Insuring Cannabis Summit: Talking to Clients About Risk Starts with Education
Editor’s note: This is part of a series of articles based on panels and presentations during Insurance Journal’s 2020 Insuring Cannabis Summit on Nov. 19.
Believe it or not, talking to cannabis businesses about risk isn’t much different than talking to owners of other businesses about the topic.
However, there’s a bit more to it than that, especially in a highly regulated industry in which many businesses are focused on just dotting the “I”s and crossing the “t”s and getting on with earning a dime.
“What the challenge is, is that most people come into the industry hearing they have a requirement and it becomes a burden to them versus actually this is an advantage or a value to the company,” said Jesse Parenti, director of programs for PCF Insurance Services. “So, it’s really an economic conversation and it’s having them understand from a 10,000 foot view, what they need to do to start. And then from there, build up what they need. And that’s a lot of what we do with our clients. We want to educate them. We want to hold their hand, but then furthermore, I hate to say it, I will also turn away opportunity if our mindset and culture is not in the same space because I work really hard for my clients and I’m also holding them accountable.”
When talking to anyone in the cannabis industry, or pretty much any industry for that matter, it’s all about educating first.
That was the consensus from speakers on the panel, “The Risks You Should be Telling Your Cannabis Clients About,” during Insurance Journal’s 2020 Insuring Cannabis Summit on Nov. 19.
The panel was moderated by Charles V. Pyfrom, chief marketing officer at CannGen Insurance Services. The panelists included Parenti, who is also program director of Nine Point Strategies and program director for PizzaSurance, Rocco Petrilli, chairman of the National Cannabis Risk Management Association, and Erich Schutz, a broker, underwriter, and risk manager specializing in hard-to-place multi state cannabis insurance programs at NIF Group | Jencap.
Risk management in the fledgling cannabis businesses can make a big difference in how well your clients are protected, the panelists agreed.
Specific to the cannabis industry, the NCRMA’s Petrilli said he likes to break down internal and external risks, which is where the cannabis industry does differ from many other industries.
“The external risks overwhelm the internal risks,” Petrilli said. “So, we define internal risk as those that are within the operator control and external risk is those that are outside of the operator control. And the cannabis process, of course, internally has various risk associated with product quality and product yield and so on and so forth that have to be managed, but the real educational assistance needs to come on the external side. Of course, we have the banking issue. We have the whole financing issue, which stretches outside of banking.”
Petrilli said NCRMA members have told the group that among their biggest risks are finding fair and equitable sources of capital, and certain aspects of compliance.
“And then there’s the whole stereotype and prejudice that has to do with your brand, marketing your brand, and creating the credibility and trust that overcomes the negative connotation that cannabis carries with it when it enters a particular neighborhood or a marketplace,” he added.
Schutz said it falls on agents and brokers to do a good job pointing out risks and pain points to their clients.
“You can look at four different, five different product liability forms and go to something like the health hazard exclusion or vape coverage,” he said. “And it’s going to be a deep rabbit hole for each one. And as a broker, I actually have to be checking this up very often because my good underwriters will let me know when things are changing and they try to, but the quotes are coming out so fast and furious and especially when it’s new business and we don’t have an existing proposal to benchmark off of things are coming through and then we all need to be reading and checking and having open discussions about what’s changing, and what you’re seeing in your operation, and what brokers and underwriters have seen with their markets and just being transparent.”
He added, “I find that one of the biggest values is having that open discussion, and honestly, with everybody in the food chain.”
Pyfrom emphasized that while talking to cannabis businesses about risk may not be too dissimilar than talking to businesses in other industries, the cannabis industry should be treated quite a bit differently than clients on other industries.
“I mean, treating this industry like any other one historically, it’s just not working these days, right?” Pyfrom said. “You have to treat it like a mature industry and approach it with the same level of risk management and mindset that you want to have the best operation, then ultimately affecting premium is what we’re going to pay.”
Pyfrom asked the panelists what 2021 brings – various versions of “choppy” and “bumpy” where the comment themes in their answers.
“One word, choppy,” Shutz replied. “It’s going to be interesting and it’s going to be rough talking about limits and things. We’ve got a marketplace that’s restricting coverage as we have insured that need more MSOs with multiple locations, different regulatory environments, the coverage, and then the needs are getting more confusing. And we’re seeing some new players come out, but not much capacity. So, I think that the marketplace is going to be a challenge. It’s evolving and hopefully we’ll see some new capacity come out, but I don’t think that’s going to happen in the hard market we’re living in and with all the losses that have been incurred in 2020.”
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