Nine Insurance Trade Groups Just Told Congress They Want to Cover Cannabis. The Bill Has Failed Before.

The letter that landed on Capitol Hill this month was not written by the cannabis industry. It was signed by the American Property Casualty Insurance Association, the Council of Insurance Agents & Brokers, the Independent Insurance Agents & Brokers of America, the National Association of Mutual Insurance Companies, the Wholesale & Specialty Insurance Association, the American Council of Life Insurers, the American Land Title Association, the Reinsurance Association of America, and the National Association of Professional Insurance Agents. Nine trade groups that between them speak for most of the American insurance business, asking Congress for permission to sell something. (S1, S2)

What they want permission to sell is a policy to a licensed cannabis company. The request tells you how odd the current arrangement is: the carriers are not being kept out by risk appetite. They are being kept out by the possibility that a federal regulator will punish them for writing the business at all.

On September 16, Representatives Nydia M. Velázquez, a New York Democrat, and Warren Davidson, an Ohio Republican, reintroduced the Clarifying Law Around Insurance of Marijuana Act. A Senate companion had already been filed on July 21 by Kevin Cramer, the North Dakota Republican, and Ruben Gallego, the Arizona Democrat, both of whom sit on the Banking, Housing and Urban Affairs Committee where it now waits. (S1, S2, S3)

“One fire or one storm could wipe out everything an owner has built, with no way to recover.”

— Rep. Nydia M. Velázquez (D-N.Y.)

"Because of the conflict between federal and state law, insurers are still hesitant to write policies for cannabis businesses," Velázquez said when the bill was filed. "That means thousands of legal small businesses are operating without a safety net." Davidson framed it as a federalism problem rather than a cannabis one. "Businesses operating legally under state law should be free to purchase insurance, and insurers should be free to serve them," he said. "The federal government should not use regulation to interfere with lawful commerce or override decisions made by the states." (S1, S3)

Nearly all cannabis coverage in the United States is written in what the industry calls the non-admitted market, also known as excess and surplus lines. A non-admitted carrier is not licensed in the state where the policy is sold. It is regulated where it is domiciled, it must be found eligible before a broker can place business with it, and in California a broker must file an affidavit documenting a diligent search of the licensed market before exporting a risk to it at all. (S4)

It is a functioning market and the people who work in it resent the implication that it is not. What it is not is cheap, and it carries one structural difference that matters enormously to a small operator: surplus-lines policyholders do not get state guaranty-fund protection. If the carrier fails, there is no backstop. Admitted carriers, the ones licensed in your state, are generally cheaper and come with that guarantee. Almost none of them will touch cannabis, because they hold state licenses they are not willing to risk on a federal question. (S4)

The bill runs nine pages and does one thing. It bars federal agencies from prohibiting, penalizing or otherwise discouraging an insurer from doing business with a cannabis-related legitimate business, or with a state, political subdivision or Indian tribe that regulates one. It bars them from cancelling or limiting an insurer's own policies on that basis, from recommending or encouraging a carrier to downgrade or drop a cannabis-connected policyholder, and from taking adverse supervisory action over such a policy. It also directs the Government Accountability Office to study the barriers facing minority-owned and women-owned businesses trying to enter the industry. (S2, S3)

Cramer put the parallel plainly. "Much like marijuana businesses are barred from using bank accounts, they are also locked out of insurance markets," he said. "Businesses, as we know, obviously assume risk. That's part of being in business. But the risk for cannabis companies that operate in states where it's actually legal is especially high." Gallego, whose state runs one of the larger adult-use markets, called it a commonsense bipartisan fix. Forty-two states now run medical programs and 24 of those also permit adult use, which the sponsors describe as a haphazard regulatory environment. (S3)

The honest caveat is that federal risk is only one of the reasons cannabis is expensive to insure. The exposures are real and they are specific: fire in rooms full of electrical load and dried plant material, theft from cash-intensive businesses, crop loss, workplace injury, product liability. Those would price the same on the day the CLAIM Act passed as the day before. Removing the legal deterrent widens the field of carriers willing to quote. It does not make the underlying risk smaller. (S2)

The specialists are moving anyway, which is its own signal. Conifer Insurance Services has launched a cannabis program offering up to $25 million in property coverage and $5 million per occurrence for general and product liability, limits that were unavailable to this industry a few years ago. In August, NFP, owned by Aon, acquired Frontier Risk's retail cannabis insurance business and the team that came with it. Capacity is arriving at the top of the market whether or not Congress acts. (S2)

It is arriving unevenly. Lee Woodruff, who leads Jencap's cannabis practice, has made the point that the temptation in a compressed market runs the wrong way: "Cost is always a factor, but cutting corners on coverage is a short-term mindset with long-term consequences." Her colleague Justin Sheerin, a cannabis insurance specialist at the same firm, notes the second-order effect of thin margins, which is that fraudulent claims "can devastate a business that's already operating on narrow margins." Underinsurance and claims fraud are both symptoms of operators who cannot afford the premium. (S5)

Every person who has followed cannabis legislation recognizes the shape of this. A bipartisan bill, a mainstream financial-services lobby behind it rather than the cannabis industry, a narrow technical fix that does not legalize anything, and broad agreement that it is sensible. Banking reform has had all of that for ten years and has still never become law. Lawmakers reintroduced the SAFER Banking Act over the summer. Previous versions of the CLAIM Act have already failed. (S2)

There is one difference this time, and it may not help. Rescheduling has already happened for medical cannabis. An optimist reads that as the federal risk receding on its own, which is the argument for why admitted carriers might now come in without a statute. A pessimist reads it as the reason the statute stalls: members who were prepared to vote for a modest fix under prohibition can tell themselves the problem is being solved elsewhere. Most operators are in adult-use, and adult-use is still Schedule I. (S2)

1. Senate Banking, Housing and Urban Affairs, whether the Cramer-Gallego bill gets a markup, the single clearest signal of whether this moves at all.
2. Whether CLAIM is attached to a larger banking vehicle. On its own, a narrow insurance fix rarely gets floor time; bundled with SAFER, it might.
3. The GAO study the bill orders on minority-owned and women-owned market entry, which would be the first federal data on that question.
4. Any admitted carrier filing a cannabis product in a state before the bill moves. That would tell you the market is not waiting for Congress.
5. Treasury's still-unissued 280E guidance, which shapes how much margin operators have to spend on premium in the first place.

Velázquez's framing is the one worth keeping, because it is the smallest version of the argument and the hardest to refuse. One fire. One storm. A grower in a state that licensed her, holding a surplus-lines policy she can barely afford from a carrier with no guaranty fund behind it, watching a season burn.

Nine trade associations have now told Congress they would like to sell that grower a normal policy. The bill that would let them has been introduced before, and has not passed before, and is currently sitting in a committee alongside a banking bill that has been reintroduced and reintroduced for the better part of a decade.

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