When Canada legalized cannabis, insurers weren’t ready. Most lacked the confidence – or data – to build adequate coverage. The result was a gap between what cannabis businesses needed and what the market could offer.

“Understanding the risk was kind of key and kind of instrumental in our process,” said Tom Willie (pictured), CEO of Special Risk Insurance Managers. With little precedent to work from, his team had to identify exposures and attempt to quantify them from scratch. “There’s little detail to pull from, and ultimately it became an entirely new category to underwrite.”

Traditional underwriting tools – COPE, loss history, historical claims – weren’t enough. “There became a lot of additional questions that we needed to truly understand so that we could get through to the root of where the exposure was,” he said. With mainstream insurers reluctant to enter the sector, specialty firms had to take what Willie described as “a cautious and curious approach.”

That early immersion wasn’t optional. Pricing, policy wordings, exclusions, sublimits – each element had to be built without a template. “We really just had to dive in and ask a lot of detailed questions,” said Willie.

Coverage gaps persist years after legalization

Even now, Willie said, the sector remains underserved – particularly on the liability and property side. Standard offerings still miss core cannabis exposures. “A lot of policies don’t address unique exposures within the sector,” he said. Business interruption remains murky. Product liability often comes with restrictions or health hazard exclusions. “Crime coverage remains pretty limited and it’ll be dependent a lot on physical security of each risk,” he added.

Product recall insurance, he suggested, is “a bit evasive at this point.”

For insureds, the effect is cumulative. “Most insurers are being really cautious around the scope and extent of coverage that they offer,” said Willie. “There’s a lot of embedding of exclusions and limitations within the wordings to protect the insurers… but that creates a bit of a gap for the insureds themselves when not every exposure is covered, essentially.”

Lessons for underwriting emerging risks

Despite its challenges, cannabis gave specialty markets a blueprint for handling other nascent sectors – particularly where regulation is still evolving. “We learned a lot about the types of questions and inquiries to ask,” said Willie, pointing to crypto and psychedelics as the next likely candidates. “We also learned that there’s often a regulatory element that will address and mitigate a lot of these concerns.”

As frameworks emerge, underwriting becomes easier. “As these categories become regulated and standardized, it actually gets a lot easier from our perspective to digest and understand the risks that present themselves,” he said.

Psilocybin is one example already on the radar. If legalized and regulated, insurers will be better positioned to engage with the sector. “If regulators do ultimately allow this to be a space where it’s legalized, where it’s controlled, it’ll get a lot easier for insurers and groups like ourselves to be able to wrap our heads around the exposure and quantify it a bit.”

Regulators may be the key to insurability

For Willie, regulatory clarity is not just helpful – it’s essential. “They’ll create a model and a framework for which any of these emergent areas are developing,” he said. “They’ll standardize, they’ll make it more homogenous around how each group could be approached.”

That standardization becomes the foundation for more consistent underwriting practices. It also reduces the friction between carriers and brokers working in underdeveloped risk categories. “Regulators also look toward protecting the public and that ultimately protects and helps insurers from a risk mitigation standpoint,” said Willie.

The cannabis market is still hard to place

Despite broad softening across other lines, cannabis remains a hard market. “Not every insurer will consider this segment,” Willie said. “So arguably, this is one of the harder or more challenging areas.”

Still, he sees movement. “We’re still seeing signs of softening in every area,” he said, predicting that cannabis will follow the broader trend in time. “As we see the soft market accelerate and progress, it will get easier and easier to write this class of business… either more players enter the space or the existing players get more adept at accepting risk and changing pricing to match the current market climate.”