Cannabis risk cover expected to blossom

THE INTRODUCTION of edibles to the legal cannabis market this fall is expected to expand the sector significantly — leading to more risk exposure and more interest from insurers.

Allison Sinha, senior underwriter for specialty risks at managing general agency Burns and Wilcox Canada, said legalized edible cannabis will change the exposure of licensed producers because edibles will be infused in a variety of products ranging from topical creams to beverages.

And that will increase general liability and product recall risks.

“When you are selling cannabis as its own individual ingredient it’s very homogenous, it’s one item and not mixing with anything else,” she said. “When edibles are introduced you are perhaps mixing it into a gummy bear or topical cream and once you start mixing it with other ingredients, that’s where exposures change.”

She said the ingredient in which the cannabis is mixed is purchased from third-party manufacturers, creating a higher risk for product recall and greater liability.

“Although the insurer would do their due diligence to make sure those manufacturers are reputable, if there is something wrong with a product and you mix in cannabis that creates a huge exposure — not only for your brand but for consumers as well.”

Jeff Somerville, president of Toronto-based managing general agent SUM Insurance, said edible cannabis should be a boon for the insurance industry.

“This is a great business opportunity for clients to expand to a new audience and a lot of doors will open with these expanded products.

“We ought to enjoy this with them as risk transfer partners.”

He said legalization of edibles will lead to more products on the market and ancillary services will also increase the need for insurance coverages.

“From the industry’s perspective this is a welcome expansion of a product suite,” he said. “There is more investment in food production, integration to build supply chain and buying assets to process and package edibles.”

He said that even though the government has done a thorough job with regulations, there are still unknowns.

“We don’t know what social ills may arise,” Mr. Somerville said.

“Insurers have been comfortable with the regime the government has imposed on the fledgling industry but it’s still a bit of a social experiment.”

Therefore, he said, it may take some time for standard insurers to pick up more cannabis risk.

In the meantime, specialty underwriters are enjoying their leading position for placing the risk, said Bob Bousfield, SUM’s VP and property practice leader.

He noted that the government has being very cautious with cannabis regulation  — for edibles in particular — and that should ease underwriters’ concerns.

The federal government released regulation amendments for the legalization of edible cannabis last month.

Kevin Lea, president of Calgary-based insurance brokerage Fuse Insurance, said that even though the amendments will take effect in October, products likely won’t be available until later in the year or early 2020.

“There has been significant insurance interest in the cannabis industry,” he said.

“And there is significant economic investment by bringing edibles and other consumable products into the fold that will continue to allow the industry to grow and expand.”

Cannabis insurance is one of Fuse’s specialty lines and Mr. Lea said business has been booming.

“Overall, we couldn’t be any happier to be in the sector,” he said.

“In Western Canada, the market is growing — not just in retail but also production and affiliated industries, equipment, consulting, security and all other things that go into supporting the industry.”

He said the vast majority of p&c insurers do not underwrite cannabis risk but those that do are covering buildings and property, cargo, product liability and recall, d&o liability and other areas.

Mr. Lea said that with the expansion into edibles, new economic interest will likely increase interest in insuring the sector.

He said examples south of the border suggest that the public’s interest in cannabis will increase substantially when edibles become available.

“The most recent statistics out of Colorado (where edibles and other forms of cannabis have been legal for several years) show that edible and consumable products, including oils and capsules, make up 60% of the market place,” Mr. Lea said.

“So there is a very strong demand and preference by consumers for edible products.”

He said consumers seem to prefer edible cannabis because dosage is more controllable and many people do not like smoking.

“We know that the edibles market will be significant not just through the U.S. experience but also by looking at who is in the cannabis sector.”

For example, he said, Constellation Brands, owner of the Corona beer brand, is the largest shareholder of Canopy, Canada’s largest cannabis company.

And he noted that cannabis will not just be added in beverages, as the new regulations will allow edibles such as cookies and candies and also topical products such as creams and oils.

Mr. Lea said it is this wide variety of applications that has led to significant interest in the market.

But while the interest is there, insurance growth in the sector has been hampered by bureaucracy and hard market conditions in the p&c market.

“The cannabis market has grown slower due to regulatory challenges, slowness of Health Canada to approve licensing practices, and the Ontario government upheaval of private retail,” he said.

“It is one of the most challenging classes of business to place and because the Canadian commercial p&c marketplace has been a hard market, that caution has extended to cannabis.”

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