Insurance Business caught up with Mark Woodall – president and CEO of Special Risk Insurance Managers Ltd and one of the speakers at the upcoming Cannabis Cover Vancouver event – to share his thoughts on the difficult times that may await insurers in the face of legal cannabis …
So, when you write specialty business you have to have extreme caution, be very disciplined and have lots of expertise. I can give you a number of lines of business where the main markets have jumped into the specialty markets and literally blown their brains out, loss-ratio wise. And I see that coming with cannabis.
If you look at the cannabis market, everybody is perceiving it to be a financial windfall, whether you’re a producer or a distributor or a rolling paper manufacturer or edible maker or so on. And the insurance companies think this too. And if they’re not cautious, their loss ratio is going to be huge.
If you look at the numbers … right now there’s about 250,000 legal marijuana users in Canada who have a certificate. So that’s the legal market right now. They’re producing enough marijuana for 250,000 people right now – but what they’re perceiving is after legalization the number will hit in excess of three million. Almost instantly. Over 10 times the demand for the product.
Producers are trying to dramatically expand their product growth. Insurers are jumping into this area to write these product manufacturers, and their companies are not specialty writers. Quite frankly, in the marketplace right now, we’re having a lot of discussions with operations in California and Washington and Colorado, trying to learn what the pitfalls were – and it’s a daily learning curve.
But some insurers are walking straight in with no expertise and little discipline. And everybody’s thinking they’re going to make massive amounts of money … but they need to walk in with caution.
Just look at wording. We don’t fully understand that yet. We’re looking at wording from the US and how to learn from their mistakes – and believe me there were a lot! Canada has now approved edibles – but with varying restrictions on things like THC levels in some states. We’ve got no regulatory controls as to THC levels yet - we have people running out to insure some of these start-up operations with no identified restrictions on the type of business they’re writing.
The government is going to approve and legalize it and allow the provinces to sell and control it … and we’ve got 10 provinces who can’t agree on many of the rules they need.
Right now there’s something like 60 approved manufacturers of cannabis. Say that doubles or triples over the next few years. There’s still not enough premium to spread over, say, 35 insurers. It’s a specialty market product and it needs to be monitored as such.
The problem we’ve got – and this is where the Cannabis Cover Vancouver event is very much of benefit – is that lots of people need to learn about this market quickly. And hopefully lots of people will be more considered, sit back and say ‘I don’t want to jump in on this right away, I want to sit back and watch for a while.’ I think Cannabis Cover is fantastic because no-one else is holding this kind of event … and we’ve all got a lot more questions than answers.
