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Certain exclusions that were once prevalent in cannabis insurance seem to be eroding, possibly a sign of some good news for businesses in the industry.

A group of experts gathered during Insurance Journal’s Insuring Cannabis Summit to talk about underwriting and reinsurance and the big picture trends that impact rates, availability, and terms in the insuring cannabis specialty.

The panel was hosted by Kieran J. O’Rourke, director of underwriting at Cannasure Insurance Services LLC. The panelists were Ari Chester, Kevin Maher, senior vice president of underwriting for CannGen Insurance Services, and Frank Rückert, senior vice president, North American Specialty Business, Hannover Re.

O’Rourke drove the discussion on exclusions, or the lack of so many exclusions lately, that cannabis business policyholders early on saw in their policies.

“We started out, everything was loaded up with quite a few exclusions, a lot on the casualty side of the house, and lately we’ve seen both property and casualty exclusions going by the wayside,” O’Rourke said.

Health Hazard

Rückert explained how exclusions, particularly health hazard exclusions, were needed in the market early on.

“We understand the requests from our agents, we understand that there’s pressure in the market, but we really want to stay firm here and we don’t want to open the door because, from our experience in other lines of business and in other areas, that will become the new normal in just two years,” he said.

Rückert called buying a cannabis protection without a health hazard exclusion “a commodity.”

“And then we will pay those type of claims that we had to pay in the seventies or eighties when we did not have those exclusions,” he said. “It’s probably the price that the end of the day, the end consumer has to pay that he finds a protection at all. It’s limited. And I mean compare what you have today in a policy then to what you had eight, nine years ago. I mean when we started in the cannabis business, it was almost just a blank piece of paper and you were kind of wondering, ‘OK, what is insured?’ So, I think by now it’s fair to say that there is a legitimate product that the agents with the carriers and reinsurers put out there, but at the same time, we still need to be strict on many of those exclusions because we just don’t know what’s coming yet in terms of legal disputes.”

Rates

The panelists covered a variety of topics and trends, some benefiting insureds and some not so much. Chester talked about high rates, but then offered some reason to be optimistic for those paying insurance bills.

“I would acknowledge that in cannabis, the rates are high, so the premium is relatively high, and a lot of that is explained by the supply demand balance,” Chester said. “There’s not enough supply of capacity and it is expensive, and I think it’s honestly frustrating for the insured. Now to give a benchmark, the rates for cannabis are sometimes as high as two to three times ISO, meaning for similar exposure, the rates could be two or three times as high.”

The rates have been coming down in the last few years. However, don’t expect rates to continue to come too far down.

“If the rates were much lower, we would struggle to support the class,” he said.

One reason for that is a “natural uncertainty in cannabis,” which is still considered illegal in the eyes of the federal government, and cannabis is still considered a newly emerging industry where risks and perils are still being figured out.

“Anytime you have a startup specialty class with more uncertainty, you need higher rate for compensation,” Chester said.” And the other issue is it’s a startup industry and there is a bit from the re-insurance perspective of what we call imbalance, and that’s the premium relative to the limit. So, to give an example, using math, let’s say there’s an MGA with a $2-3 million portfolio, but they’re putting out a $5 or a $10 million TIV, all it takes is one big loss to potentially wipe out the results for two or three years.”

Maher agreed.

“And I think what I will say is we don’t want to be in that position to be pushing for the lower rates,” Maher said. “I think in the positions here in that you and I are in, that’s absolutely not where we want to be. I think just unnaturally, we’ve sort of seen the competition with limited markets, limited capacity, that’s kind of driving that at times. And there is a walkaway point that it’s just you can’t be comfortable, and I can’t ask that of our carrier or reinsurance partners.”

Go Deeper

The full webinar includes in-depth information on market conditions, underwriting and reinsurance. Access it or get more information

Related:

• Summit: Insuring Cannabis Specialists Talk Trends, Risks and Coverage Challenges
• Summit: Cannabis Data A Key to Growing, Retaining Client Base

Topics Trends Personal Auto Cannabis