Changing insurance is time consuming and complicated for the customer and insurance broker
Throughout our history insuring cannabis companies, we’ve seen many insurance carriers enter and exit the industry. It’s the same old story presented to us enthusiastically, we have a great new program to offer your clients. Our time spent on the specifics of their program evaluating pricing, coverages, and policy forms only to result several months later the story has changed with them ending their program.
The reason is the same–cannabis is federally illegal or a recent change has spooked them in the opposite direction.
Strange, how the realization of the program they built, not one person from the insurance carrier asked themselves should we insure a Schedule 1 drug listed on the Controlled Substance Act with customers selling, distributing and manufacturing it?
If we do, what risks should we prepare for when insuring this segment. When you think about, it’s really a risk management 101 question.
When insurance carriers decide to leave the cannabis industry many times they fail to consider the consequences of their decision on the companies they insure. Those consequences include the hassle of securing a new insurance carrier, analyzing coverage differences, and understanding the differences between their former policy and new policy. To properly buy insurance is time consuming not only for the client, but the retail insurance broker representing their interests.
A professional retail insurance broker can easily spend numerous hours evaluating with their client the risk and coverages. The coverage analysis between insurance companies and their policies requires piecing together the intricate details of complicated terms to gain a understanding of potential deficiencies.
Commercial liability may have different exclusions and endorsements
No two commercial liability policies will be exactly the same. A former program offered by a insurance carrier not only offered a occurrence based Products and Completed Operations Aggregate, but extended liability with several endorsements below:
- Blanket Additional Insured When Required by Contract
- Liberalization Included
- Per Location and Per Project Aggregates Included
- Waiver of Transfer of Rights of Recover Included
Obtaining these types of coverages with a new cannabis insurance carrier will be difficult if not impossible to achieve. Once again, the customer through their insurance broker are left to deal with this problem.
Business Property may have different deductibles and coinsurance penalties
Changing to a new insurance carrier may have different coinsurance penalties and deductibles on business property coverages. Property means building, tenant improvements, grow equipment, computers, cannabis, etc….
Coinsurance is a penalty for not being insured to value on your property. A lower coinsurance percentage is better than a higher percentage because of the way the formula is calculated in the policy. If a customer is being placed with a new insurance carrier at 90%, knowing they had a 80% coinsurance clause, then the new policy will be a disadvantage.
The deductibles may be different from old to new policy. Some policies offer $1,000, while new policies may offer higher deductibles at $2,500 with special requirements for theft or hail.
Product liability can be a thorn to switch from carrier to carrier
A significant impact when a insurance carrier abandons their program is if the insured has a product liability. Why?
Depending on the type of insurance policy, the transition from claims made to occurrence based may have implications along with exclusions inside those policies that remove coverage. Occurrence is a better policy because it takes away the relevance of time not having to be recognized past or future. Claims made must recognize the past and future in order to properly indemnify the underlying risks that may be brewing.
Certain product liability insurance carriers have an exclusion for cannabis. Essentially, these policies may be worthless in our opinion. Other carriers might exclude the certain portions of a product line such as their vape pens. Both of these exclusions can have dramatic impact on how a claim may be settled. The insurance broker with their client are left
Pricing from the old to the new policy likely to be higher
The insurance carrier exiting the cannabis industry will have likely procured a substantial number of new insurance customers due to competitive pricing. We most recently saved a cannabis cultivation company a significant amount of premium changing them to a new program. They will enjoy the savings for one year with improved coverages only to be notified their policy will be non-renewed at their policy anniversary.
Most likely, their new product liability insurance policy will be more expensive. Once again, the insurance broker is forced to deliver the bad news your new insurance will be more expensive.