Theft claims dominant in cannabis insurance industry

Expert discusses security challenges, risk mitigation, and best practices

Theft claims dominant in cannabis insurance industry


By Bethan Moorcraft

Theft is a weed that is spreading through the US cannabis industry with alarming speed. Its roots are deep and complex, spanning from casual grow operations right the way through to large commercial dispensaries. They thrive on one thing – the delicious taste of green dollar bills, an inevitable outcome to the theft and re-sale of any cannabis-related product. 

Approximately 90% of insurance claims in the US cannabis industry so far have involved an element of theft, according to Gerrit Nagarwalla (pictured), claims supervisor at Canopius Group, and panellist at Insurance Business America’s upcoming Cannabis Cover Masterclass in Denver and Los Angeles in March 2020. This observation is true across the spectrum of the industry, from minor grow operations to huge commercial cannabis enterprises, he added.

“One of the biggest trends I’ve seen within these theft claims is that many of them tend to involve some element of inside information. It might not be direct employee involvement - we haven’t yet had any claims where we’ve been able to determine that an employee was directly involved - but a lot of these thefts and the manner in which they’re completed, imply that the people involved had inside information,” Nagarwalla told Insurance Business. “They either knew exactly where to break into the building to avoid detection by motion detectors, or some other way to get around the alarm, and they just have so much information on how to get in that property that it’s got to have some element of inside info.   

“That’s a really tough thing to deal with. One of the difficulties is having definitive proof of inside involvement. A lot of what we have right now is just the surmise of our claim investigations. Another challenge is that a lot of these jobs, especially the grow operations, aren’t high dollar jobs. They’re paying people $15 or $20 an hour, and these employees are working with millions of dollars’ worth of product. At some point, they’re going to deal with employees getting ideas or telling friends about the operation.”

One tactic that can help cannabis businesses reduce the chances of employee theft is pre-employment screening. Many underwriters are requesting this of cannabis businesses because it enables them to root out anybody with prior criminal history or light-fingered tendencies. Insurers will also include strict security requirements on their policies, demanding motion detection cameras to cover all areas where cannabis product is held, as well as safe warranties to protect finished stock.

“Oftentimes, what we’ve found is that the operators of these cannabis businesses are wary of letting any third party on to their property to see their operations,” said Nagarwalla. “For example, some operators worry about letting an alarm company on to their property to set up a security system, because they would have to become intimately familiar with the operation, how it’s set up, and what the security is. The concern is that they would then share that information with criminal parties.

“What we’ve run into is a lot of operators cobbling together their own alarm systems, using home security-grade alarms that they can go and buy at Home Depot. Technically they’re compliant with the alarm warranty demanded by the insurers, but that does not satisfy the intent of the underwriters. What we want is an actual alarm system that’s centrally monitored by an alarm company or some sort of police, but they’re managing to get around that. Moving forwards, the industry has to come up with a solution that’s not too burdensome and onerous on our part, but also forces the insureds to actually be compliant and have a valid alarm that we’d be happy with.”

Preventing cannabis theft claims is one thing; adjusting them and paying them out is another. The biggest challenge, according to Nagarwalla, is staying on top of the pricing fluctuations in the market. Pricing for cannabis-related products shifts vastly from state to state, but also over time. As more states come online with recreational cannabis, and markets start to grow in capacity, the pricing is shifting.

“That’s a big strategy for us when dealing with cannabis claims, especially theft claims involving stock and raw material,” Nagarwalla commented. “Insurers and insureds need to make sure they understand the local pricing, because the claim an insured submits could be based off outdated information. This might not be intentional; they might just feel that their wholesale product is worth more than it actually is. It’s really important to stay on top of that.”  

To learn more about the complex insurance needs of the cannabis, CBD and hemp industries, register for the Cannabis Cover Masterclass in Denver on March 17 and Los Angeles on March 26.

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