Cannabis is a “huge emerging market” for captives and is likely to continue growing if the Safe Banking Act becomes federal law, according to Emerald Risk Solutions’ Jeremy Colombik.

The SAFE Banking Act was introduced to the House of Representatives earlier this year and is currently with the Committee of the Whole House on the State of the Union, Congress documents show.

If passed, it would stop a federal banking regulator from limiting the deposit insurance or share insurance of a depository institution.

Federal regulators would also not be allowed to “prohibit, penalize or discourage” a depository institution from providing financial services to a cannabis-related business.

 

Federal Law

This act is “key” to the survival of the cannabis industry and will allow it to take a step forward, Colombik said.

“It’s not just big for the Cannabis side, but the whole green side,” he said. “The bill is key because, if it passes, it will allow a federal deposit insurance corporation (FDIC) to work with cannabis. That’s a very big door opener.”

While cannabis has been legalized across a number of states in the US, it is still illegal federally, which is putting insurers off providing coverage, Colombik claimed.

“In theory, states could work with a captive provider to offer insurance, but they get worried about the federal government. Now, if you have it legalized in the state and the federal government allows it to access the banking system, it may end up allowing captives to do cannabis business. That is my take on it,” he said.

 

Subsequent challenges

Despite state legalization, being outlawed federally also poses a number of other challenges. Being a new risk means that an education process is required.

Jeanna Nordstrom, CEO of Bermuda-based Capital Security Ltd, provides cover for hemp farmers. She said that for a lot of farmers, it is their first time “dipping their toes” into the insurance market.

“It’s a case of walking them through their options,” she said. “You have to educate the farmer about insurance because, in the past, they may have only bought auto for example. They now have the opportunity to set up their insurance plan and not leave their dollars lying on the floor.

“What I’ll be doing is using my experience with hemp and proxying it over into cannabis when it comes online.”

Another challenge is the lack of data available, so assessing and pricing the risk can be harder to define.

 

“There’s not much data, so we rely more on our actuaries to pull as much as they can,” Colombik said. “We ask the questions around what type of seed is being used, previous losses, different crops and reasons for losses.

“The big problem at the moment is insects. Certain ones go into different plants, so we get as much information as possible and rely on them to do their due diligence.

“Generally, you do rely on the actuary to pull data and pricing, but this is an area where you might be a little bit more reliant.”

 

Opportunities

Despite a number of challenges ahead, Colombik believes that opportunities are posed.

“We saw this as a huge emerging market about a year and a half ago before the Farm Bill was passed. We knew that cannabis was on the rise and it’s likely to get a lot easier,” he said. “The ability to customize policy language means that we can work with P&C brokers.”

Nordstrom echoes this, adding that through hemp and cannabis, the US market is experiencing a boom.

Writing in Captive Review’s latest Bermuda report, she said, “What we are now experiencing is a ‘green rush’! Our opportunity as insurance providers is limitless.”

 

Source:  Article written by:  Fraser Irving / Friday, June 14 2019 / captivereview.com