Cannabis Industry Product Liability Costs Soar
Cannabis businesses struggle to secure Property & Casualty insurance. High risk and lack of legal acceptance at the federal level means carriers are apprehensive to commit. Now, a first wave of lawsuits is sweeping the industry and even carriers currently in the market are tightening their grip on existing policies.
This is playing out in higher premiums and retentions, lower limits, broad exclusions and reputable carriers pulling out of the market entirely. This is a challenge for cannabis businesses trying to squeeze out a profit while growing sales. The two areas of professional insurance hit hardest are Directors & Officers (D&O) and Product Liability.
D&O policies are employed by businesses to protect directors and officers for the decisions they make on behalf of the company. Due to overvaluation of cannabis businesses that went public and poor business decisions that resulted in a reduction in earnings, shareholder and consumer lawsuits have led even large cannabis reinsurance carriers to pull out of the market. Higher rates have taken hold of the cannabis D&O market, with policies as much as 10x more with minimum premiums.
Product liability policies protect cannabis businesses when products they sell fail or hurt consumers. Numerous vaporizer batteries, cartridges, glass jars and other cannabis components typically imported from China have proven defective, causing consumers to get hurt, some even fatally. The resulting lawsuits have led already high product liability premiums to rise and carriers to re-negotiate policies even mid-term with significantly lower limits and interjecting mandatory foreign component and health hazard exclusions.
Having the right broker in a hard market can make all the difference and should help cannabis growers, retailers and distributors:
- Negotiate flat renewals. For cannabis businesses without claims, work with your broker to negotiate 3-year flat renewals with carriers, in which the premium price remains the same. Otherwise, typical 30 to 40% premium increases will apply across the board. When possible, maintaining the same coverage and price is a best-case scenario.
- Engage pre-underwriting. A competent broker will pre-inspect properties to ensure its client’s cannabis businesses are a good risk, ensuring that security and best practices for facility operations and maintenance are upheld and the property is positioned for renewal at the best price possible. This includes gathering certificates of insurance from all vendors and laborers to illustrate a reduced risk for each business, making sure businesses have the correct licensure and more.
- Telling your story. Now that insurers have limited funds allocated for cannabis businesses, it’s more important than ever to prove yours is “worthy” of a policy. Your broker should help frame your business in a good light and showcase your organization as a “good” risk to help you secure coverage at the best price. Beyond just submitting an application for insurance or renewal, your broker should “tell the story” of the cannabis business. Underwriters respond to transparency and a full understanding of how the business started, what its unique risks are and its future goals. Humanizing the cannabis business’ story leads to better and more accurate pricing and policy limits every time.
