Hard property market spells 'turbulent times' for cannabis insurance

Regulation also posing a barrier

Hard property market spells 'turbulent times' for cannabis insurance


By Gia Snape

The hard market in property insurance, as well as regulatory and other challenges in the cannabis industry, are adding up to “pretty turbulent times” for cannabis insurance, according to one expert.

“While there’s a lot of optimism around New York, New Jersey and some of the momentum we’re seeing in the new cannabis markets in the East, the legacy markets, or the oldest, most mature markets for cannabis in the West continue to struggle,” said Norman Ives (pictured), cannabis practice leader and executive vice president with Amwins Brokerage, in Seattle, Washington.

Businesses in states such as Washington, Oregon, California, and Colorado that were early adopters of the adult-use recreational market are seeing price compression and downward pressure on their products, where supply far outstrips demand, according to Ives.

“That’s creating difficult business conditions on the operators, which is going to have an impact on their available funding and financing for insurance products,” he said.

Moreover, insurance companies are also facing their own headwinds, which in turn impacts cannabis businesses that are seeing higher premiums and more restricted capacity from carriers.

Amwins outlined these and several other challenges in its 2023 state of the market report on the cannabis insurance market.

Hard property market’s impact on cannabis insurance

Speaking to Insurance Business, Ives explained how overall hard market in property has dominoed into a hard property and casualty market for cannabis.

“Carriers are not feeling like they have to step into the cannabis space to find new capacity or new opportunities to write business,” said Ives. “Instead, in the current hard market, they’re trying to find those avenues in niches of business that they currently write to try and maximize those revenue streams as opposed to picking up new areas of risk.”

Carriers’ focus on stabilizing their property portfolios has also affected the casualty side, creating “complications” for cannabis businesses trying to secure coverage.

“Carriers that have capacity that they’re able to devote specifically to cannabis risks are leveraging that cannabis property to get the casualty placement, and so you’re seeing some of these MGAs unwilling to right monoline property,” Ives said.

“So, if you have a large real estate or TIV (total insurable value) exposure, you’re now having to decide whether to engage with an MGA to get enough coverage for your property. Is it going to force you to buy a casualty product that may not be of the quality that a company of your size and scale would purchase?

“What we’re trying to do is find the best available coverage forms across the package, as opposed to just a casualty risk or just a property risk.”

Cannabis – a maturing insurance market?

Amwins’ mid-year report also highlighted the following trends in the cannabis insurance market:

  • Rates – Though rate decreases aren’t seen for several months, Amwins said it expected rates to level off. It flagged California’s taxation rate as a significant issue that’s keeping the illicit market “more relevant” and driving up rates.
  • Underwriting, Capacity and Terms – More carriers are entering the cannabis space, generating more general capacity, but many remain unwilling to write monoline property or excess.
  • Claims – Amwins has noted an uptick in property claims in part due to fire claim losses caused by lighting issues used in certain grow operations and extraction processes.
  • Cyber liability – Though some larger firms and a few smaller businesses are recognizing the importance of cyber liability coverage, Amwins said most operations are still declining this type of insurance.

Though cannabis insurance has come a long way since its inception, Ives said there’s still plenty of room to grow. Though more carriers have stepped in to support the industry, they’ve also further divided and segmented the market.

“We have more participants in the market today, but we don’t necessarily have any better solutions today than we did three or four years ago,” Ives said. “That means policy forms have not evolved significantly in this space over the last 36 months. We’re not seeing expansions in coverage where carriers are stepping up and adding more ancillary coverage to your property quotes.”

Ives hopes that as more states legalize cannabis, insurance providers will step up to “cultivate their offerings, expand coverage options, and adjust premiums to accommodate unique risks.”

Are you a broker doing business in the cannabis insurance space? Tell us your perspective on the market below.

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