Over the past 50 years, insurance policies have gone from luxury to a requirement for most industries as part of the government’s initiative to minimize economic risk factors. While there have been roadblocks along the way, most industries have had the time to properly integrate the process of acquiring the necessary policies to make it streamlined and routine.
For newer industries like legal cannabis, however, business owners face immense difficulties in finding insurers willing to cover them and determining what policies are necessary. Once they have the necessary coverage, they face further challenges in remaining compliant with the onerous considerations insurers place on them over and above their more established peers.
Despite these difficulties, properly insuring your cannabis business is an integral part of your overall financial security, as Chris Eggers of CCSS explains in Chapter 17 of his book Securing Cannabis: A Comprehensive Guide To Increase Security, Reduce Costs, Reduce Liability, and Avoid Landmines. The makeup of your security system will often depend on the considerations listed by your various insurance policies.
The chapter begins by listing and breaking down the various types of insurance policies that a licensed cannabis operator (LCO) may need, depending on the nature of their operation. These include:
- General Liability Insurance
- Product Liability Insurance
- Property Insurance
- Crop Insurance
- Equipment Breakdown Insurance
- Professional Liability/E&O Insurance
- Business Interruption Insurance
- Cyber Liability Insurance
- Employment Practices Liability Insurance
- Umbrella/Excess Insurance
- Vehicle/Auto Insurance
- Workers’ Compensation Insurance
- Directors And Officers Liability Insurance
- Crime Insurance/Fidelity Bonds
This is a hefty list, and for good reason: legal cannabis is unfortunately considered a very high-risk industry for insurance underwriters to cover. While there are many underlying reasons for this situation, the main takeaway is that there is a long list of items that need to be insured and a short list of insurers willing to take on that risk.
This high-risk status has two important consequences for LCOs. First, premiums for policies will be much higher than for other industries, and second, policy considerations are intricate and strictly enforced.
“Considerations” include carve-outs, limitations, exceptions, exclusions, special requirements, and “gotchas” in an insurance policy. Often, these pertain specifically to the security system, providing a list of rules, required elements, and even individual items like the type of security doors you can use.
This has led many LCOs to submit claims, confident that their policy would cover a security incident, only to find the claims rejected due to a minor element of their security system being non-compliant with the policy. Another contributing factor is the major insurers’ lack of standardized risk assessment and loss control inspections for the industry, leading many LCOs to be under- or uninsured.
The chapter describes potential solutions for the many issues LCOs have with insurers, including using alternative risk transfer methods like captive insurance. Captive insurance companies are subsidiaries of a parent company created to insure the parent’s specific risks, which can help alleviate the issues an LCO finds working with typical underwriters.
When it comes to high-risk industries like cannabis, the complexity of the considerations can be debilitating. Specialized security contractors like CCSS can interpret your policy, help you design a security system that is fully compliant with its security considerations, and even help determine where you may be underinsured.
The chapter ends with a comprehensive checklist for protecting your business from catastrophic losses and insurance claim rejections. To gain access to this checklist, as well as every other piece of information you need to create an effective and compliant security system, we recommend checking out the full book. Securing Cannabis: A Comprehensive Guide To Increase Security, Reduce Costs, Reduce Liability, and Avoid Landmines is now available here!
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