There’s no doubt about it: buying insurance for a cannabis startup company can be overwhelming. The insurance market is vast and there are a ton of products out there.
It doesn’t help that the insurance industry can often seem a little, shall we say, behind the times. (Many brokers still use fax machine, for instance.)
So here’s a few basic pointers to get you started:
Pick the right broker.
When you buy insurance for your cannabis startup, its imperative to hire a broker to connect with the right insurance companies on your behalf. Ensure that your broker completely understands your cannabis business model and where the potential risks to your company may lie.
Beware: sometimes these risks may be more nuanced than originally thought. The right broker will dig a little bit deeper, examine those risks, and make sure they’re mitigated properly.
So how do you find the right broker? The same way you you might find any other vendor or service provider: ask your peers for their opinions and recommendations. Then study these potential picks for a deeper understanding of their approach and philosophy.
Feel free to interview your broker. Verify your understanding of his or her abilities. Check in with current clients if possible. Make sure you truly understand the application process and you support their methods overall.
It’s important that you feel aligned with this decision before choosing. A broker is part of your team so make sure he or she is behind your business and understands your vision clearly. (A good first choice will also save you the headache of having to start all over with a new broker in the future.)
Dig deep, ask questions.
Once you’ve found your broker, get to know the coverage. Feel free to ask any questions, no matter how seemingly irrelevant. Insurance is an investment like any other. So take your time and truly understand your policy.
Remember: You want coverage suited for your risk profile, flexibility (in order to modify when your company grows), and scalability (to add coverage when needed).
Visit multiple brokers (at first).
The “you better shop around” philosophy doesn’t really work to your advantage when buying insurance for your cannabis startup company.
And here’s why:
When a broker approaches an insurance carrier on your behalf, he or she becomes the exclusive “broker of record” allowed to talk to that carrier. This means only one broker can talk to any one carrier at any given time. This way, your broker has the chance to make his/her case (on your behalf) without any background noise.
Now, when you approach multiple brokers at once, each will almost certainly reach out to the same markets (those best for your specific cannabis startup).
So depending on the order in which you approached the brokers, some will be blocked by certain markets (because another has already approached them). This creates a logjam that wastes time and money.
Make sure you decide on a broker that has strong underwriter relationships with the carriers most relevant to your cannabis startup company. The right broker will foster connections with the right underwriters at the right carriers the first time around, saving you valuable time and effort.
If your broker can’t find the right policy, then (and only then), is it time to approach another broker.
Pro Tip: ask the previous broker for all the applications that were submitted on your behalf including a list of declining carriers. This will expedite the process in the future.
Play your cards too close to your chest.
This may come as a surprise, but underwriters require quite a bit of detailed information to create a coverage proposal. This is particularly true for policies attached to most startups, such as technology errors or omissions insurance, cyber liability insurance or directors and officers insurance. Cannabis startups are no exception and usually put underwriters even more on edge.
You may need to submit information like financial statements, sample customer contracts, HR practices and investor decks.
Generally speaking, the more information you provide your broker, the better he or she can argue in your favor when it comes to your risk profile and annual premiums.
If you withhold this information and insist on proceeding, your broker will submit your information and the underwriter will inevitably request it anyway.
Pro Tip: Don’t cause yourself more pain than needed! Answer all of the underwriter questions in one fell swoop. This cuts down the overall time it takes to get a formal proposal.
So that’s some of the basics when it comes to buying startup company insurance. Hopefully these tips make the insurance purchasing process for your cannabis startup as smooth as humanly possible!