How Verisk is helping insurers tailor coverage for a growing market

January 19, 2021 / 5 min read

Call it "Reefer Madness," the sequel.

As we write this, 36 states and four territories have taken steps to legalize marijuana for medicinal uses under state law.¹ Of those, 15 states and three territories have also done so for recreational use. At the federal level, marijuana remains listed as a Schedule I drug under the federal Controlled Substances Act of 1970. Still, by the end of 2020, revenues from the cannabis market could hit $15 billion.² By 2024, that figure is projected to reach $37 billion—making cannabis a larger market than craft beer.^{3, 4} Products derived from cannabis, such as CBD oils, are also soaring, with revenues projected to hit $4.7 billion in 2020.⁵

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As a certain cannabis connoisseur once remarked, the times, they are a'changing.⁶

Some insurers may have the appetite to handle insureds with cannabis-related exposures like any other insured and therefore may use the current ISO General Liability or Commercial Property forms, subject to their terms and conditions.

However, given the relative novelty of these kinds of risks, insurers may want to take a targeted approach to this market—more eyedropper, less firehose.

To help provide this additional flexibility, Verisk is releasing several new optional cannabis-related endorsements in our ISO General Liability program alongside new classifications, advisory loss costs, and updated rule guidance. The new cannabis-specific endorsements generally build upon a foundation of previously introduced cannabis exclusion endorsements that included a broad exclusion endorsement along with limited exclusion endorsements excepting hemp and lessors risk only.

New options for a new era

Within the new suite of general liability cannabis coverage endorsements, there are options that generally allow insurers to place a sublimit on either cannabis activity as a whole or hemp specifically. Other endorsements provide the flexibility to limit coverage for cannabis exposures included in the products/completed operations hazard definition.

The cannabis coverage endorsements don't distinguish between recreational or medicinal marijuana. Instead, coverage is generally dependent on the legality of cannabis under the applicable state or local statute, regulation, or ordinance.

To illustrate just one scenario, let's use an insurer that would like to offer a specified amount of coverage for certain hemp-related CBD-based products (CBD is typically derived from hemp and has significantly lower concentrations of THC, so it's usually not intoxicating)⁷. To that end, we're adding a hemp-related optional endorsement with aggregate limits that can generally allow for coverage for losses arising from goods or products derived from or containing hemp up to a scheduled limit. To permit even more fine-tuning, we're introducing an endorsement that contains an exclusion for bodily injury or property damage included in the products/completed operations hazard that arises out of cannabis activity, but that allows exceptions for the designation of specific cannabis products or work.

Along with the new optional endorsements, we're adding ten new classifications to the General Liability Classification Section of the ISO Commercial Lines Manual. These classifications allow insurers to differentiate coverages by offering classes for hemp and hemp-derived products (such as the aforementioned CBD products) and cannabis products excluding hemp (including medicinal or recreational marijuana). We've determined premises/operations loss costs for the new classifications by mapping them to existing classifications with a similar liability exposure and making adjustments, where deemed necessary, to account for the assumed differences in risk. We're also introducing estimated loss potentials in certain classes for products/completed operations.

Keeping up with cannabis

As the legal landscape across the United States changes with respect to cannabis, ISO remains committed to monitoring this issue to help ensure our insurance policy programs remain responsive to the unique risk exposures facing businesses today—and tomorrow. Existing ISO customers can access forms filing GL-2020-OMJFR (log-in required) for additional details about the new, optional cannabis coverage endorsements, as well as the accompanying rules, loss costs, and estimated loss potentials filings. These filings have an anticipated effective date of August 1, 2021.

Future property enhancements

As a complement to existing cannabis exclusions, ISO is preparing optional cannabis coverage endorsements for various property lines of business, including commercial property and businessowners. The endorsements will address options for insuring cannabis stock as well as business income and extra expense. We anticipate submitting these filings in 2021.

To learn more about our new cannabis endorsements, please email Kathleen D'Auria at KD'Auria@verisk.com.

"State Medical Marijuana Laws," National Conference of State Legislatures,
< https://www.ncsl.org/research/health/state-medical-marijuana-laws.aspx >, accessed on December 12, 2020.
Eli McVey, "Exclusive: US retail marijuana sales on pace to rise 40% in 2020, near $37 billion by 2024," Marijuana Business Daily, June 30, 2020, < https://mjbizdaily.com/exclusive-us-retail-marijuana-sales-on-pace-to-rise-40-in-2020-near-37-billion-by-2023/ >, accessed on December 8, 2020.
McVey
"National Beer Sales & Production Data," Brewers Association, May, 2020,
< https://www.brewersassociation.org/statistics-and-data/national-beer-stats/ >, accessed on December 8, 2020.
"Navigating Seismic Shifts: July 2020 US CBD Report," BrightField Group, < https://global-uploads.webflow.com/596691afde3c5856d866ae50/5f29b0681851bc36567b2fff_US%20CBD_
July%202020%20Market_Free%20Report_Seismic%20Shifts.pdf >, accessed on December 8, 2020.
Gideon Plotnicki, "Bob Dylan Introduced the Beatles to Cannabis, on This Day in 1964," Live for Live Music, August 28, 2020,
< https://liveforlivemusic.com/news/bob-dylan-beatles-marijuana-1964/ >, accessed on December 8, 2020.
"Primer on THC Levels in Industrial Hemp Products," The Shelby Report, October 28, 2020,
< https://www.theshelbyreport.com/2020/10/28/thc-levels-industrial-hemp/ >, accessed on January 11, 2021.

How Verisk is helping insurers tailor cannabis coverage for a growing market

New options for a new era

Keeping up with cannabis

Future property enhancements