It would be surprising if you didn’t have questions after looking at your first cannabis and ag business insurance quotes. They’re peppered with enough codes, details and industry jargon to have you spending the better part of a day googling seemingly made up words. (Non-imputation and waiver of subrogation? Anybody?).
But that’s why we’re here! Let’s examine some of the major items you should be looking for on your quote.
1. Claims Made or Occurrence
This distinction will decide how the policy responds to an insurable event. For most general liability, workers compensation, and some cyber insurance policies, this insurable event is the “occurrence”. This means that the policy in-force when the event occurred is the policy that would respond to the claim. It wouldn’t matter if the claim was made a few years later, just when the actual loss occurred.
The alternative is a “claims made” policy. Errors and omissions, cyber liability, directors and officers, employment practices, and other complex liability coverages tend to work this way. This means that the policy in-force when the claim is made is the policy that would respond. The wrongful act itself could have happened years ago but litigation took that long to develop.
Carriers use claims made policies to reduce their exposure to unforeseen old claims. Once a claims made policy’s year is over, the carrier knows they can close the book and re-underwrite the risk for the coming year. Occurrence policies are the alternative but they produce claims from policies that were underwritten long ago. This makes accounting and maintaining adequate reserves surrounding occurrence policies more challenging for the carrier.
There are pros and cons to either type. But first and foremost, it’s important to know which is which and how that impacts your cannabis and ag business insurance quotes.
2. Limits of Liability
Limits of liability are the heart of the quote. Two broad categories are “aggregate limits” and “occurrence limits”.
The aggregate limit is the max amount the insurance carrier is willing to pay over entire policy period. Regardless of the how many claims or what insuring agreements have been triggered, this is the bottom line pay-out. Its counterpart is the “per claim” or “per occurrence” limit. Even if you have a $2M aggregate limit, if your per claim limit is $1M that is the most the carrier will pay for that claim and any interrelated claims.
If you’re buying insurance because of third party’s contractual requirements, these limits will be one of their main concerns. The first thing you should do when looking at a quote is verify that the limits match the contract terms.
There’s a direct correlation between premium paid and coverage limits. Be aware of that when you’re in need of higher limits ($5M+). Cannabis and ag companies are also often surprised that when they’re still pre-revenue, oftentimes rates will actually be higher. Same applies to a lesser extent when a company’s revenue is lower than the requested limit. While this may seem counterintuitive, it makes sense for a couple reasons.
First, a company with bigger revenue numbers is usually more established and has a claims track record that the underwriter can analyze, making the company less of a gamble. Second, revenues matching policy limits will make the insurance policy less of a target for opportunistic lawyers. Remember: insurance is an asset from an accounting perspective.
Retentions and deductibles can be as important as the limit itself. You’ll find retentions on liability policies (e.g. D&O insurance) and deductibles on indemnity policies (e.g. property insurance). We know it’s confusing with all the jargon, but we are here to simplify it for you!
Bottom line, they determine how much you have to chip in per event before the carrier starts to pay. The higher retention, the less chance the carrier will have to pay. This means lower premium.
But if you have a super cheap policy with a $25,000 retention, is that policy even worth the low premium? It depends on the type of business. If many of your claims could be settled for anything close to $25,000, you may be wasting your money.
4. Admitted vs. Non-Admitted & A.M Best Rating
Another thing to look for whether or not the carrier is “Admitted” or “Non-Admitted” along with the carrier’s A.M. Best rating. The rating system is similar to the standard letter grade with ratings ranging from A++ down to F. The higher, the better, although anything above an A- is what you should look for.
An admitted carrier is one that is admitted by the state insurance department to underwrite insurance policies. Once admitted, the carrier has to comply with certain state regulations in exchange for being backed by the state’s financial resources. You can sort of think of admitted carriers as FDIC member banks. If your policy is placed with an admitted carrier and you feel like they didn’t handle your claim properly, you can appeal to the state for relief.
Cannabis and ag business insurance quotes come from non-admitted carriers more often than not. This is because non-admitted carriers are more likely to be willing to assume the risk presented emerging industries or unique exposures.
Realistically, the rating usually matters more than admitted status, but sometimes contracts will require coverage to come from admitted carriers. Keep it in mind as another item to review.
Payment varies between direct billing (from the insurance company) and agency billing (from the insurance broker). Certain general liability insurance companies actually have online portals that give you access to everything you need…certificates of insurance, electronic billing/payment, etc. These GL carriers are usually direct bill. Sometimes these carriers will even offer low- to no-interest payment plans for direct bill policies.
Most E&O, Cyber, D&O, and EPLI policies will be agency bill. This means that the broker will collect payment in full before the policy can become effective. This can be painful for cash strapped startups so tech enabled brokers like AlphaRoot offer a credit card option as well.
Keep an eye out for these items when reviewing your cannabis and ag business insurance quotes. Making sure you work with your broker to fully understand the terms of your coverage is just as important as (if not significantly more important than) the bottom-line cost.