It may not come as a surprise to those familiar with insurance and cannabis that the business is largely written by the surplus insurance market. How much is written there compared to the approved market? Estimates range from far north of 50% to 90% or better.
But the real news here is: the surplus market is hardening, so those hoping for falling premiums are unlikely to grant their wish anytime soon.
For our latest podcast, we looked for two experts in the surplus pipeline industry – one focused on the largest state for cannabis sales, California, and we asked the other to speak about surplus pipes and cannabis from a national perspective.
Below you will find insights from this conversation.
“I would estimate that 90 to 95% of property / casualty premiums are currently placed in the surplus insurance market,” said John Deneen, vice president and practice manager of the cannabis industry at Amwins. “There are only a few licensed carriers doing cannabis operations, and only in a handful of states. The vast majority of placements are therefore in the E&S sector, and I assume that this will continue to be the case. “
According to Ben McKay, CEO and Executive Director of the Surplus Line Association of California, monthly surplus line transactions related to cannabis in California have seen an increase of around 58% since March 2020.
More importantly, the surplus lines in cannabis have seen a premium increase of 72% since March 2020, according to the SLA-Cal figures.
From an actuarial point of view, insurers receive more premium for the same risk cover and from an insured point of view they pay more for the same cover over this period.
“This is what we usually refer to as the hardening market or the hardening market segment, as not all segments necessarily harden at the same time,” McKay said.
Put simply, there was a downside to having cannabis companies declared indispensable during the pandemic. The industry was not affected by the global economic downturn, in fact more cannabis was sold. As a result, these companies grew in size and number and required more insurance. Capacities, especially for cannabis, were already tight, so the market naturally hardened.
Deneen also spoke about innovations and new developments that are emerging in the cannabis industry that need to cover excess lines.
“Home delivery is one that we’ve seen some markets like California where home delivery has been a thing for a while, but most states have only recently been able to do that and have really been driven by the pandemic. “And government programs need to adapt,” Deneen said. “On-site use is another area that I believe only requires a nimble approach, as there was no local cannabis use jurisdiction as there was with alcohol liability. So if you look at alcohol liability, there are 80 to 90 years of jurisdiction experience that shippers can draw on in developing their approaches. “
The lack of availability in the approved market isn’t the only reason cannabis companies buy policies from the surplus line industry. The surplus pipeline industry also offers things like knowledge, experience and expertise.
“I think the surplus line industry built cannabis expertise early on,” McKay said. “I think the admitted market knew this was a space they couldn’t operate in for a number of reasons including banking regulations, one of which was because there was no loss history for them.”
He added, “Now I think that there is certainly a lack of coverage in certain areas or that there is a lack of affordable coverage in certain areas. But I think the surplus lines market did a good job and literally went out of their way to understand the cannabis industry. And that’s why so many policies are placed in this market. “
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