Insurers are not prepared for cannabis legalization warns expert

Published: August 18, 2017

Updated: July 24, 2018

Author: Luke Jones



Canada is on the cusp of legalizing marijuana and there are many questions still unanswered. While government tackles how the legalization will be implemented and how law enforcement will police drivers using cannabis, the insurance industry will also have to learn fast.

Insurance companies faces hurdles in implementing the new laws into their businesses. One expert says the United States shows that insurers face a reputational risk because marijuana comes with a stigma of criminality. Karen Landrum, consulting actuary at Merlinos and Associates says insurers in the US have been unwilling to embrace cannabis coverage because of the stigma:

“Some insurance carriers have a traditional family take on insurance and if they get into the cannabis coverage market, that family concept drifts away,” Landrum told Insurance Business. “There’s definitely some reputational risk for insurers getting into the cannabis market. Overcoming this stigma will take time but there are also other options. You could create a sister company that’s not related to the business with the family perception, and provide coverage from a different entity altogether.”

Reputational issues are not the only problems insurance companies will encounter once marijuana is legal in Canada. Landrum points out there is a total lack of data in the yet-to-be-established cannabis market. There are currently no risks to assess, so insurers will be going to the market relatively blind.

“What we have to do in any emerging market situation is go out and look at how our understanding of cannabis risks are related to other risks that are already in the market like the tobacco industry, and use that data to guide us in benchmarking rates,” says Landrum.

“It’s very much an ongoing process, and until a claim happens it remains very unknown. One of the problems is that people in the cannabis industry can sometime be sensitive to sharing their information. It’s really hard to price things appropriately if the customer purchasing the insurance policy is withholding their information.”