The insurance industry is still very green when it comes to cannabis cover – and with legalization just around the corner, Canadian insurers have a huge number of hurdles to navigate.
Recreational-use cannabis has been an illegal activity for a long time. It harbours a stigma of criminality, which could create a reputational risk for insurers. This cannabis stigma has been a problem in the neighbouring US and has caused a lack of availability in cannabis coverage, according to Karen Landrum, consulting actuary at Merlinos and Associates.
“Some insurance carriers have a traditional family take on insurance and if they get into the cannabis coverage market, that family concept drifts away,” Landrum told
Insurance Business. “There’s definitely some reputational risk for insurers getting into the cannabis market. Overcoming this stigma will take time but there are also other options. You could create a sister company that’s not related to the business with the family perception, and provide coverage from a different entity altogether.”
Search and compare insurance product listings for Marijuana from specialty market providers here
Reputational risk is just one hurdle insurers and brokers might need to overcome. The major gap is the complete lack of data in the cannabis market. Insurers haven’t been collecting data because they haven’t been insuring the risks. But that will soon change.
“What we have to do in any emerging market situation is go out and look at how our understanding of cannabis risks are related to other risks that are already in the market like the tobacco industry, and use that data to guide us in benchmarking rates,” said Landrum. “It’s very much an ongoing process, and until a claim happens it remains very unknown. One of the problems is that people in the cannabis industry can sometime be sensitive to sharing their information. It’s really hard to price things appropriately if the customer purchasing the insurance policy is withholding their information.”
Insurers and brokers need to be aware of product liability and dispensary safety, according to Landrum. Not much research has been conducted into the health effects of cannabis or around the pesticides that are being used to grow the plant. This exposes a lot of product liability, “which is by nature a very low frequency but high severity” type of exposure.
“There are also issues with the locations of cannabis dispensaries,” added Landrum. “From a US perspective, they’re not always in the best parts of the city, so there is some concern that the person visiting the dispensary might be vulnerable to criminal activity because it’s in a bad part of town.”
Other challenges for the insurance industry to consider include the current inability in Canada and the US to test drivers for being under the influence of cannabis – one of the primary concerns surrounding pot legalization.
There’s also the issue of older people, who perhaps had experience with cannabis in their youth, returning to cannabis because of its legal, recreational status and then overindulging in the drug. Landrum commented: “There are definitely some cautionary tales associated with that.”
Hear more from Karen Landrum at the upcoming Cannabis Cover Masterclass, which is taking place on October 10, 2017 in Toronto at the St. Andrew’s Club & Conference Centre. The event will feature a host of leading insurance influencers from the likes of Next Wave, CUBIC Health, and HKS Strategies, bringing together key perspectives on regulation, cannabis-specific risk, business growth and how legalization could affect the insurance market. Visit cannabiscover.ca for a full list of speakers, the full agenda and to register for the event.
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