“There’s scepticism that claims will be paid since cannabis-related business—
even within a legalised state for medical, recreational, or any purpose—
is still a violation of federal law.”
Amye King, Emerald Risk Solutions
“The needed coverages run the gamut: general liability, product
liability and recall, property, crop, cargo, commercial auto, management
liability, cyber risk, workers’ compensation—you name it,” he says.
King says that new risk and exposures are revealed to her daily.
“As cannabis businesses grow and offer new services to this
industry, we are learning of the unique situations and risks that we
are asked to cover,” she says.
“For example, how do you insure a driver who delivers medical
marijuana? Like a pizza store, dispensaries have fleets of drivers
who will bring your cannabis prescription to your door. These drivers
obviously transport some cash as well as a product that may or may
not be covered while in transit.”
The most progress
California has made significant strides towards meeting the insurance
needs of legal cannabis-related businesses.
In the last year, the California Department of Insurance has approved
Golden Bear, Continental Heritage, California Mutual Insurance
Company, and the American Association of Insurance Services
(AAIS), to write insurance products and programmes, according to
Camille Dixon, director at the department.
“More insurance companies have filed products to be approved
by the California Department of Insurance and we will make those
announcements at a later date,” notes Dixon.
The offering of admitted products to the cannabis industry by
insurance companies has been limited to California, although Dixon
thinks this will change over time, as other states start to take notice.
“I would say the biggest challenge is the lack of data, which will
be addressed through the passage of time. In terms of trends, we
are seeing more insurers that are interested in offering insurance
products to the cannabis industry—that’s a good thing,” she adds.
AAIS has filed a business owners’ programme, CannaBOP, a firstof
its-kind insurance policy tailored to the exposures of businesses in
the cannabis industry.
Greg Fanoe, consulting actuary, Merlinos & Associates, suggests this may
provide the admitted market with a standard set of rates, rules and forms
for purchase—some much-needed standardised business practices.
“Similar progress is seen in other states, although across all states
the majority of risks (to our knowledge) are still written on an excess
and surplus lines basis,” says Fanoe.
“Different regulations by state make coverage/pricing comparisons
by their nature inexact. As the market continues to grow countrywide,
I expect more insurers to be getting into this space.”
King says she has been discussing cannabis captives with
department of insurance leaders in a few states, and they have been
receptive to a captive solution for their state-legal businesses.
“Most insurers understand how a captive can benefit cannabis or
non-related cannabis businesses and they have been excited that
a solution exists to help mitigate risks that the commercial insurers
aren’t willing to work with just yet,” King explains.
The main barrier that keeps cannabis captives from taking off is that
marijuana is still illegal under federal law.
“Federal law in this area is a concern and any captive solution
should be developed in conjunction with a qualified attorney,”
Holahan says the risk of a captive being prosecuted at a federal
level is hard to assess, but appears to be low at this juncture.
“The US Department of Justice recently stated it is focusing
its enforcement efforts on other drugs, such as opioids and
methamphetamine, which is as it should be,” he explains.
“That said, a captive writing cannabis risks needs to be certain to
follow guidelines issued by the US Treasury Department’s Financial
Crimes Enforcement Center.”
These guidelines require financial institutions, including insurers,
to conduct due diligence on their customers involved in the cannabis
Holahan continues: “In the case of a group captive, this would
involve taking steps to be certain insureds are properly licensed and
have reasonable controls in place to ensure their businesses are
operated in accordance with state law.
“In other words, a group captive needs to be certain its insureds are
legitimate, state-legal cannabis businesses.”
12 US Captive 2018 www.captiveinternational.com