Buying Cannabis Insurance in Massachusetts – Part 3
You have established your marijuana business or dispensary. You have worked with a specialized insurance professional and crafted a specific cannabis insurance program. What can you do now to make sure you are controlling risk and premium in your organization?
We often work with our clients on the concept of "Total Cost of Risk." So many business owners and even a large percentage of insurance professionals focus on one strategy to address their Total Cost of Risk, the financing of your risk. This is simply the process of purchasing insurance. It is the exchange of your dollars in the form of a small known loss (your premium) for a return of coverage for any large unknown loss.
Unfortunately, many people do not focus on the four other areas impacting a business’ Total Cost of Risk. These are the prevention, assumption, mitigation, and transfer of risk. At FBinsure, we maintain that a focus on ALL FIVE components of your Total Cost of Risk is the best strategy to control risk in your organization. Let’s briefly explore these components to gain a greater understanding of Total Cost of Risk.
Prevention: If we can completely prevent risk, we will reduce or not incur costs associated with the risk. An example would be running motor vehicle record checks on all of our employees on a regular basis and not allowing employees with speeding tickets or at-fault accidents to drive company vehicles. This is a strategy to prevent potential accidents in the future.
Assumption: Sometimes it makes sense to assume loss or the potential of loss. We see this by taking on deductibles, sometimes large deductibles in our various lines of business. Sometimes we unknowingly assume risk when we think something is covered on a policy, but actually is not (we call these self-insurance gaps). Sometimes we want to assume risk. It could be a cost savings measure. It could be something that we know happens often and is not worth insuring elsewhere.
Mitigation: Risk happens, but having a plan to reduce the impact of a risk can be one of the greatest potential savings available. Putting a plan in place for product recall is a great example of mitigation of risk. In the event of a government enforced recall, having an existing plan can be the difference between successfully navigating a loss and closing your doors for good.
Transfer: We transfer risk via insurance policies all the time, but there are other ways to transfer risk as well. The most common is through contracts. These could be with landlords, vendors, subcontractors, etc. Understanding the concepts of hold harmless agreements and indemnification language as well as the many insurance requirements related to contractual risk transfer can be the difference between owning a claim, and shifting responsibility to another party. Great diligence must be used in structuring all of your contracts to ensure that you are only responsible for your own liability.
Financing: This is the traditional purchase of an insurance policy noted above.
If your cannabis business is focused on strategies around prevention, assumption, mitigation and transfer of risk you will have a leg up on your competition when it comes time to financing your risk. Make sure you are working with an insurance professional that can help you in these areas and make you more attractive to the insurance marketplace.