Simplified and Secured Cannabis Insurance Processes: The Role of New-age Technologies

According to a New Dawn Risk report, cannabis insurance companies have increased fivefold post the Covid-19 pandemic. The trend of legalizing marijuana for medicinal and recreational purposes has continued since 1996 but has gained increasing momentum since 2012. With 38 states and the District of Columbia (D.C.) legalizing medical marijuana and 19 states and D.C. legalizing recreational marijuana, there is an anticipated growth in the number of insurance companies intending to insure cannabis businesses and crops.

As the budding sector takes root, new and smaller insurers are looking for ways to enter the industry before it heats up by much larger players.

A digital-first approach would be an excellent starting point for those cannabis insurance brokers as it will help them scale up fast and navigate the dynamic nature of the industry while effectively managing risks and containing operational costs. Here’s a detailed analysis of how modern solutions for cannabis insurance help.

Common Challenges Faced by Cannabis Insurance Companies

The following are some challenges that cannabis insurance companies may have to face while transacting business:

1. Dependency on Paper-based Processes

Most insurance companies are still relying on legacy way or pen-and-paper based processes to get their workflow completed. But, looking at the growing competition and the tech-savvy customers, it’s high time for them to digitize their operations which not only inject efficiency into their workflow but will save operational costs with the help of new-age technologies such as AI/ML, RPA, and ow-code application development platforms.

2. State-wise Heavy regulation and uncertainty

Cannabis businesses operate in highly regulated environments. Almost every state has a different version of rules and regulations that need to be adhered by cannabis insurers. We’ve seen how only 38 states have legalized marijuana for medicinal purposes while 19 have done so for recreational purposes. Such state-wise diversity in jurisdiction and changing regulations can make cannabis insurance management complicated. The legal ambiguity further clouds operations like risk assessment and policy underwriting.

3. Risk assessment complications

Evaluating the risks associated with cannabis cultivation, distribution, and retail calls for specialized knowledge and expertise. Apart from this, the cannabis insurance broker must understand cultivation methods, security measures, and compliance history to thoroughly calculate risk and coverage. Doing this with limited data and actuarial information makes the sector less reliable or predictable.

• Unique risks: Apart from balancing risk and coverage, cannabis insurance providers also have to deal with unique challenges like crop theft, damage, product liability, and regulatory violations. Customizing the policy to incorporate such specific risks involves widening the scope of traditional insurance products.
• Access to funds: Most cannabis businesses struggle or fail to acquire funds due to the stigma attached to the industry. The sector is also plagued by multi-storeyed regulation with banking and financial services being federally regulated, adding a layer to existing regulations surrounding cannabis. The resulting gap in cannabis businesses and financial institutions can leave the former high and dry as they lack traditional banking relationships.
• Fraud and misrepresentation: A big chunk of dealings in cannabis takes place in cash. This cash-intensive characteristic paired with the lack of support from financial institutions makes it more vulnerable to fraud and misrepresentation. Cannabis insurance companies will have to be extra careful in detecting and mitigating risks.
• Limited products: Despite the meteoric rise of insurance for cannabis businesses, the industry bears limited coverage options in comparison to other industries. The limited number of products, back-breaking regulations, perceived risks, socio-economic stigma, and regulatory uncertainty further stunt innovation.

Benefits of Making Marijuana Insurance Operations Digital-first

Given the above challenges, here are some benefits which cannabis insurers can realize by deploying a digital-first technology solution:

I. Faster Data Accessibility Through Central Repository

The use of digital insurance for cannabis businesses helps capture invaluable data. Marijuana insurance management systems compile all insurance-related data in a centralized location, collecting relevant insights and data inputs from various sources. Such a data-driven framework powers detailed analytics that offer insights into the cannabis industry’s unique trends, risks, and opportunities. Such a comprehensive assessment paired with the maintenance of historical data places the cannabis insurance provider at an advantage as they overcome the issue of lack of industry-specific data.

II. Holistic Risk Management

Digital solutions for cannabis insurance companies leverage technologies like data analytics and predictive modeling to assess and manage almost all the risk aspects of the cannabis industry. These frameworks perform a comprehensive risk assessment to power informed underwriting decisions, assess unique challenges, proactively neutralize risks, and cater to the specific needs of the industry. Such enhanced risk management will aid insurers in making well-rounded decisions.

III. More Efficient Policy Administration

The digitalization of solutions for cannabis insurance streamlines the policy administration process. Businesses can leverage the cannabis insurance management platform to apply for coverage, manage policy details, and access documents online. Its user-friendly interface drives operational efficiency, injects transparency and accountability, reduces administrative workloads, and improves the overall customer experience for insurers, brokers, and clients alike.

IV. Improved Regulatory Compliance

Given the dynamic nature of the industry, marijuana insurance management systems help businesses keep up with the constantly evolving legal and regulatory landscape. This solution for cannabis insurance automates compliance processes, allowing alignment with the policies of the federal, state, and local laws or regulations of the system. Such conformance with regulatory obligations makes the industry more predictable and sustainable while minimizing the risk of non-compliance penalties.

V. Better Scalability and Adaptability

Given the current volatility in the cannabis business, cannabis insurance companies must maintain a high degree of scalability and adaptability to keep up with the evolving needs. With the Marijuana Insurance Management Solution for cannabis insurance, insurers can expand coverage options, embed new features and functionalities, and serve a wider market of the cannabis business sector. All the while, it maintains significant resilience to keep pace with the market growth or changes.

Conclusion

In summary, cannabis insurance companies can benefit significantly from the use of digital solutions for cannabis insurance. For starters, it sets the historical context for the industry and allows insurers to embrace digital-first solutions. At the same time, it helps with effective risk management that aligns with the specific requirements of the cannabis industry. With features like collaboration, automation, and scalability, marijuana insurance management systems are empowering insurers to thrive in the rapidly growing market for cannabis.