January 8, 2019 by Jason Contant
With signs of a hard insurance market in Canada, it appears that a lot of insurers are still reticent about entering the cannabis space.
“When an insurance cycle goes a little bit harder, when insurers are trying to put their houses in order, it makes underwriters cautious even about the books they know, never mind the exposures they don’t,” Andy Holmes, chief underwriting officer with CFC Underwriting, said recently. “When you’re already looking at what you got on the books, you’re not necessarily looking at the next new economy opportunity.”
That said, there is generally more comfort starting to come from insurers, even U.S. insurers who have been the most reticent so far, Holmes said. “There is more comfort emanating, but these insurers have been distracted by the fact that they’re not just not making underwriting returns right now generally. And cannabis therefore falls down their pile of things to do, to put it simplistically.”
Holmes spoke to Canadian Underwriter late last month about how CFC sees the market for cannabis insurance developing. He suggested that chief underwriting officers would probably take a cautious approach before they look at entering a new sector. “And that inherent caution that comes with any readjustment in the market will probably not be good for the cannabis sector in Canada in the short-term,” Holmes said. “Some of the Canadian insurers… have not been making underwriting returns in certain classes and that caution will come through.”
Besides the general hesitance from insurers, there could also be ethical concerns due to the fact that cannabis has a history that wasn’t legal, “so insurers’ management teams perhaps don’t want to be associated with that type of background,” Holmes said. But he noted there are other opportunities, such as hemp, which is another derivative of cannabis without the psychoactive properties that give users a “high.”
What can insurers or others in the industry do to help the industry feel more comfortable? For CFC, it starts with education and breaking down misperceptions, such as those surrounding the differences between hemp and cannabis. “We ourselves at the moment are writing a number of case studies around the cannabis space just to give our backers some more comfort,” Holmes said. For example, in Ontario, it might be more cyber claims as the product is only sold online currently, whereas in other provinces it might be more commercial general liability or errors and omissions exposures.
“It’s also making sure that insurers aren’t selling chocolate teapot policies, and what I mean by that is policies that contain exclusions that take away a lot of the exposures that the customer is looking to have covered,” Holmes said. One of the areas that would be broken down anything soon is U.S. exposures. “South of the border, it’s federally illegal and therefore for every Canadian policy that’s issued, it has to contain an absolute U.S. exclusion, which therefore limits the scope of the activities that we can cover.”