What’s Driving the Price Increase for Cannabis Landlords?
The cannabis insurance companies continue to raise insurance rates and offer less coverages in particular states such as Colorado, Oklahoma, Missouri, and New Mexico. The reason boils down to one word: claims. The types of claims have involved hail, wind, and theft damage to buildings. Certain carriers are even non-renewing policies due to location they perceive as higher risk.
If the insurance carrier is offering a renewal, the price increase can be as high as 35% over last year with possibly higher deductibles and exclusions for cosmetic damage. If you were paying $10,000 per year for, then you can expect to see the price increased to $13,500.
The deductibles are typically 2% of the building coverage limit. For example, the building coverage limit is $1,000,000, then expect to pay a $20,000 wind and hail deductible. Below is sample policy language from a landlord policy describing how the wind/hail deductible is calculated.
Example 2 – Specific Insurance (B.1.)
The amounts of loss to the damaged property are $60,000 (Building) and $40,000 (Personal Property in building). The value of the damaged building at time of loss is $100,000. The value of the personal property in that building is $80,000. The Coinsurance percentage shown in the Declarations is 80%; the minimum Limits of Insurance needed to meet the Coinsurance requirement are $80,000 (80% of $100,000) for the building and $64,000 (80% of $80,000) for the personal property. The actual Limits of Insurance on the damaged property are $80,000 on the building and $64,000 on the personal property (therefore, no Coinsurance penalty).
The Deductible is 2%.
Building
Step (1): $80,000 x 2% = $1,600
Step (2): $60,000 – $1,600 = $58,400
Personal Property
Step (1): $64,000 x 2% = $1,280
Step (2): $40,000 – $1,280 = $38,720
The most we will pay is $97,120. The portion of the total loss not covered due to application of the Deductible is $2,880.
Cosmetic damage exclusion built into the policy to deny coverage
The exclusion for cosmetic damage changes how the insurance policy might respond to a claim. The insurance company is not paying a claim when the roof damage is cosmetic in nature such as marring, while the integrity of the roof system has not been compromised. This exclusion can be a major surprise to landlords who might be thinking a new roof should be installed.
Sample policy language for excluding roof damage considered cosmetic: We will not pay for cosmetic damage to roof
surfacing caused by wind and/or hail. For the purpose of this endorsement, cosmetic damage
means that the wind and/or hail caused marring, pitting or other superficial damage that altered the
appearance of the roof surfacing, but such damage does not prevent the roof from continuing
to function as a barrier to entrance of the elements to the same extent as it did before the cosmetic
damage occurred.
The bottom line is many cannabis landlords are surprised by the premium increases that is likely to be passed on to the tenant depending on the lease agreement. Fortunately, our agency has been able to find other insurance carriers with more reasonable pricing.