Emerging Opportunities Report
The economy, social attitudes and the nature of work itself are all changing rapidly. How can brokers capitalize on these shifts and create new business? We asked a few MGAs about where they see small opportunities arising
The medical marijuana industry is a high-profit, high-risk sector. But many operators go underinsured or are not insured at all
By Gary Hirst
Attendees of Seattle’s recent Hempfest received a well-chosen gift from an unlikely benefactor. The Seattle Police Department was on hand to give out Doritos to pot enthusiasts. Affixed to the bags were public safety messages detailing the dos and don’ts of marijuana use. As recently as last year, the only message would have been don’t use marijuana, but the times—and laws—are changing.
In Canada, we haven’t yet seen full-scale legalization such as that introduced in Colorado and Washington state, but the Canadian Marihuana Medical Access Program allows for medical marijuana producers and dispensaries to supply treatment to patients in need, which has created a niche industry–albeit a risky one.
The medical marijuana industry is exposed to the same risks of any other industry, such as fire, flood, vandalism and theft. However, the nature of the medical marijuana operations changes their risk profile enough to make specialty lines necessary.
Many businesses in the medical marijuana industry have difficulty obtaining loans and setting up accounts with major banks. For this reason, many hold large amounts of cash on hand, making them a major target for robbery. And, since marijuana is both legal (medicinally) and illegal (for public consumption), the product itself can be a target for thieves.
Nurseries require the installation of high-powered hydroponic lights that require a more robust electrical setup that can increase the risk of fire or shorts if not properly installed. The sensitivity of hydroponic systems can result in the loss of a crop, which can disrupt the cash flow of the company.
In the event of any of these incidents, a sound insurance policy is necessary to keep the business afloat. It is a commonly-held misconception that coverage for medical marijuana businesses is expensive and inaccessible. On the contrary, coverage is easily attained for businesses such as dispensaries, nurseries, bakeries and even building and leasing facilities. Policies are also usually reasonably priced, though it requires specialized knowledge of the risks associated with this type of business.
A comprehensive policy for client in the medical marijuana industry should include general liability protection, as well as property coverage.
General liability protection will protect a business from damages and injuries, risks common to any industry. Many policies are available with limits of up to $5 million per occurrence. Specialized property protection will cover theft or damage of product, equipment and furniture fixtures.
Business owners in the medical marijuana area should be treating their business similar to any other industry. Debunking myths that medical marijuana coverage is too costly or unavailable is crucial to growing this market within the insurance industry.
DIY and home renovation shows make house flipping look easy. But overlooking a specialized insurance policy could leave investors in the red
By Gary Hirst
Television shows, such as A&E’s Flip This House or HGTV’s Home to Flip, teach the Average Joe that they too can turn a quick profit from flipping a property. In reality this is not always the case, with many eager new house flippers overlooking some major factors that could greatly impact their return on investment—one of which is insuring the house being flipped.
Many new house flippers are under the misconception that their current homeowner’s insurance will provide the coverage they need to protect the investment. Their homeowner’s insurance policies typically have standard liability coverage with limits and deductions that may be sufficient for a typical homeowner but not for a house flipper.
Houses being flipped require specialized risk management for hazards such as vandalism, drugs, crime, pipe or plumbing issues and storm or fire damage. Theft of copper, appliances, electrical wire and other items of value that can be easily sold is also very common.
With numerous contractors entering the property and major renovations taking place, properties with pools create an additional risk, as owners are still liable for injury or death if the area is not properly secured for children.
Many renovated homes sit on the market for longer than intended by the investors, often more than 30 days, making the property “vacant” in the eyes of many insurers, which may leave the owners with no coverage at all. This is a common rookie mistake for house flippers, and one they surely won’t make again after they submit a claim, only to find that their property is now considered vacant and does not have coverage.
Houses being flipped require a dwelling policy rather than a standard homeowner’s policy, which only protects the contents of a home. A dwelling policy is typically used for rental properties to cover the physical structure of the home and is usually more expensive than a homeowner’s policy, which often deters new house flippers.
However, dwelling policies can be tailored to cover the specific needs of each house flipper. For example, a house flipper would need coverage for materials at risk for theft such as copper and tiling, which would not be covered by a standard homeowner’s policy, but would only require minimal coverage for the contents of the home.
A sound policy for a house being flipped should also include vacant house coverage, as this is when the property is most at risk.
As more and more Average Joes decide to flip a house to turn a profit because they saw it on TV, brokers need to make sure they fully understand the specialized risks associated with their income property and have a policy that not only covers the cost of the property and building but also all of its contents.
Gary Hirst is national director of Burns & Wilcox Canada.
Entrepreneurs at Home
Home-based businesses are taking off, but many don’t have the coverage they need
By Theresa Teixeira
Current technology and the Internet now allow people to conduct business anywhere. Meanwhile, environmental concerns coupled with the ever-increasing price of fuel and a push for more work/life balance has driven a trend towards people leaving their ivory towers and starting home-based businesses. With this trend increasing, there are a number of unique exposures that are not currently being adequately addressed in the marketplace.
Gaps in coverage exist as standard homeowner policies have exclusions and limitations relating to business exposures. Many commercial insurers typically find these businesses too small to cover. At the same time, these businesses sometimes have significant exposures that cannot be easily addressed, such as: errors & omissions, medical malpractice, directors & officers liability, abuse allegations, products liability and more.
While the industry may not yet be prepared for a future that includes many of these exposures on every street corner, the growth in home-based businesses will continue.
One emerging home-based business opportunity is green energy production. “Passive” business ventures such as green energy production for resale or home use can also present insurance challenges and client-education opportunities for savvy brokers.
Homeowners now have available to them a myriad of new and adapted technology options for on-site “green” energy production and can capitalize on government subsidy programs to offset the capital investment requirements. Examples include roof-mounted photovoltaic (PV) cells, solar shingles and small-scale wind turbines.
Each of these technologies present unique commercial insurance exposures not contemplated in “traditional” homeowner policies, such as: large-scale business interruption claims resulting from non-grid induced brown/blackouts; public nuisance claims resulting from the not-yet-fully-understood health effects of wind turbines, and structural damage caused by poorly designed or improperly installed roof-top solar systems.
A key challenge for the industry is that clients may undertake a green energy project without first consulting their insurance advisor and investigating the limitations of their insurance. Therefore, it is incumbent upon brokers to stay up to date with changes in these technologies and pre-educate their clients about the potential insurance risks of undertaking such a project.
Sports & Fitness
Athletes and sport aficionados are also increasingly working from home. Sports injury exposures for home-based businesses can be divided into two distinct categories: organized sports teams/schools; and yoga instruction, boot camps and personal trainers.
Many leagues/training schools are now more commonly owned and run as home-business ventures. Whether held in a field or backyard and for profit or non-profit, sports operators can be held liable for injuries that occur under their supervision. This may require separate commercial liability and D&O insurance.
Home-based yoga classes, boot camps and personal trainers pose additional premises liability exposures, on-site and off. Often the sites are not designed or equipped for the intended purpose. Head and neck injuries are becoming more common, as athletes of every age and skill level are now participating.
Higher aggregate limits are required and may not be readily available in the marketplace. Coverage such as sexual abuse, participant coverage and errors & omissions will be important for filling the requirements in this segment.
Theresa Teixeira is executive vice president and chief underwriting officer with Totten Insurance Group.
Plenty of Fish
The aquaculture industry in Canada is small but booming, as worldwide demand for fish products continues to soar
By Ghazal Hamid
Are you familiar with the fast-growing aquaculture industry? Increasingly, brokers are coming to acknowledge this fundamental element in the global solution to provide a sustainable seafood source.
Aquaculture, also known as aqua farming, is the farming of aquatic animals and plants. The World Wildlife Fund says it is the fastest growing food production system in the world, responsible for approximately half of the world’s consumed seafood.
Even though Canada’s aquaculture industry is estimated at around $2 billion in range, in comparison to global production, it can be considered rather small. Nevertheless, since 1996 aquaculture production in Canada has nearly doubled and its value has tripled, according to the Fisheries and Oceans Canada. In 2012, the Ministry issued a report on the sustainability of aquaculture discussing strategies to ensure “the sector continues to grow responsibly.”
With the rapid growth of global fish farming, aquaculture insurance has become increasingly important and complex. It must cater to a risk profile that is always evolving due to climate change, technological development and the introduction of new species.
With disease, predation and environmental factors being the major economic factors faced by any aquaculture stock operation and a major source of aquaculture insurance claims, stock mortality is the most critical coverage required for this class and should be offered for a number of specific perils, including: pollution, theft, predation, disease and various environmental changes
Although aquaculture insurance has been available in Canada since the mid-1970s, on both the east and west coasts, the recent push to certify the Canadian aquaculture industry to one or more global standards clears the way for insurers to assess the industry in a more structured, regulated and standardized manner.
As of 2012, with the release of the Canadian Organic Agriculture Standard, consumers have the opportunity to choose certified organic farmed seafood. With the move towards industry wide certification in Ontario, major grocery retailers will likely require suppliers to have obtained an accepted certification by the end of 2013.
With its positive environmental contribution to the enhancement of the fish population, as well as providing a renewable global solution as a food source, and Canada’s policy decision to standardize a regulatory framework, the aquaculture industry appears poised for dramatic economic growth.
Ghazal Hamid is marketing manager for South Western Insurance Group Ltd.
Copyright 2013 Rogers Publishing Ltd. This article first appeared in the September 2013 edition of Canadian Insurance Top Broker magazine