The legal cannabis market in the United States is starting to produce some low hanging fruit for insurance agents. Recreational-use marijuana is now legal in 11 states plus the District of Columbia (D.C.), in addition to the 33 states plus D.C. that have given the green light to medical marijuana. As more states start to come on board and more businesses attempt to tap into the legal and lucrative cannabis market, demand for cannabis-related insurance is blooming rapidly.
As the cannabis insurance market is still very immature, there are very few insurance agents who can confidently describe themselves as experts or specialists in the field. This throws up some challenges. Someone who requires complex heart surgery would not want a paediatrician to perform the procedure because it’s not their area of expertise. Likewise, someone seeking financial planning advice probably wouldn’t turn to a random individual who invests casually here and there because, again, they don’t have the expertise. So, how can insurance agents thrive in the burgeoning cannabis insurance market and provide the advice clients need if they lack the specialty knowledge?
“Partner with a specialist,” said Chris Boden (pictured), cannabis practice group team leader at Crouse and Associates Insurance Services. “When it comes to insurance, agents don’t always have to be the experts; they can partner with someone that is. The retail agent is the face of the business. They’re out there meeting with clients and placing coverage, but they can look to the expertise of a specialist partner who can help with any potential coverage issues.”
One challenging aspect to the emerging cannabis industry, according to Boden, is that “every operation is different and has unique insurance needs”. For example, a cannabis retail agency will have very different risk exposures to a crop cultivator. Likewise, a large cannabis operation backed by a financial institution and numerous investors is going to need different risk management and insurance to a mom and pop shop that’s just trying to scrape by and fulfil regulatory and licensing requirements.
“None of the coverages available in the cannabis insurance market are yet as robust as something like a mainstream business owners’ policy offered by an admitted carrier, which will likely include a number of ancillary coverages like accounts receivable, property off premises, and so on. With cannabis insurance, it’s not like that. Agents need to secure their clients specific coverages or policy endorsements, such as employee dishonesty and crime coverage, in order to fill any coverage gaps,” Boden told Insurance Business.
“On top of that, there are various exclusions and coverage limitations that agents and brokers need to be mindful of. For example, a lot of carriers include health hazard exclusions specific to marijuana. So, if a person drives off the road and hurts somebody, and it’s determined that marijuana caused that reckless driving, the claim would not be covered. Another thing a lot of carriers are starting to require is background checks. If a claim is driven by an employee’s action, and that policyholder did not carry out a background check on that employee, coverage could potentially be excluded in that scenario.”
In such a developing marketplace, insurance agents are quite highly exposed to accusations of error or omission (E&O). This is where partnering with an expert who truly understands the risk and the partnering coverages is really important, according to Boden. One coverage he always tells agents to offer cannabis clients, especially those who are new to the space, is product liability, because that’s where a lot of claims are coming from.
“If you don’t offer product liability and that insured suffers a loss, they could ultimately sue you for failing to bring it up,” he said. “You’ve got to get it in writing, whether it’s an email or an official form, ideally signed by the insured, to state that you did offer product liability coverage. I’ve heard of E&O claims against insurance agents who did in fact offer product liability coverage. Whether or not they explained it properly or the insured knew what coverage they were saying ‘No’ to – after the fact, that’s very hard to determine, and in the majority of cases, the insured is going to win that case.”
On top of the potential E&O risks around failure to explain or offer appropriate cannabis-related coverages, insurance agents also face the challenge of competition – or in the case of cannabis insurance, the lack of competition in the marketplace. It requires hard grind and tenacity to find the best possible programs for cannabis clients – a task made more difficult by the fact that the insurance market’s developing daily.
Boden explained: “If a specific coverage wasn’t available yesterday, or a market said ‘No’ yesterday, never assume the situation will be the same today. This is a rapidly changing environment. Agents should never be afraid to ask for specific coverages or endorsements, or to ask if a limitation or an exclusion can be removed. Don’t be afraid to ask, and also don’t fall into the trap of taking the first option that’s put on the table. Be tenacious, take the time to read different policies so that you understand them, or work with an expert who can explain the coverage and make sure you’re presenting it property. This is a new industry, so you’ve got to tap into all the resources that are available.”