The public demand for cannabis legalization has been increasing dramatically over the last few years. Thirty-eight states and the District of Columbia (D.C.) have legalized some form of medical marijuana. While recreational marijuana is legal in 24 states and D.C with Ohio being one of the newest additions to that list.
This growing division between state and federal law makes it difficult for businesses to receive inclusive, affordable coverage and often leaves policyholders with restrictive plans. Additionally, there’s the added conundrum for independent insurance agencies as they must navigate what this means for their business.
Once the legislature makes their revisions, we will see the full scope of effects on the industry. We have broken down lines of business and how we foresee legalization affecting Ohio.
Property Insurance
We have historically seen insurance carriers be reluctant to set firm rules around coverage of losses related to marijuana. This is due primarily from the conflict between states that have legalized cannabis and current federal law which still considers marijuana illegal under the Controlled Substances Act and classifies it as a Schedule I drug with “no currently accepted medical use in treatment in the United States.”
This however is not the only issue, with the added risks, property insurance providers may be forced to adjust their coverage rates not only if cannabis is smoked on property, but also if it is grown. This leads to the additional problem of how plants and cannabis may be insured whether for a business or on personal property.
Independent agents will need to do their homework familiarizing themselves with Ohio’s marijuana laws once they are passed. They will need to examine various carriers’ policies surrounding marijuana coverage and ensure they are candid with their clients.
In short, if you write policies in a state with legalized marijuana, you should ask homeowners if they expect cannabis to be a covered loss and potentially ask clients what damages due to cannabis use they expect to be covered.
Automobile Insurance
Even after all the election rhetoric there is no question that marijuana contains chemicals that can impair one’s motor skills and judgement. As the Ohio legislature works on what legalization may look like, we presume there will be restrictions on driving under the influence of marijuana and punishments like DUI charges related to alcohol.
As for an increase in claims, The Insurance Institute for Highway Safety conducted a study to estimate the effects of marijuana legalization and fatal traffic crash rates from 2009-2019 and saw death rates go up 4.1% and injury rates go up 5.8% on average after legalization.
However, it may not cause an immediate surge in the cost of insurance. One argument being that legalization may not necessarily increase frequency of use in certain states or regions, especially with a bordering state having legalized it.
The state legislature has made clear their intent to fund law enforcement appropriately to deal with the potential increase in enforcement. So, this may offset some of the potential increase in claims.
Risk Factors
The consumption of cannabis by an individual may affect the way insurance premiums are determined. Insurance companies may wish to increase premiums for those who use marijuana due to the increased risks associated with driving or performing other activities while under the influence.
We may be seeing that consumers of cannabis be required by insurers to disclose their use of cannabis to insurance companies when entering or renewing a contract of insurance. The insured is under a legal duty to disclose all facts which are material to the risk for which coverage is being sought. Disclosure may be requested regarding the use of cannabis which might result in insurance companies increasing premiums for auto, property, and health.
Cannabis Business Coverage
Cannabis-related businesses have historically faced risks and obstacles to get coverage and even with legalization that may continue. CRBs share many of the same general liability and other risks agricultural and manufacturing businesses face. This includes workplace accidents, damage to property and crop failure. Some of the biggest risks CRBs face include theft, general liability, and product liability.
These companies, even when legal in a state face severe banking restrictions due to federal regulations. Many CRBs operate solely as a cash-only business and have no business relationship with a financial institution. As a result, CRBs often deal with large sums of cash, subjecting them to an increased liability. However, pending federal legislation – may resolve that issue if it can be passed.
Conclusion
As the Ohio legislature continues to work out what the final statue may look like, these potential issues may lessen or cause new problems to emerge. We will continue to work to provide our members with agent guides and future articles on the latest developments.
Please reach out to John Wells, OIA’s Government Affairs Manager at john@ohioinsuranceagents.com for questions on this issue or any advocacy issues.
