Insurance: Horror Story or Security Blanket?

You are now a licensed producer.  Fantastic!  You’ve signed a lease, but the landlord refuses to give you access until you’ve secured commercial insurance for your business. 

You speak with your home insurance broker, but none of their insurers are willing to insure your business because it’s cannabis-related. 

You reach out to your business colleagues, and they all have horror stories about how their policies have been cancelled because their insurer found out they too were operating a legal production facility.  The ones that do secure insurance tell you how it’s expensive, and the deductibles are high.  Even worse, they have insurance, but suffer a loss and their claim is denied.

These complaints are real issues that can make or break your business, but with a little insight and planning insurance can be the security blanket you need it to be.

The present insurer discovers your licensed production operation after they have already agreed to insured you.  As a result, they immediately send you a cancellation notice.

Plan! Before rushing to out to rent a warehouse or buying your hydroponics equipment, discuss your plans with an insurance broker ahead of time. Let them know your intentions on becoming a licensed producer, and discuss the timeline when your operations will commence. 

Most insurers do not insure cannabis-related businesses, but like O2 Insurance Services, there are a specialty markets that do.  Not only will the right broker marry you with these specialty insurers, but they will also ensure the policy addresses the unique challenges you face as a producer. 

Finally, by planning ahead, you give yourself the opportunity to secure the best terms available. 

The cost of insurance and the deductibles are too high.

Like any other business owner, you are prepared to take on risks.  Insurance companies allow you to mitigate those financial risks.  Although you may be paying higher premium to be with a cannabis friendly insurer, you can rest assured that you won’t be denied coverage when you need it most.

While the premiums and by extension, the deductible may seem high, they are still a fraction of what you could potentially lose in a catastrophic loss. 

For example, a client who owned a medical clinic was trying to save money by eliminating various coverages from their policy.  They had asked to delete the Sewer Back-Up coverage which would have saved them $50 annually.  Fortunately, they decided to continue purchasing the coverage.  Six months later, a toilet backed up when their drains became overwhelmed due to heavy rains, and their entire office was covered in raw sewage. 

Not only did the insurer pay for the clean-up costs, they also covered the cost to: a) repair their tenant improvements, b) replace furniture and computers, and c) set up a temporary clinic at a nearby location.  When the dust settled, the total amount paid by the insurance company was roughly $90,000, and they didn’t lose any income over the incident.  None of this would have been possible if they decided to save the $50, but eliminating the sewer back-up coverage.

Insurance companies look for ways to deny claims.

Traditionally the adjusters try their best to ensure a client has coverage.  It’s not their mandate to deny a claim; they will work with you, your broker, and the insurer to find a reasonable solution when a loss occurs.

Having said that, I’ve witnessed many poor claims experiences.  When I hear about them, it usually boils down to a combination of two factors: the insurance broker didn’t explain the limitations of the policy, or the consumer chose to ignore those limitations even though their broker explicitly pointed them out.

The biggest misconception about insurance policies is that you are 100% covered.  All insurance policies contain clauses that limit coverage.  For example: exclusions that restrict the types of property that are covered, deductibles that prevent the submission of smaller claims, or an expiry date that terminates how long the coverage is valid. 

While a broker will help you identify the policy limitations, it’s up to you as an informed consumer to work with your broker, and design a risk management plan to not only prevent claims, but to help you navigate the claims process if you do have a loss.

Outside of covering my property and business operations, there is no need for insurance.

When it comes to insurance policies, most consumers focus on the property and liability coverages because they’re tangible: property insurance covers your building, equipment, and stock; liability insurance allows you to pay for legal expenses and settlements when operations cause injury or property damage to a third party (i.e. your customer or vendors). 

What isn’t immediately recognized is the new opportunities it brings to a business.  With the right policy in hand, your insurance company is a financial tool that allows your business to grow, whether it’s securing additional financing, renting a larger production facility, or attracting large-scale distributors.

Ensure your insurance coverage is your security blanket by planning ahead, communicating openly with your insurance broker and understanding what coverages you have – or more importantly the coverages you don’t have!

For more information, or to be referred to a broker who specializes in cannabis operations, contact me directly at rommelm@o2insurance