NAIC: captives could be used in cannabis insurance market

The National Association of Insurance Commissioners (NAIC) has adopted its Regulatory Guide to Understanding the Market for Cannabis Insurance: 2023 Update white paper.

Among the potential structures being explored to facilitate cannabis-related business coverage are the use of state-based commercial insurance programs, risk retention groups (RRGs), captives, and joint underwriting associations (JUAs).

The white paper explores emerging insurance issues in the cannabis industry and the current state of cannabis regulation in the United States. It was an update to the NAIC’s original cannabis white paper published in 2019.

The updated white paper discusses how the cannabis industry has become more sophisticated, with its rapid expansion driving new product development, infrastructure changes, and the need for businesses to provide ancillary services. It also outlines how the state of cannabis regulation, specifically at the state and local levels, has evolved significantly.

The white paper avoids advocacy and focuses on issues impacting affordability and availability of insurance for cannabis-related risks in states that have legalised its use.

Other key findings of the white paper include the fact that capacity has improved since the 2019 white paper. However, most of the commercial insurance for cannabis-related businesses is still found in the non-admitted market.

According to NAIC smaller industry players are most impacted by the lack of admitted options since the non-admitted market doesn’t offer the “off-the-shelf" insurance solutions typically available in the admitted market.

NAIC added that insurance gaps are most prevalent in the emerging areas of the cannabis industry, such as ancillary services, cannabis-infused products, and social consumption lounges.