Insurance Importance Interview

Summer Jenkins discusses the role insurance plays in the cannabis industry and the major sources of risk that insurance guards against. As you are listening, consider where each source of risk and each type of insurance fits into the cannabis supply chain. Click the play button below to listen to the interview with Summer. (TRANSCRIPT) Paul Coble: Welcome everyone. We're here with summer Jenkins. She's a senior product development manager at canister Insurance Services welcome summer. Thank you for taking the time to talk with us. Summer Jenkins: Yes, thank you so much for having us. Paul Coble: First, can you tell us a little bit about canister and what you do there. Summer Jenkins: Certainly. Cannasure is one of the first insurance companies to ensure the legal cannabis and hemp industry. So our home offices in Cleveland, Ohio. However, we are cannabis businesses all over the United States. So what my role is there is to aid in business development and new product development so throughout my career, I've had various positions and operated in various capacities, all of which have afforded me kind of a unique expertise and unique experience which allows me to work on claims actually right be encouraged insurance coverage contacts and policy forums as well as manage and underwriting team and you know, operating handle compliance and other aspects that are vital for an insurance company. Paul Coble: Excellent. So tell us a little bit about how insurance fits in with the cannabis industry, what, what can insurance do for a cannabis business? Summer Jenkins: So that's a great question. Insurance is one of the most fundamental parts of a risk management plan for any business cannabis like any other is a business where the owner is subject to be vulnerable to financial loss. And in risk management, one of the tenants of managing risk is to transfer risk so insurance would be what's called a risk transfer method. So the insurance owner, the business owner and the insurance company engage in an agreement where one party says they will accept the risk the other party says that they will pay an insurance premium and exchange for the insurance carrier accepting the risk. Paul Coble: Excellent. So what type of what types of risks in the cannabis industry are transferable to an insurance company? Summer Jenkins: Okay, that's a really good question. So as a risk transfer method is used to do what we call indemnify the business owner or the named insured. And so what indemnity excuse me or indemnification is the agreement that says we will make you whole after a covered loss so many types of risks that we would consider business risks would be something like you know, an operator getting into a business to make a product and nobody wants to product that is a business risk. That's not something that you can insure against, but what you can insure against our direct physical losses to your own property and you can also and that would be what's called first party. Risk or first party coverage. And then you can also insure against third party losses and third party risks. So that would mean that another person and which is why we call it third party could be injured on your premises or could be sustained some type of a loss. That arises out of your operating your business. Paul Coble: Are the risks that are insurable generally financial or pecuniary nature? Summer Jenkins: So there are some financial types of losses or financial risks that we can't insure against typically that would be what's called directors and officers policy, we call them business management liability types of policies so directors and officers some errors and omissions. Some fiduciary types of policies we don't typically see a whole bunch of those in the cannabis industry because typically a business that has more of a financial operation would be one that you know purchases those types of policies. So we do see a lot of directors and officers policies. Which in the cannabis industry. Do you know policies are very pricey. So oftentimes their cost prohibitive. And a lot of the ownership structure doesn't warrant d & o so I do you know policy would provide coverage to the directors and officers that are participating on a management board of a business. So, it protects them against decisions that the board makes that could get them drawn into a claim personally. So a good example of a you know exposure would be you and I sit on the board and we have the financial interest of other parties that whether it be stocks, bonds, you know, whatever we could possibly sell to investors. So because of a decision that we make as board members are our stock loses value. Or we suffer some other type of business loss. And so then the stockholders or other parties that have a financial interest in our company suffer immediate monetary loss and decide to come back and sue us because of this decision that we make. So that is more of a financial type of coverage, where the actual board members personal financial interest in assets could be you know drawn against in the event of a claim or loss. Paul Coble: Got it. Alright, so you mentioned direct physical risk. You mentioned the, you know, type policies. What other policies would be applicable in the cannabis industry or do you recommend cannabis companies at least consider? Summer Jenkins: Um, yeah. So one other type of product would be 10 would be called a time element coverage. And so what that would be, is a big income. Income policy. And so what business income does is provide the owner with another level of safeguards in the event of a covered loss. So if you're building had a fire. And you were no longer able to operate your storefront or your distribution channel was hindered because of a cupboard loss. You suffer an indirect loss but you suffer and a monetary loss. So the, the amount of time that would take your business to recover and get back up and running. And if the loss had not happened or to the degree that you would be functioning before the loss. That's called time element coverage. So the business income policies are typically written on a one, sorry, on a three, six, or 12 months, what's called monthly period of indemnity. So that coverage would provide you with the means to purchase new products purchase a temporary storefront and continue with your payroll so. And again, because of our goal is to identify the business owner, the, the policy would provide the limits and the monetary means to get yourself back up and running, or to continue on operating your business as if the last hadn't happened, and it's a time element loss because the evaluation of the amount that the claim would pay out would be based on your revenue your gross revenue or, I'm sorry. Your net revenue for, you know, whatever predetermined time period is that the company. The company pre determines to the time period that it would take for you become to get back up and running as you would normally. Paul Coble: Interesting or are you seeing any crop yields insurance policies or policies that are based around the production metrics in cannabis or hemp. Summer Jenkins: You know we ensure necessarily crop yield. Again, most of the time we're looking at direct physical types of losses. So, you know, fire, theft, went hail, those, those types of things, even you know riots civil commotion. Those are more direct physical damage types of loss. So a crop yield coverage would be more of a type of coverage that you would see in an agricultural industry. And so while cannabis is technically an agricultural commodity. It's not yet evaluated that way. So there are what's called parametric crop coverage that's available. And that provides coverage to outdoor crops, but again for direct physical types of loss. So it's called parametric because the its peril based so parallels are like fire, wind, hail. You know, specific types of loss and then the carrier evaluates the type of laws using a sensor. So the sensors are placed out in the crop and then they also are, you use satellite imagery and also other data that's provided by the National Weather Service and other organizations that track. Weather and storms. So if they can see that, according to the satellite or according to the National Weather Service. You know this amount of rain fell it exceeds what's normal or this size of hail fell and destroyed your crops, then the carrier would pay out for the amount of crop last so that's kind of a long answer to your question. So right now, nothing exists that covers production loss or crop failure but products are continuing to expand. So we do now offer crop coverage for outdoor crops for again direct physical types of loss. Paul Coble: Yeah, that's interesting. I just wonder if there's a place in the industry. Well, I know that there certainly is from the cultivation standpoint of ensuring against things such as you know, hot hemp fields that need to be destroyed or heavily remediated or incurred some additional costs in order to comply with regulations or things like that as the industry as certain parts of the industry become more Like the agricultural industry. Yeah, I think. What about. I'm sorry. Go ahead. Summer Jenkins: The hindrance to that right now is the federal legality of cannabis. So as a financial institution. So I guess not truly a financial institution but insurance. Companies are subject to laws that are that financial institutions are all subject to. We don't have to do what's called SARS reports like a bank would do that specific suspicious. I'm sorry. Tongue Twister. So sorry is a suspicious activity report. And what that means is if the banking institution feels that the organization that they are providing banking services to is involved in an activity that is federally illegal. The bank is required to report that to the federal government so you know, insurers are not subject to as high a level of scrutiny and where they're also not backed by you know FDIC, but they are, however, subject to some very similar laws so the fact that cannabis is still federally illegal is one of the hindrances for a lot of carriers in getting into the marketplace. Paul Coble: Absolutely, yeah. And certainly there's some, there's some room now that, you know, low THC hemp is legal federally and we're seeing some movement in in legislature, both on the SAFE Banking Act and the more act. You know, hopefully we'll have some additional protections that allow for the entrance of some of these financial players. One more question on the sources of risk that are insurable in the cannabis industry is around some, I guess you'd call them maybe quasi physical damages like data breaches or technology failures, are any of those insurable coverages in cannabis. Or internal risks. Summer Jenkins: Yes, they definitely are. So data breaches one coverage. So cybercrime and data breach usually go hand in hand or and are typically covered under the same policy. So those are our insurable types of risk and the key component that data breach coverage and cyber liability policies offer is the ability to comply with the laws monitoring and notify. So, typically a smaller business or new business does not have the means to notify all of the, you know, the affected parties of the breach and they also don't have the financial means to provide the monitoring services and the restoration services. If somebody data has actually been stolen and used. So the cyber liability policies do you offer those services. In addition to providing limits for restoring data. You know, forensic accounting services they provide quite a few different services as part of their policy that a business owner may not typically have access to Paul Coble: Wonderful. Well, thank you so much for that information about insurance in the cannabis. Industry summer we will be back with summer Jenkins next week to discuss methods by which business owners can mitigate their risk in some of these insurable and uninsurable risks that summer just identified. So thank you very much. Summer and we'll be back next week. INSTRUCTIONS You may use this discussion board to discuss issues that were brought up in the recording. To get the conversation started, consider the following: Identify three sources of risk discussed in the interview that insurance companies consider and suggest a method to mitigate each risk identified. In response, students should identify a business consideration (cost, resources, time, etc.) that would be adversely affected by each risk mitigation method.