“What are the hardest lines of insurance to write for cannabis businesses?”
That question took Stephanie Bozzuto, co-founder of Cannabis Connect Insurance, down a long mental list.
Bozzuto has been in the insuring cannabis business for years, so she knows many of the ups and downs and ins and outs of securing insurance for cannabis operators.
“In such a tough industry, there’re so many,” Bozzuto said. “However, refining it down to the professional lines, that would be the directors and officers, the cyber, the professional E&O, those have been really tough lines.”
Bozzuto and four other experts agreed to tackle tough insuring cannabis questions distributed by Insurance Journal on social media. The other experts were Beth Medvedev, division manager at James River Insurance Co., Jason Scheurle, national product lead, cannabis for Burns & Wilcox, Alex Buschmann, national cannabis practice leader at Risk Strategies, and Carson Post, senior vice president of underwriting at QuadScore.
They were among more than 30 speakers appearing during Insuring Journal’s annual virtual Insuring Cannabis Summit on Oct. 26 and 27. The two-day event featured panels on cannabis laws and lawsuits, a panel with carriers, insuring cannabis market intelligence, and a large roundtable panel.
Bozzuto gave elaborated on the thought process behind her toughest-lines-to-write list.
“The reasoning behind it is, yes, it’s a simple submission, but they’re asking for organization charts, cap tables, financial reports. And many times it’s kind of a rabbit hole with all of the different LLCs and entities for these cannabis companies,” she said. “And to be quite honest, the financials are not as favorable as we’d like them to be many times. So, you’re seeing bankruptcy exclusions, you’re seeing extra high retentions on D&O specifically, such as a million dollars. Sometimes I’ve seen up to $2 million on retention. So yes, hypothetically easy submission process, but to really get a robust policy, you have to just jump some hoops with underwriting to make sure they feel really, really comfortable about the risk.”
Medvedev was asked how insurance professionals get into the business of insuring cannabis.
“I think the most important thing is doing a lot of research first,” Medvedev said. “Cannabis is just like any other product, but there’s so many unique things about it and the way it’s distributed. So even learning about the history of insurance and cannabis, some of the science behind the actual product is really helpful, because as more and more people get into the cannabis market, it’s obviously getting much more full. So, finding some place that there’s a gap, whether it’s coverage or particular service that you can specialize in, would be really helpful. And then I think really just understanding the particular challenges of the cannabis market and figure out a way to get around those.”
Scheurle was asked how the cannabis insurance specialty compares with other specialties he’s bee involved with.
He was previously in the special event space, which he said compares with insuring cannabis in some ways. However, the cannabis business specialty may be the tougher one to be in right now, he added.
“They are very, very different in their risk profile and underwriting processes,” he said. “Special event is fairly simple. If you have a day and a number of attendees, you’re probably okay to get an indication or a quote. Cannabis is very, very different. We’re looking at several different applications and pieces of information to even reach price indication. So, I think when you look at cannabis, the main difference from various other classes is just how difficult and tricky the underwriting can be, especially in the very beginning of the life of the policy.”
Post tackled the question: What are some of the biggest loss drivers you see in the property casualty space?
“I’d say from the property side of things, the biggest loss driver that we’ve seen are the light bulb explosions and the indoor cultivators, it’s really driven from the high intensity discharge,” he said. “The metal halide, the high pressure sodium light bulbs will get hot and explode and come down onto the trays where the plants are. It’ll damage the plants. It smolders, smoke will get all up into the HVAC systems, go into multiple grow rooms and something that simple can easily turn into millions of dollars in damages.”
Buschmann fielded a question about whether he’s passed on a cannabis business prospect. He has, and the businesses ability to pay wasn’t the biggest factor in that decision, he said.
“So let’s just say I’ve ran into a few people over the years that had a lot of money and not a lot of guidance, or goals or directions…,” he said. “And that’s just not the type of client that I’m looking for. You know, we’re looking for business plans, we’re looking for goals, we’re looking for knowledgeable people that understand what they’re getting into and have an idea of building a brand or a business with an actual strategy, not just a let’s-get-rich-quick scheme.”
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