How home insurance providers are dealing with introduction of the Cannabis Act

Published: October 18, 2018

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Canada is in its first week of legalized marijuana after the Cannabis Act came into effect yesterday (Oct. 17). Under the new law, Canadians can buy, grow and consume pot for recreational purposes. In this new era, how are home insurance companies managing?

Among the big changes brought by the Cannabis Act is insurance providers needing to ask home insurance customers if they smoke pot and if they yes, how much.

“One of the big concerns that has been expressed to me over and over [by insurers] is the possibility of people taking advantage of Bill 45, the ability to grow up to four plants in their household, and defining what a ‘household’ is,” says Seth Kornblum, a partner at Beard Winter LLP to Canadian Underwriter.

When discussing household use of marijuana, home insurance providers say they may face more problems managing home limits than they would auto limits. Murray points to a difficulty in stopping even medical marijuana facilities from going over their limits as a precedent for customers surpassing legal growth limits.

Assessing Risk

Homeowners are limited to four cannabis plants grown from licensed seed under the laws of the Cannabis Act. This limit is in place per residence, no matter how many people live in the house. Murray believes some homeowners will inevitably take advantage of this limit and insurers will face a tough task during claims processes.

“I think that’s where you are going to see some sort of grey area with claims happening, because there are people going to be pushing the envelope of restrictions… I suppose insurers could try and put exclusions in there, but because it is legal, I think the best way for them to reflect the risk is got to be on a premium basis,” Murray told Canadian Underwriter. “So, the premiums are going to have to be increased.

“Insurers are going to try and have to get the knowledge as to what their insureds – and their potential insureds – are doing with respect to recreational cannabis and growing it themselves.”

Insurers will now ask home insurance customers details about their growth. For example, premium assessment will include information on electricity use, lighting, and chemicals used for growing marijuana. Murray suggests trying to assess the risk will be similar to how an insurer will calculate other home risks, such as owning a swimming pool.

One problem with this approach is many additional home features, like the swimming pool, come with established regulations, whereas marijuana growth does not.