Editor’s note: This part of a series of profiles on cannabis brokers, in which Insurance Journal explores why and how these folks got into the business, the ups and downs of insuring cannabis, as well as a few tips for those interested in a little professional development.
David M. Kennedy’s trip into the insuring cannabis space was a blend of following tradition and being innovative.
Kennedy, founder and CEO of Purple Risk Insurance Services, started his journey in insurance during college in 1997 as a summer intern at global brokerage Sedgwick Group, where he followed in the footsteps of his father, Geoffrey Kennedy, who spent the majority of his 30-plus-year career at Sedgwick.
Kennedy joined Marsh full time in Boston after graduating from the University of Vermont in 1999, then soon after he tried to break out of his family’s career mold – his brother, also named Geoff Kennedy, is with Marsh – by changing paths and attending law school.
Upon graduating from University of California, Hastings College of the Law in 2003, he went into law for about eight years as an insurance coverage attorney and litigator representing specialty carriers, then later returned to the insurance industry in 2012 in a claims professional/counsel role at Lexington Insurance Co. He was promoted in 2014 to lead product development at Lexington.
In 2019 he launched his own retail insurance brokerage, Purple Risk, focusing exclusively on the cannabis industry.
Kennedy spoke with Insurance Journal about his experience as a cannabis broker.
Insurance Journal: Why did you get in the cannabis and insurance space?
Kennedy: I first started researching the cannabis space as a business opportunity in 2013-14 while participating in an AIG/Lexington Insurance Innovation Bootcamp program. I became increasingly intrigued by the cannabis industry’s growth potential and the sector’s critical need for specialty insurance solutions.
While leading Lexington’s product development team, we explored the possibility of launching an E&S cannabis insurance program at Lexington. But AIG, like many large carriers, was not comfortable with entering the cannabis market primarily because of the federal position on marijuana.
After leaving Lexington in 2019, I combined my passion for innovation and an entrepreneurial mindset to take the leap into starting my own retail insurance brokerage specializing on the now rapidly emerging and constantly evolving cannabis industry.
Insurance Journal: Has this been a good financial decision so far?
Kennedy: My experience is, perhaps, different from many of the brokers featured in these Cannabis Broker Spotlight segments since I launched and built a new retail insurance brokerage from the ground up starting in the 2018 timeframe.
I have faced many of the challenges of a new business startup, while also navigating the intricacies of the cannabis insurance market and, of course, the significant disruptions caused by the COVID-19 pandemic over the last year.That said, we are slowly and steadily growing the Purple Risk brand and take enormous pride in serving as our clients’ most trusted advisor—not merely as a broker/agent—and counseling them on all aspects of compliance and risk management to better protect their businesses and reduce their total cost of risk.
Given the projected growth trajectory of the cannabis industry, the financial benefits should, in time, follow as we grow Purple Risk along with our client base.
Insurance Journal: What’s the hardest thing about the cannabis industry to deal with?
Kennedy: Some of the most challenging aspects about the cannabis industry and, in turn, the cannabis insurance market, are the same traits that have drawn me to the space: the unique state regulated markets emerging from decades of prohibition; the constantly evolving cannabis and hemp laws and regulations; the emerging exposures and shifting risk profiles; the dearth of coverage options and limited markets, among other challenges, all make the cannabis industry particularly intriguing and well-suited for a broker and attorney like me with a background in insurance coverage law and E&S product innovation.
In short, it is those challenges themselves of the industry itself that make it so exciting and varied for me; of course, there are difficulties navigating in the cannabis insurance space: from diminished insurance limits, to shallow, or even no, coverage options for some exposures, to inflated premiums for products like directors and officers liability insurance or commercial auto; and increasingly restrictive safeguards and exclusionary policy language across all lines of coverage.
Insurance Journal: What insurance product is the most difficult to obtain for your cannabis industry clients? Why?
Other brokers featured in these Cannabis Broker Spotlight segments have addressed the difficulty obtaining certain insurance products for industry clients, including D&O liability, workers’ compensation, and cyber liability, that only have a handful of markets, to property capacity, since most carriers continue to avoid cannabis risks due to federal illegality. We have faced similar challenges at Purple Risk.
As noted recently by Insurance Journal, industry insiders predict we are not going to see significant increase in capacity over the next twelve months, and at Purple Risk we are similarly seeing carriers seek 15% to 20% rate increases on no loss account renewals.
With an outlook for a choppy 2021 cannabis insurance market, it is important to closely review your coverage options, especially on renewals, as the markets and carrier appetite vary significantly in the constantly evolving and fluid landscape.
Insurance Journal: What two or three tips do you have for brokers entering the business of insuring cannabis?
Education, specialization, and differentiation.
Learning the intricacies of the cannabis insurance market is critical to succeeding—and excelling—in this space. Take every opportunity to educate yourself about the state-specific laws and regulations governing the industry, pending legislation, carrier participants, product offerings and, of course, studying the highly bespoke forms themselves, among other areas, to help protect your brokerage from an E&O standpoint and better position you to advise your clients.
If you are entering the space, commit to specializing in the industry and becoming a subject matter expert; and seek out partnerships with industry leaders to better serve your clients. Purple Risk is an appointed broker with the National Cannabis Risk Management Association and we have partnered with several industry experts in the fields of law, compliance, banking, and marketing, among other areas.
Finally, what is your value proposition? Ask yourself what is your agency’s differentiator since, as brokers, we are largely sourcing products from the same small pool of cannabis insurance markets.
My background is as an insurance coverage attorney; I’m not aware of other licensed attorneys that have transitioned to cannabis insurance brokers. That professional background gives me a unique lens and level of expertise to better serve our clients’ risk management needs and differentiate Purple Risk’s services and value proposition.
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