Cannabis cover availability expected to rise

The availability of cannabis insurance will likely rise after the budding industry becomes better established, the CEO of Toronto-based commercial brokerage Aligned Insurance said.

“It’s predominantly MGAs that are underwriting (cannabis-related risk) currently and the traditional, large insurers haven’t gone aggressively into the market — if at all,” said Andrew Clark.

“But like with other products, I expect over time that it will start to change and capacity increases as the industry becomes better understood and the risk can be modeled.”

He said now that edible cannabis regulations are in effect, even more business is expected in the cannabis sector.

He said many existing licence holders already have a strategy to sell different forms of cannabis but new entrants might crop up because cannabis buyers have indicated that they want to eat the substance rather than smoke it.

“A lot of existing licence holders…have been preparing aggressively for (edible sales) and have products they will try to launch quickly,” Mr. Clark said.

“We expect some new entrants into the market and an advent of smaller players in various different capacity that specialize in certain types of edibles.”

“And it’s accepted that 60-70% of the recreation market will be consumed through (edibles) so it is going to be the majority of the marketplace and that will attract more business.”

Aligned Insurance has been in the medical cannabis insurance space since the brokerage was established in 2014, which was years prior to recreational cannabis legalization.

Mr. Clark said what the brokerage has learned about the cannabis space prior to legalization has brought clarity and understanding around the scope of the product, which is often different from typical commercial insurance products.

“In some cases cannabis insurance products are more restrictive,” he said. “We do a lot of d&o insurance across all industries and we are seeing terms and conditions, and exclusions that aren’t typical.”

He said, for example, d&o insurance for cannabis sector companies is often materially more expensive.

“That is mainly driven by the lack of claims history,” Mr. Clark said. “There are a limited number of insurers offering this type of insurance and that creates pressures.”

But the price disparity doesn’t seem to be impacting buying habits, he added.

“Comparing to traditional retail of consumer goods the insurance is more expensive but it is a completely different industry and there aren’t many buyers that are surprised,” Mr. Clark said.

And when it comes to seeking out appropriate coverage for clients, cannabis-related stigma isn’t an issue, he added.

“These businesses have certain risks and our customers are looking for ways to manage it,” Mr. Clark said. “Cannabis insurance buyers are not any different from other business owners, they have broad spectrum of knowledge and understanding of the insurance-buying process, these are sophisticated and savvy people.”

Although some understand more than others, he added.

“There is a real opportunity for insurance brokers to educate and inform people about the realities of commercial insurance and that is something we are excited about.”

Jeff McCann, CEO of Vancouver-based insurance technology startup Apollo Insurance Solutions, said the pace of change in the cannabis marketplace will likely accelerate now that products will be made available in edible form.

That, he said, will provide the insurance industry with more opportunities to educate customers about the need for proper coverage.

Edible cannabis regulations came into effect Oct. 17, one year to the day after the legalization of recreational cannabis.

Mr. McCann told Thompson’s that having edible cannabis products on the market will increase the need for risk transfer solutions.

And that is where education comes in, because insurance isn’t necessarily on the minds of the average cannabis retailer, he said.

“The average entrepreneur isn’t thinking about insurance, they are thinking about creating a cool new product or how to get their brand out there,” Mr. McCann said.

And edible products create a plethora of new insurance needs, he added. “There are huge insurance implications to the edible market,” Mr. McCann said. “The supply chains are more complicated and many more industries are going to be impacted.”

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