Following the official legalization of recreational marijuana in Canada on October 17, 2018, the cannabis insurance market has been dominated by managing general agents (MGAs), particularly those backed by Lloyd’s of London. At the same time, household names in the industry have kept their distance from the marketplace due to legal and regulatory issues in other jurisdictions around the world.
“The current insurance market is taking a cautious approach to cannabis. The problem is there’s not as much data for losses on legal recreational cannabis,” said Arian Ebrahimi (pictured), managing partner at KASE Insurance, and a speaker at the upcoming Cannabis Cover masterclass in Toronto on November 06. “Now that it’s legalized, some companies are really jumping in and saying, ‘we want to be the first ones to do it,’ and they price it high and they’re really cautious with their questions.”
On the flipside, a lot of other companies simply aren’t stepping into the cannabis ring at all, and are waiting to see what happens with losses. As a result, added Ebrahimi, “Most insurance companies are not coming anywhere near cannabis.”
One issue with the cannabis marketplace is that many businesses entering the world of marijuana are start-ups, and don’t have a ton of expertise to allay insurers’ fears about the longevity of their businesses.
“A lot of companies are coming on the scene because it’s such a hot, new industry, and what I think a lot of insurers are weary of is insuring a company that doesn’t have a solid business plan or solid continuity plan,” Ebrahimi told Insurance Business. “A lot of businesses want to get into it and say, ‘let’s just start a cannabis company and let’s just get insurance,’ and insurers never want to hear about part-time businesses and they don’t typically like brand new start-up businesses. They want to see start-ups that have a good plan to grow and that are going to be around for a while because nobody does well insuring something for one year, or six months for that matter.”
Moreover, major shifts in the marketplace won’t come until more data is available, which means insurers are playing the waiting game.
“Insurers need to see data – they need to see how the claims happened,” said Ebrahimi, though he added, “It’s a major industry in Canada, so there’s no way that more insurance companies aren’t going to get into it. You’ve already seen a big change in the last six months and it’s just a matter of more information coming out, and being able to follow claims and [developing a] comfort level.”