The pricing of marijuana business insurance is an ‘always’ question when working with clients. The easiest way to explain how marijuana business insurance rate making is determined is to start from the beginning and educate you with those areas of risk that generate premium.
In insurance lingo your marijuana business insurance is called a “Package Policy”. This policy combines coverage for major property and liability insurance risks. The main premium generating areas of your marijuana business insurance coverage are:
The rate making component that drives the premium for the above are your gross receipts in addition to the property coverage limits chosen. The more you have in both receipts and property limits the larger your premium will be.
The underlying fundamental rating criteria for the above coverages is called the rating plan. All insurance companies have a rating plan and this plan is based on one major factor, a company’s loss experience. In it’s simplicity the loss experience of an insurance company is the losses divided by the total premium that it collects. The insurance company then uses their loss experience, and determines its future costs using actuarial science techniques to determine risk calculations and sets its base rate for each risk classification (General Liability, Product Liability, Property Coverage).
An insurance company will then assign a classification code, also known as the “rating exposure”. This classification code is used to set what is called the “liability base rate”. The base rate begins as the starting point for how your marijuana business insurance premium is developed. The base rate is then used as the multiplier for each line of insurance you are purchasing.
A marijuana business that is a producer of flower presents a different risk than business that is retail driven like a dispensary and sells marijuana flower directly to consumers. The more areas where you generate money from your marijuana business the more class codes will be added to determine your general liability & product liability insurance rate.
Once the base rating exposure is identified the company can then modify the base rate up or down due to a variety of subjective underwriting factors such as the length of time you have been in business or claim history. Once the base rate is modified the premium is then calculated by a simple formula: Rate X Exposure = Premium.
The main factors that determine your general liability and product liability rate are going to be:
Now that we have clarity into the factors that play into your marijuana business general liability and product liability insurance rates, the physical location characteristics of your marijuana business and property coverage selection will have a bearing on your property insurance rates which tally into your total marijuana business insurance premium. These physical location characteristics will include, but are not limited to:
Each characteristic of your physical location has a varying degree of impact on the premium that you will pay for your insurance. The next area that contributes to your marijuana business property insurance rate are the property level coverages that you choose. These property level coverage will include but are not limited to the following:
Once the above property and coverage rating exposures are used to generate your property premium the deductible amount you select will be calculated into the rate. The higher the deductible (the amount you choose to self-insure) the lower the rate. By utilizing higher deductibles you can bring the premium cost down, however, you do not want to select a deductible too large if you would have difficulty in meeting the deductible selected.
Because there are so many moving parts that determine how much you pay for your marijuana business insurance the above was just a brief overview into answering the question of “How is my marijuana business insurance premium determined”.
Sometimes your business insurance premium will increase because the insurance company has revised its rating plan. On other occasions, your premium will increase because characteristics about your marijuana business have changed since your last renewal. Some of these changes in characteristics are within your control, such as claims that might have been filed, while others are not as much in your control, such as your gross sales or the addition of newly purchased property that is owned by the business.
I specialize in marijuana business insurance, if you’re interested in discussing marijuana business insurance or would like to receive a quote please call me at (503)-922-4847 or select “Request a Quote” below.
The articles posted in this blog are intended to provide insight and is not a substitute for consultation with a licensed insurance broker to address your particular risk or circumstance.