Insurance can be hard to get.
Most Americans know how hard it is to deal with insurance companies. The coverage is confusing and Americans pay more than most other countries for health insurance.But what a growing number of business owners are discovering is that insurance companies can refuse to cover a marijuana business.
Because insurance is tied to federal regulations and oversight, insurance companies are playing a game of hot potato. Nobody wants to be holding the policy when the federal government comes knocking. Most simply refuse to touch the cannabis industry on principal.
“Many insurance companies flat out do not have an appetite for any business related to cannabis,” said Brian Marblestone with the San Carlos brokerage firm Stratton Agency. But one person wants to change the insurance companies tune. California Insurance Commissioner Dave Jones recognizes the problem and has solutions.
What is Commissioner Jones’ plan?
Both consumers and business owners are at risk if there isn’t sufficient coverage. So Jones is holding a series of meetings aimed at educating major carriers. The end goal is to convince them to start insuring the multi billion-dollar cannabis industry.
Jones recognizes that there is a lot of ground to cover but hopes that the shift will happen soon. Regulators want all canna-businesses to carry at least $1 million of liability. They are even planning to deny licenses if the business doesn’t have insurance starting in January.
This is important because only some industries are required by the state to be insured. Banks and landlords can also demand insurance coverage where the state doesn’t. Jones is looking to normalize the requirements across the state so everyone can benefit.
Why demand Insurance Companies change?
Jones has been monitoring availability of insurance to the medical marijuana industry since 2011. During the last six years, he has noticed that cannabis businesses have been getting coverage almost exclusively from the surplus line market.
This includes carriers that are approved but not licensed by the state. These carriers provide coverage for companies that have been turned down by major insurers. But surplus line policies tend to be more expensive and have stricter requirements than licensed carriers.
“I’m a big believer in competition,” Jones said. “Through competition we get better pricing, better quality and more choice in products.” Part of his plan to entice competition is to offer state support to major carriers entering the market.
Not everyone is on board yet.
“Insurance companies are conservative in nature,” said Ian Stewart, an attorney with the firm Wilson Elser in Los Angeles who specializes in cannabis law. “Before entering any new market, they want to have the law of large numbers on their side, meaning they are able to study the trends and loss ratios of the different classes of business in the industry. This way they establish pricing models to rate the business according to the risk while still remaining profitable.
That kind of information simply isn’t available yet so people have had to get creative. Many times, cannabis business owners secure insurance coverage from a willing carrier. The business owner then presents proof of that coverage to their landlord, who hand it off to their own insurance company. Hopefully the efforts by Jones and others will result in better insurance for cannabis businesses.