By Mary Byrnes, AAI-M, AU, Education Department
This week it seems that we've been inundated with info on the coverage and exposures associated with marijuana, hemp, CBD, etc. Today I heard this industry described as a Natural Emerging Risk and could reach sales in the $100 billions in the next decade. There's an interesting article by Ryan Smith in Insurance Business America that illustrates the impact that this will have on the industry. It's really a fascinating topic.
Will this become something that NY agencies will see in the future? If it is, there are many things that we can learn from the states that have currently have legalized recreational use of marijuana.
Geographic and Legal Issues
- Laws apply state by state
- Legality of an operation is contingent on the compliance with the laws in the state that they operate, travel with product to etc.
- Underwriting will have a unique focus on how the insured is complying with the laws of their states of operation. Underwriters may ask simple questions on some states and many questions on other states dependent upon the degree of the law requirements on the business owner.
- In other states many agents have found that their insureds look to them for guidance in not only insurance but also for direction in the financial portion of their businesses. Financing for their operations can be hard to find both due to the business that they are in and that many of them are new ventures.
- There are attorneys that specialize in assisting business owners in this field.
- Currently, generally all of the marijuana affiliated businesses are written in the E&S market.
- Forms used are not necessarily standardized. The carrier might use some of the core forms are ISO or similar language. But there are forms applied that deal specifically with the treatment of the product or exposures will be totally different.
- There are brokers that deal only in the marijuana industry. They know that there are both agents who have not previously worked on this type of account and that many of the insureds have not previously purchased commercial insurance.
Actuarial & Rates:
- This is truly an emerging market.
- There is no historical data to base rates or forms on, it is only recently that these enterprises have become legal.
- Actuarial firms, at the request of E&S carriers, are developing rates and forms based on “like type" information such as the liquor, pharmaceutical, tobacco industries, and so on.
- Dependent upon what the carrier has requested and the different actuarial firms available, there could be many variances between carriers in rates and forms.
- Due to the rapidity of change in the marijuana legal landscape, so many differences in state laws and changes that are occurring in them, interpretation of coverage forms, the accumulation of claim data over time, rates and forms will go through many changes.
- These types of operations are going to be varied by size, type, and scope.
- Run from extremely sophisticated to the opposite.
- Will run the gamut from direct involvement with the product (growers, wholesalers, retailers, transporters, etc.) to ancillary services (suppliers of equipment, security services, legal, financial, landlords, private equity firms, doctors, IT consultants, and the like)
- Plant touching vs. non-plant touching is a great way to break them down.
- Usual coverages that you would provide for any business operation (Property, GL, Inland Marine including transportation exposures, Crime, Auto, Management Liability for the larger operations, and the list goes on).
- Particular attention will need to be paid to coverages that won't fit the standard market like flood for coverage of the product, crop insurance which is still developing for hemp let alone for marijuana, terrorism, product coverage, product recall, and probably more than I can think of.
- Product delivery method (smoking, vaping, creams or ointments, edibles and so on) will need to be considered from a product liability standpoint.
- Testing methods for product standardization will likely be a huge consideration.
Law Enforcement Considerations:
- Typical testing in the case of auto accidents is hair, blood testing etc.
- States that have either legalized or decriminalized the use of marijuana for recreational use have experienced exponential increases in auto accidents due to driving under the influence.
- Coming to market is breathalyzer for marijuana usage that can be done within about 10 minutes that can detect any method of delivery into the person's system.
This would be a great time to have a crystal ball to see what will happen in New York. If it comes to pass, there is no question that agents will be requested to provide quotes &/or coverage on some of these operations. It's also not unlikely that you may see underwriters asking about any marijuana product handling affiliation on risks that are submitted to them. This is a quickly evolving industry based on the laws of each state. There is more and more information available every day. This is a topic that is so interesting. I'm sure that you'll be seeing more to come in the future and if NYS makes any moves on this legislative, hold on to your hats, it's only going to get more interesting.
If you have anything from an insurance standpoint that you'd like to pass on, I'd love to hear about it.