It may not come as much of a surprise to those who know about insurance and cannabis that the business is written mostly by the surplus lines market. Just how much is written there vs. the admitted market? Estimates range from well far north of 50% to 90% or better.
But the real news peg here is this: the surplus market is hardening, so those hoping to see premiums go down likely won’t be getting their wish any time soon.
For our latest podcast, we sought out two experts on the surplus lines industry – one focused on the biggest state for cannabis sales, California, and we asked the other to talk about surplus lines and cannabis from a national perspective.
Following are takeaways from that conversation.
“I would estimate that 90 to 95% of property/casualty premiums are currently placed in the surplus lines market,” said John Deneen, vice president at Amwins Brokerage. “There’s only a couple admitted carriers running cannabis operations, and only in a handful of states. So really, the vast majority of placements are in the E&S space, and I expect will continue to be.”
According to Ben McKay, CEO and executive director of the Surplus Line Association of California, since March 2020 monthly surplus lines transactions related to cannabis in California experienced a roughly 58% increase.
More importantly, since March 2020 surplus lines in the cannabis space have experienced a 72% increase in premium, according to the SLA-Cal’s figures.
From an insurance perspective, insurers are getting more premium for the same risk coverage, and from an insured perspective, they’re paying more for the same coverage during that period.
“This is what we typically refer to as a hardening market or hardening market segment, because not all segments necessarily harden at the same time,” McKay said.
In simplified terms, there was a downside to cannabis businesses being declared essential during the pandemic. The industry wasn’t hurt by the global economic downturn, in fact more cannabis was sold. Subsequently, those businesses grew in size and number and required more insurance. Capacity, especially where cannabis is concerned, was already tight, so the market has naturally hardened.
Deneen also discussed innovations and new developments that is seeing emerge in the cannabis industry that surplus lines will need to step in and cover.
“Home delivery is one, where we have seen some markets like California, where home delivery has been a thing for some time, but in most states, that hasn’t been available until just recently, and that was really spurred on by the pandemic, and state programs need to adapt to that,” Deneen said. “Onsite consumption is another area where I see it’s just going to require a nimble approach, because there hasn’t been a case law in the onsite cannabis consumption, like there have been in liquor liability. So, if you look at liquor liability, there’s 80 to 90 years of experience in case law, that carriers can draw on in developing their approaches.”
Lack of availability in the admitted market is not the only reason cannabis businesses are buying polices from the surplus lines industry. The surplus lines industry also offers things like knowledge, experience and specialized expertise.
“I think the surplus lines industry built cannabis expertise early on,” McKay said. “I think the admitted market knew that this was a space in which they wouldn’t be able to operate for various reasons, including banking regulations, reasons including there was no loss history for them.”
He added: “Now, I think there’s certainly a lack of coverage in certain areas or a lack of affordable coverage in certain areas. But I think the surplus lines marketplace has done a good job of coming in and literally trying very hard to understand the cannabis industry. And that’s why you’re seeing so many policies placed in that market.”
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