National Flood Insurance Unavailable to Cannabis–What are my Options?

National Flood Insurance Unavailable to Cannabis–What are my Options?

If the flood wasn’t bad enough.  Collecting insurance money will be even worse.

 

The cannabis insurance industry is fraught with complexity and coverage gaps when it comes to buying insurance.  Flood insurance is another example of how difficult it is to obtain coverage. 

The National Flood Insurance Program (“NFIP”) administers the federal program to provide flood insurance covering personal and business property in the United States.  Heavy rains or over flowing rivers will destroy buildings and business property.  If you are business other than operating in the cannabis industry buying flood insurance is relatively simple.  The NFIP becomes your preferred source for flood insurance.

Flood insurance is typically purchased when a property is located in a designated flood zone.  A lender may require flood insurance as a condition of a loan.       

However, if you’re in the cannabis industry you should be aware the NFIP will not cover your building or property if insured through them.  The underwriting manual recognizes even though cannabis licensees may operate in states where it is legal it doesn’t matter.  Federal law trumps state law.    

The NFIP may not knowingly insure a building or its contents used for the manufacture or distribution of a controlled substance in violation of federal law. Doing so would directly promote, effectuate, or encourage a violation of the law, which would violate public policy and general principles of insurance.   

2020 NFIP Manual

What’s the Big Deal if I don’t disclose my marijuana business to the NFIP?

The answer isn’t good.  The NFIP will deny your claim and void the insurance policy.  Both of these are harsh consequences.  This means a cannabis building located in a flood zone could suffer a catastrophic financial loss ending their business operation. 

The bottom-line is don’t apply for flood insurance through the NFIP.        

The NFIP will not issue a policy to a person or entity that acknowledges the property to be insured is used in violation of 21 U.S.C. § 856, for example: a marijuana grower or dispensary; and the NFIP will void a policy and deny a claim where the NFIP discovers the property is likely in violation of 21 U.S.C. § 856 because it is used primarily and principally for the manufacture or distribution of a controlled substance.

2020 NFIP Claims Manual

What to do if located in a flood zone and need flood insurance?

The number of carriers offering flood insurance to cannabis companies is very limited.  But, we were able to discover one carrier with a specific cannabis flood program.  If your loan closing requires flood insurance you have an option.  The program is new and pricing seems reasonable. 

For the sake of the cannabis industry, we hope the carrier will be a reliable source into the future for flood insurance.         

Cannasure Offering “Parametric” Insurance for Cannabis Plants Grown Outdoors

Cannasure Offering “Parametric” Insurance for Cannabis Plants Grown Outdoors

What does it mean and should you buy it? 

Updated:  05-12-2021

Parametric insurance is now available to cannabis and hemp companies through Cannasure Insurance Services.  The first question one should ask themselves is what is “Parametric Insurance.”  According to the National Association of Insurance Commissioners:

The term parametric insurance describes a type of insurance contract that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of the losses in a traditional indemnity policy.

The key terms to help understand the meaning are “specific event,” “set amount,” and “magnitude of the event.”  The specific events according to  Cannasure are likely to be Hail, Drought, Excess Rain, Wildfire, Frost, Wind, Tornado, and Cyclones.  Once the threshold or “magnitude” is breached by the specific event, then the insured (“policy holder”) will have a loss or claim.  The terms and conditions will be spelled out within the insurance policy.  

Here’s an example of how a claim may be analyzed and paid to a cultivator.  A Oklahoma grower insures their crop for $1,000,000 (“set amount”).  The data indicates the location has a history of tornadoes (“specific event”).  The insurance policy determines a threshold before a payment will be made is EF-3.  If a EF-4 or EF-5 (“magnitude”) tornado which exceed an EF-3 were to destroy the crop, then the cultivator is eligible for coverage.  As you can determine from this hypothetical example, the parameters have been stated and triggered for coverage to be paid. 

Image after fire

Potential Advantages for Cannabis and Hemp Parametric Insurance

  • Coverage availability.  Particularly important to satisfy contractual obligations such as lenders and investors
  • Simplified underwriting process.
  • Payment of claims is less likely to be held up in contractual disputes.  The cannasure program indicates payments could be made in as little as three days.  This is a significance difference with traditional insurance polices as claims can take months.  
  • Because a threshold must be met, the cultivator will have an incentive to take necessary precautions to protect their plants such as sensors and warning systems.  
  • High coverage limits are available up to $100M.
  • This coverage can coincide with other traditional insurance contracts to replace certain gaps in coverage that may exist. 
  • Available for medical cannabis and hemp growers.

Potential Disadvantages for Cannabis and Hemp Parametric Insurance

  • You may experience damage and receive no payment from the insurance carrier because a parameter was not breached.  Using the example from above, a EF-3 Tornado may cause damage to your field.  This is below the contractual threshold for meeting a EF-4 and EF-5.  
  • Minimum annual premium is $15,000.  This program is likely designed for larger outdoor operations with substantial risk. 
  • Available for recreational and medical marijuana

Parametric crop insurance can help reduce risk particularly knowing certain weather events would have catastrophic consequences.  It is important for cultivators to understand their exposures meaning events that would cause damage, thresholds and finer details of the insurance policy before procuring the insurance.  

 

 

Cannabis Product Liability Policy Comparison Includes Coverage for RICO, MOLD, and Asbestos

Cannabis Product Liability Policy Comparison Includes Coverage for RICO, MOLD, and Asbestos

Cannabis Product Liability Comparison

Source Stephen Jones Twitter @CannabisBroker1

Cannabis Product Liability Policy Comparison Includes and Excludes Significant Coverage Issues

A tweet posted by a California insurance broker (Stephen Jones@CannabisBroker1) caught our attention due the level of detail being advertised from a Product Liability Policy Comparison.  The graphic provides specific contrast of possible product liability coverage due to a specific cause from six different cannabis insurance companies. 

The product liability policy comparison included insurance companies Continental Heritage, CannGen, Golden Bear, James River, Kinsale, and Conifer.  With the exception of Continental Heritage, we are aware of the remaining insurance companies offering product liability insurance to the cannabis industry. 

One Insurance Carrier Breaks Away from the Pack

Continental Heritage appears from the graphic to include coverage for claims related to Racketeer Influenced and Corrupt Organizations Act (“RICO”), Mold, Fungi, Bacteria, Asbestos, Silica, and Lead.  Furthermore, Continental Heritage includes coverage for Mental Illness, Cancer, Birth Defects, Heart Disease, Communicable Disease, Respiratory Disease, and Cannabis Intoxication.


DISCLAIMER:  PLEASE HAVE A LICENSED ATTORNEY REVIEW THE INSURANCE CONTRACTS BEFORE PROCUREMENT TO VALIDATE THE RELIANCE OF THE REPRESENTATIONS BEING MADE.  PLEASE VISIT OUR TERMS OF USE.

Outdoor Cannabis and CBD Crop Insurance Becomes Available

Outdoor Cannabis and CBD Crop Insurance Becomes Available

Insurance Company Offering Protection for Outdoor Plants

In the history of cannabis insurance there has never been a insurance company willing to offer coverage for cannabis plants growing outside.  Think about it, the chances of something going wrong due to weather or criminals seeking an easy target had scared off most insurance companies.  Indoor crop insurance has been available from approximately two companies knowing those plants are protected by four walls, video, alarms, and gated windows. 

However, the thought of offering outdoor crop insurance was unheard of until now. 

The insurance industry is conservative my nature.  The availability of outdoor crop insurance is considered a giant leap forward for both the cannabis and insurance industry.  There are many variables analyzed by actuaries attempting to quantify if a program of this nature will be viable long term.   Those variables include understanding the numerous hail storms that occur in Colorado.  That California is subjected to many wild fires.  Washington State can experience flooding and wind damage.  Knowing an insurance company analyzed these types of risk was the last frontier in cannabis insurance to be conquered. 

SecurityOf course, there are coverage limitations meaning how much the insurance carrier is willing to cover along with underwriting requirements particularly focused on the security of those living plants, water availability to combat a fire, and brush clearance surrounding the property.   These are reasonable expectations every outdoor cannabis farmer should be incorporating even if insurance wasn’t involved.

The coverage limits offered by the insurance company are more generous on cannabis (THC) as opposed to Hemp (CBD).  The reason seems to point toward the lack of regulations within CBD industry.  The types of covered losses such as fire, theft, and hail should be carefully reviewed along with specific exclusions with a licensed insurance broker specializing in the industry.      

How will the insurance carrier determine the value of my outdoor plants?

The application has a designated area to determine values based on the stage of the plant.  These stages such as seedlings, vegetative, flowering, and harvested can be insured in “layers” of coverage amounts. 

For example,  the number of flowering plants multiplied by the wholesale value will equal total plant value.  If a cannabis grower had 1,000 flowering plants valued at wholesale at $500 per plant, then the insurance coverage amount would be $500,000.  The value of seedlings is less than the value of harvested plant material. 

Knowing the wholesale value of those plants will fluctuate, it will be important for the cannabis grower to be certain their limits will sufficiently protect them from a loss. 

Need a quote for your outdoor crop insurance?

Outdoor crop insurance is now available!  For more information, please complete this online inquiry if you have interest in obtaining further information. 

 

 

 

Disclaimer:  We are not licensed in all states.  Please visit our terms of use page. The images do not represent a covered cause of loss.   

 

 

Number of Insurance Carriers Decrease by Product Type

Number of Insurance Carriers Decrease by Product Type

Cannabis Insurance Carrier Graph by Product Type

Limited Number of Cannabis Insurance Companies

If you’re wondering if there’s a lot of insurance companies serving the cannabis industry this graph may help give you a different perspective. 

The number of insurance carriers providing the primary coverages such as general liability and business property are more readily available throughout the United States.  The reason is the risks appear more predictable to the insurance industry.  As you move on the graph from left to right, the number of carriers offering a particular type of cannabis insurance will decrease dramatically. 

Less options means inability to comparison shop your insurance

Cannabis Insurance Proposal Banner

For example, the Directors & Officers, Commercial Auto, and Workers Compensation may be 2 or 3 companies serving each product segment.  The less number of carriers offering coverage is indicator the risks are not as predictable.  The limited supply of insurance companies doesn’t mean the pricing will be inflated.  It will mean the insurance buyer will not have the ability to comparison shop.  

If you’re a cannabis or hemp/cbd licensee it will be important as your shop for insurance to keep this in mind as you’re contemplating your insurance needs.

 

New Insurance Products for the Cannabis Industry

Latest Update:  Existing Insurance Carrier Expanding their Product Lines

A recent product flyer from one of our established insurance carriers expanding their product offering to the cannabis industry despite the fact other insurance carriers are leaving. 

Coverage highlights include:

  • Living Plant or Crop Insurance:  Insurance protection for your living plants from theft or fire.
  • High Limits for Cannabis Stock:  Need to protect your final product with high limits.
  • Equipment Breakdown:  The protection of valuable equipment due to a covered loss
  • Excess Liability up to $10,000,000:  Important for cannabis companies with multiple locations and numerous landlords requiring certificates of insurance.
  • Trade Show and Events Coverage:  Removes the premise only liability endorsement and provides coverage when you’re at the trade show.
  • Product Liability:  Adds coverage for your product being sold into the stream of commerce
  • Professional Liability:  Concern with providing advice to others that may be erroneous or negligent.
  • Hired and Non-Owned Auto Liability:  Insurance protection from when your employees are driving their own vehicles for company business.  Example would be those employees visiting customer who end up in a accident.  How is your business protected from the lawsuit by the third party? 

Insurance Carrier Product Update Sheet

List of Insurance Products for Marijuana Companies