Lloyd’s of London to Exit U.S. Cannabis Insurance Industry

By Tony C. Dreibus

Lloyd’s of London, the UK-based insurance marketplace, has instructed underwriters not to open or renew existing accounts with marijuana companies in the United States until it’s legal at the federal level, leaving potentially thousands of cannabis business owners seeking new insurers for their crops, buildings and inventory.

“Any policies of this type that are currently in force should not be renewed and no new business should be written,” according to a memo from Tom Bolt, the director of performance management at Lloyd’s, viewed by Marijuana Business Daily.

The memo – sent to the company’s partners – goes on to say that account executives will review existing quotes issued before Friday to determine whether they will still be honored.

“Lloyd’s will continue to monitor developments under U.S. law and will reconsider this position if and when the conflict of laws is resolved,” the memo says.

The company doesn’t actually provide coverage. Rather, it operates an insurance marketplace similar to a stock or commodities exchange, and works with “syndicates” that underwrite businesses. Those syndicates transact with London-based brokers who deal with companies around the world that provide insurance to businesses, some of which offer coverage to marijuana companies.

Huge Impact

Michael Aberle, senior vice president and senior program for the cannabis program at Next Wave Insurance Services in San Diego, said he stopped working with Lloyd’s underwriters earlier this year and instead switched to Hannover Re, a German insurer and reinsurer.

Aberle said while it’s good news for him that Lloyd’s is exiting the industry since that was his main source of competition, it will have a “huge impact” as about 2,000 business owners are going to have to start searching for new insurance companies.

Courtney Moran, a cannabis and hemp lawyer at EARTH Law LLC in Portland, Oregon, said this is bad timing since it comes on the heels of two banks — MBank of Oregon and First Security Bank of Nevada – exiting or limiting business with cannabis companies.

“We’re trying to legitimize the industry and everyone’s trying to follow the rules, and to not have the support of these companies makes it’s hard for the industry to get going,” Moran said. “I understand where they’re coming from because they have their own liability issues, but we want to be seen (in a similar fashion) as every other legitimate industry. It’s a bad sign for the industry in general.”

Doug Banfelder, a licensed agent with Premier Southwest Insurance Group and the founder of Premier Dispensary Insurance in Scottsdale, Arizona, said while it will be a “transition,” business owners shouldn’t worry too much since options are available.

Banfelder said he works with several companies that offer coverage, including Aberle’s Next Wave and Hannover Re, that can fill the void left by Lloyd’s.

“I wouldn’t be freaking out, but it’s going to be a transition phase,” Banfelder said. “You want your insurance companies to have … strength and stability just like you want your bank to have strength and stability. This just points out once again that this is still uncharted territory.”

Insurance Marketplace

Lloyd’s said in the memo that the company has been considering whether to work with cannabis companies – but that since marijuana is still a Schedule I drug under federal law, its syndicates shouldn’t underwrite any businesses that deal with the industry.

The Department of Justice last year was instructed in a spending bill signed by Pres. Barack Obama to abstain from prosecuting cannabis businesses that are operating within the bounds of state law.

Still, the Lloyd’s memo said, the risks are too great.

“In addition, cash generated from the sale of marijuana invariably implicates federal anti-money laundering laws (these, too, are currently subject to non-enforcement policies),” the memo reads. “Unless and until the sale of either medicinal or recreational marijuana is formally recognized by the government as legal, as opposed to subject to non-enforcement directives, syndicates at Lloyd’s should not insure such operation in any form.”

Tony C. Dreibus can be reached at [email protected]

21 comments on “Lloyd’s of London to Exit U.S. Cannabis Insurance Industry
  1. Winston Throgmorton on

    Not good in the short term. Industry needs insurance. But another reason for the federales to reschedule and legitimize.

    Reply
  2. Clifton Middleton on

    The Feds must crack, millions of folks versus an institutionalized program of propaganda, lies and oppresion. At the end of the day this is about self government.

    Reply
  3. Winston Throgmorton on

    The industry has snowballed. Too much at stake with the almighty dollar. This will be a plank in the political platform next year. The issue will pivot on state’s rights. Possible that both presidential contenders (notice I said both) will demure to states. One thing Illinois has going for the banking side is that the Department of Financial and Professional Regulations controls it AND the cannabis industry. Though draconian, I see the state as an exemplar.

    Reply
  4. Samuel Herlevic on

    Newbie as a Brokerage owner level but experienced in selling other risks for the last 10 years. What if policies were paid for or financed in another manner so that the broker, MGA and carrier could sidestep this need to do cash business with banks and get the the department of treasury out of the way while still maintaining complete compliance.

    Reply
    • Winston Throgmorton on

      Cannot sidestep. Comply with compliance and BSA (banking secrecy act). OCC (Office of Controller of Currency) has control of any cash and it must be accounted for. Have practiced law for thirty years and cannabis….well. Am connected to a small bank (industry friendly…which some of you might know who have followed my comments) and am familiar with the concerns. The industry is reaching critical mass and BSA and compliance WILL adopt rules when the DEA reschedules. The industry is not running out of time. The federales are and it is certain we will have a breakthrough.

      Reply
  5. Jeff Jamieson on

    Insurance is still available for this awesome industry. I cannot verify the validity of the Lloyds “news”as everything points to one article with no company quotes. In fact I am expecting a Lloyds quote for a prospect today 6.2.15.

    Contact me for info.

    Reply
  6. John on

    I received the formal notice today and it came from the top Lloyds Managers. the letter is signed and dated. I know Hannover RE is has a program with Next Wave Insurance (named in article). they can offer limits higher then what Lloyds could do with Lower premiums. the program is offered in all 50 states and is back again by Hannover RE the 3rd largest re-insure in the world. you can find them on line at http://www.nextwaveins.com or http://www.mmdinsurance.com

    Reply
  7. Theresa Smith on

    I’m comfortable that Mike Aberle and Doug Banfelder are positive about this change, they are experts in this field. Better coverage and lower premiums work for me, too.

    Reply
  8. bongstar420 on

    This effects me as a grower…But aside from that, there are way too many cannabis industry entrants…

    these stressors are thinning the weaklings from the heard…hopefully I will make due with the fact that I know my building insurance will lapse sometime in the next business cycle.

    I really wish people wouldn’t waste time and money on business ventures they have no chance of winning (because of serious lack of everything required to be successful in the long run). Its almost like they all think they will win the lottery or are just jearking around till the big dogs “take the industry over” and they have a marginally larger pile of wealth and a much greater supply of cheap highs.

    Reply
  9. Todd Foster on

    Not to worry everyone. We have 4 other carriers besides the Nextwave program that is mentioned in the article. Their program is really good but consumers can’t go directly to Nextwave, since they are an MGA. We are happy to help and can do business anywhere in the country where legal. I also know of other carriers that are in talks of getting into the cannabis industry too.

    Reply
  10. Doug Banfelder on

    The Lloyd’s program was the industry’s best – until Hannover took it to the next level. Higher property limits, increased coverage and lower rates make it the strongest program available. As Todd notes, other programs exist – but not all are equal. and TY for the kind words, Mrs Smith!)

    Reply
  11. Doug Banfelder on

    Jeff, Lloyd’s said they’d consider new business that was already in-process on a case by case basis, so you got lucky. (but may be paying too much as Hannover’s rates are better).

    Reply
  12. Dillon Gill on

    The underwriting department was fair and quick at Nextwave. We did feel pressured to bind our policy when the owner started to email my agent repetitively. It’s hard, we have to wait for our land lord and the city to approve. We tried using PBIB and it was a disaster, I won’t go back!

    Todd – would you be able to tell me the other carriers quote are still quoting? I have a small dispensary with partial outdoor grow and plants growing in back.

    Thank you

    Reply
  13. Doug Banfelder on

    Dillon, as you said, Nextwave’s UW does followup w/ the agent after providing a quote, but you should never feel pressured – the agent just needs to tell them your status, and of course waiting is often the name of the game in this industry. Mrs. Smith, you are certainly welcome, and we look forward to your call.

    Reply
  14. Tracy Steinbach on

    Well, if that is the game that Lloyd’s wants to play, there are only two countries that have a federally legal marijuana industry, Uruguay and North Korea, so really that means they would only be doing business in Uruguay, which is tiny and, so, somewhat limited in terms of size of the industry. Sounds dumb, especially because it is apparent at this point that the US is headed in the direction of legalization. Sounds like they couldn’t handle the competition (who are offering lower rates).

    Reply
  15. Matt McColm on

    Next Wave has been doing a great job in developing the new line with this carrier. They have been moving to this model for almost a year. If you go to them directly then they will forward you to an experenced agent that has been working with their progam.

    Reply
  16. Steven Swartz on

    Luckily, there are many U.S. Surety Companies still writing the needed surety bonds for the industry’s license bond and tax bond needs. Our agency, South Coast Surety, as well as many other surety agencies are approving and issuing these daily.

    Reply

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