The cannabis industry is growing at a rapid rate in the United States. Eight states now offer legal recreational cannabis and 29 states allow the drug to be used for medicinal purposes.
There is “tremendous opportunity” for the insurance industry to service the emerging pot market, according to Karen Landrum, consulting actuary at Merlinos and Associates.
However, some brokers and stumped as to where to start and how to shrug off the stigma attached to the Federally-illegal high. One way to learn about the industry is by studying alternative markets, said Landrum.
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“The naturals market (vitamins, etc.) is a really good parallel to the emerging cannabis market,” she told Insurance Business. “It’s a very similar product. When the naturals market first started, there were lots of unknowns (like you have with cannabis) and lots of potentially bad products being included in the naturals themselves. There are lots of lessons to be learned from going back and researching what was done in the naturals market and what kind of experience they had.
“Over the years, new laws and regulations were introduced, which helped to create better naturals products. They have introduced their own standards and overcome a lot of hurdles which I think are parallel to the cannabis industry.”
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A huge challenge looming over the cannabis market is the issue of product liability and insurers backing away from the unknown risks. But there’s a “ton of exposure” and a “great opportunity to earn money” for those willing to get involved, according to Landrum.
“Cannabis product liability is a low frequency, high severity exposure,” she said. “As an insurance company, you could limit your own exposure to loss by introducing certain policy exclusions or limitations.
“Insurance policies are usually issued on an annual basis, so if, for some reason, you experience a loss, it’s not necessarily a bad thing. It can be good to generate some information, so having some loss might be better than having no loss.”
As the cannabis insurance market grows, more data will become available. At the very beginning, insurers and brokers can look at data from alternative industries like the naturals market.
Landrum added: “Product liability in its very nature is going to be a low frequency, high severity exposure, so brokers and insurers need to ensure they understand the coverage and how it functions in the market.”
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There’s money to be made in cannabis product liability
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