
“There are now more providers who are cannabis specialists that are operating at higher capacity – they’re adding staff to deal with the inflow of submissions and we’re seeing expansion there,” said Kevin Lea (pictured), president at Fuse Insurance, adding that MGAs are likewise able to access new insurance markets.
“That increased competition is helping with rates and it’s helping with coverage, which is beneficial to the policyholder, plus the more complex risks where we might need higher capacity or maybe [they’re in a] less desirable location are having more insurance companies to choose from, [which] for the client is potentially the difference between actually getting insurance coverage or not.”
Meanwhile, the volume of insurance business coming from the cannabis industry is driving significant premium growth for every company that’s involved in this sector, explained Lea.
“I’m expecting that to continue to increase as more business is developed, especially as Ontario continues to come online and open more retail stores, as well as Alberta and BC continuing the privatization of their stores, allowing more licenses to be released,” he told Insurance Business.
That doesn’t mean all the black spots of the cannabis industry have been addressed. There is still a shortage of product in Canada, which has delayed licensing and slowed the decline of the black market. Lea predicts, however, that as the industry grows, these issues will eventually be erased.
On the insurance side, there is still one exposure for which it’s difficult to find coverage, despite the growth in the number of providers stepping into the cannabis space.
“We’re seeing D&O continuing to be the biggest challenge within the industry. Providing D&O coverage to start-ups, especially publicly traded start-up companies who aren’t significantly established in an industry that is rapidly evolving and changing from a regulatory and capital standpoint, is something that is going to lead to a lot of D&O claims. Most D&O carriers are very reluctant to provide any form of coverage within this sector,” said Lea. “The pricing on it is 10 times or more what it is in other industries, even compared to other start-ups and businesses, just because of the challenges of the cannabis sector. For companies that want to carry D&O insurance, both finding coverage and then the pricing on it are severe.”
On a high note, even as a Canadian medical cannabis company revealed that the information of about 34,000 patients may have been exposed in a data breach incident in March, finding cyber coverage hasn’t been especially difficult. In fact, the cyber insurance side is relatively stable, even if a few carriers are keeping their noses out of the cannabis sector altogether.
“Some of the traditional players aren’t necessarily as heavily involved in the space [at all], but overall, we are seeing the cyber programs from companies, like Ridge Canada and CFC and other providers that are big players in the cyber space, opening up cyber coverage to cannabis companies,” Lea said.