Keeping Current, Compliant, and Competitive with Cannabis

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Keeping Current, Compliant, and Competitive with Cannabis

Phil Skaggs  
Assistant Counsel, AAIS Government Affairs, Legal & Compliance

As a modern insurance advisory organization, AAIS appreciates its role with respect to emerging markets, risks, and trends. It is our responsibility to not only be aware of potential market disruptors, but also to forecast evolving insurance needs and devise solutions for the benefit of AAIS member companies. The rising cannabis industry is no exception and AAIS is working to assist companies in their effort to stay ahead of the curve.

Regardless of continued federal prohibition, the influence of the cannabis industry is spreading far and fast. Pharmaceuticals, alcohol, tobacco, and tourism are just a handful of the industries feeling the impact of new cannabis economies. Companies that never intended to participate in the industry are finding it impossible to overlook the implications of rising cannabis supplies, consumer demand, and the abundance of newly created growth and marketing opportunities. Financial service providers, including insurers, are frequently facing the difficult question of whether their own expansion into cannabis is acceptable, and to what extent. 

AAIS understands the need for a variety of options in new and evolving markets such as cannabis. Accordingly, AAIS is developing cannabis coverage and exclusion options simultaneously to accommodate a range of risk appetites. By developing and refining cannabis products and programs now, AAIS affiliates will have the tools and resources necessary to address cannabis exposures when and how they see fit. 

CannaBOP Development

In September 2017, AAIS received a direct request from the California Department of Insurance to help support Commissioner Dave Jones’ initiative to increase insurer understanding of the cannabis market and its need for coverage options. California is not only the largest insurance market in the U.S. but, as of January 1, 2018, it is the largest combined medical and recreational cannabis market in the world. Seeing tremendous opportunity to support the CA DOI, while providing significant value and growth opportunity for our members, AAIS committed to an expedited development schedule for a standardized cannabis insurance package, complete with rules and loss costs. 

After intensive market research and deliberation, AAIS selected its popular businessowners platform as a logical starting point due to the prevalence of small-scale cannabis dispensaries, producers, and other services already operating within the state. Identifying key risks and regulations, AAIS crafted cannabis-specific policy definitions, conditions, and exclusions aimed at striking a reasonable balance between the needs of cannabis businesses and the reservations of wary insurers.

AAIS recognizes that the most critical part of any standardized cannabis policy is rates. For years, the cannabis space has been dominated by surplus lines insurers who have based their rates on arbitrary considerations and price points, often rendering comprehensive coverage beyond the budgets of smaller cannabis operations. Accordingly, the AAIS actuarial team partnered with expert actuarial consultants at Merlinos & Associates, Inc. to craft loss costs and rate modifications that are representative of the actual exposures faced by regulatory compliant canna-businesses. 

On April 20, 2018, AAIS filed the first-of-its-kind Cannabis Businessowners Policy (CannaBOP) program in California. Just six weeks later, on June 1, the program was approved for immediate use within the state. The quick turnaround is a testament to both the quality of the CannaBOP program and the incredible need for comprehensive cannabis coverage.

The approved California CannaBOP program provides commercial property and liability coverage tailored to the risks faced by small to mid-size cannabis dispensaries, storage facilities, distributors, processors, manufacturers, and other businesses that have difficulty securing traditional coverage. 

The program has been streamlined to exclude agricultural activity, cryptocurrency, animals, and similar risks deemed beyond the scope of most cannabis operations. 

The Future of Cannabis Insurance

Since the launch of CannaBOP on June 1, we have received tremendous interest and encouragement from insurers and businessowners alike. AAIS will continue to explore additional insurance solutions in the cannabis industry. In addition to CannaBOP enhancements and expansion, AAIS is also working on farm and agricultural coverage, homeowners solutions, and additional commercial liability options. And for carriers still reluctant to take the step towards cannabis coverage, AAIS also plans to file its broad multi-line cannabis items and activities exclusion on a nationwide basis later this year. 

As more and more states require cannabis coverage clarification from the insurance industry, AAIS predicts that the cannabis economy will soon reach a critical mass where ignoring the issue will be far more detrimental than any of the perceived risks of carrier acknowledgement and participation. When that day comes, AAIS will have the products, data, and experience to help member companies remain current, compliant, and competitive.