The current state of the cannabis market, which is continuing to expand but remains underserved by commercial insurance, may provide tcaptive insurers with an opportunity to thrive.
The wave of legalisation of cannabis across the US, both for medical and recreational use, has led to significant growth in the market with legal cannabis sales reaching an estimated $9.7 billion in 2017, and that market is expected to continue to grow.
By 2021, the international market is predicted to be worth $31.4 billion.
Despite its size, there is a lack of capacity for cannabis businesses in the commercial insurance market, and where coverage is available it is often very expensive and contains policies with exclusions that limit the value of cover or restrict how much can be covered under the policy.
This is partially due to the new and unique set of risks in the industry, such as outdoor crop protection, cyber risks and weather-related issues, but primarily it is due to the continued federal prohibition of cannabis in the US.
Joe Holahan, attorney at Morris, Manning, and Martin, said the unique set of risks and lack of commercial coverage makes the cannabis industry perfectly suited to captives.
Holahan explained: “The cannabis industry fits the profile of an industry that captive really was designed to serve.”
Amye King, national sales director at Emerald Risk Solutions, suggested captives represent “a great business solution” for the cannabis industry.
King expanded: “Its tailored to assist with the business's insurance expenses and can cover gaps or exclusions in current insurance policies.”
Attitudes are beginning to change and with the drug shifting more into the mainstream it appears the insurance industry is becoming more—to captive solutions.
Holahan said: “More and more, state regulators are starting to entertain proposals to form captives that would write cannabis risks.”
“When I talk to regulators I’ve noticed a distinct shift over the last year as this becomes more mainstream they’re starting consider reasonable proposals.”
Check out this feature in the latest issue of Captive Insurance Times, which is available now.
