As more and more insurance carriers begin to acknowledge the influence, impact, and potential of the cannabis industry, the need for admitted standardized insurance forms, rules, and rates becomes critical. The American Association of Insurance Services (AAIS), the only national not-for-profit insurance advisory organization governed by member companies, is responding to this increasing need with the development of various cannabis-specific programs and endorsements to cover every aspect cannabis risk.
On April 20, 2018, the American Association of Insurance Services (AAIS) filed the first-of-its-kind Cannabis Businessowners Policy (CannaBOP) program in California. Just six weeks later, on June 1, 2018, the California Department of Insurance approved CannaBOP for immediate use.
Throughout the drafting, filing, and approval process, AAIS worked closely with the Department to ensure that the program met the expectations of Insurance Commissioner Dave Jones and added value to the California cannabis market.
As its name suggests, the approved CannaBOP program is based on the same framework as a traditional businessowners policy, providing both property and liability coverage to qualifying insureds. In addition to cannabis, the policy covers most of the same property and liability risks that would be expected from a standard BOP program. Cannabis-specific coverage, however, is contingent on the satisfaction of crucial conditions, such as proven compliance with all applicable state and local regulations. The program also excludes coverage for agricultural activity, cryptocurrency, animals, and similar risks deemed beyond the scope of most cannabis operations. Such risks will be addressed via separate programming and endorsement packages presently in development.
The CannaBOP program comes fully supported with rules and loss costs. During development, AAIS partnered with the esteemed actuarial consulting group, Merlinos & Associates, Inc., to help analyze market exposures and develop standard rating guidelines specific to the cannabis industry.
AAIS is committed to meeting the diverse needs of its member companies and will continue to explore additional insurance solutions in the cannabis industry. In addition to CannaBOP enhancements and expansion into other states, AAIS is presently working on farm and agricultural coverage, homeowners solutions, and additional commercial liability options. And for carriers still reluctant to take the step towards cannabis coverage, AAIS will be filing its broad multi-line cannabis items and activities exclusion on a nationwide basis later this year.
The cannabis industry is expanding upwards, outwards, and into the foreseeable future. Despite mixed messages and uncertainty at the federal level, states continue to roll out legalization measures and invite leaders from other industries to participate in new booming cannabis economies. It is not surprising, therefore, that cannabis businesses are multiplying and growing at rapid rates. But as in any other industry, the growth, success, and security of the cannabis market will depend in large part on the participation of financial service providers and the availability of responsive insurance options. By developing and refining cannabis language and programs now, AAIS affiliates will have the tools and resources necessary to address cannabis exposures when and how they see fit.
For more information about AAIS and CannaBOP, click here.
Phillip Skaggs is Assistant Counsel at the American Association of Insurance Services (AAIS), where he aids in the research and development of standardized property and casualty insurance products and advises the company on various legal and compliance matters. Phil also helps manage AAIS’ cannabis insurance initiative, which is tasked with evaluating how insurance producers can best respond to the complex risks of the legalized cannabis industry and regulatory climate.