The stakes have never been higher for marijuana legislation and the insurance industry as lawmakers and regulators wrestle with the ramifications of legalizing this once universally banned substance.
The past decade has been undeniably transformative for U.S. marijuana laws. To date, 28 states and the District of Columbia have broadly legalized cannabis in one form or another, including the recent legalization of recreational marijuana in California, Massachusetts, Maine and Nevada during the November 2016 election cycle.
But whether it’s being used as medicine or for leisure, the marijuana legalization trend has resulted in myriad state laws that conflict with the federal government’s official position on the production, possession and consumption of cannabis. What’s more, the particulars of individual state laws are anything but uniform, and what’s considered legal in one state may be unlawful in another — even if they both allow for some degree of marijuana possession or consumption.
As a result, the insurance implications are as varied as they are complicated.
“The insurance industry has run into an interesting area where they know marijuana is legal in some states but that it’s also not legal according to federal law. And that’s led to a real quandary,” says Brenda Wells, director of the risk management and insurance program at East Carolina University in Greenville, North Carolina. “Do they cover it? Do they not cover it? And if they do cover it, how is it valued? These are just some of the questions they’re wrestling with at this stage. And it can get confusing.”
To help you wade through these muddy waters, insuranceQuotes offers some key considerations for marijuana’s impact on various components of the insurance industry.
Marijuana and homeowners insurance
The question is simple: If you have some marijuana and it’s damaged in a fire or stolen from your property, will your homeowners insurance policy cover the loss?
The answer, however, is not so straightforward.
Some insurers are looking to individual state laws to establish a precedent for coverage. For instance, Allstate went on the record in 2014 saying it would cover the loss of marijuana in Colorado, where cannabis is legal for both medicinal and recreational use.
“In Colorado, lawfully possessed, processed marijuana is not excluded and is limited to the personal property limit of the homeowners policy,” Allstate said in a statement that year. “Whether it is medical or non-medical is not relevant to coverage. Fire is a covered peril, and coverage of an accidental fire would not be impacted by whether or not it was started in connection to lawful marijuana use.”
They added that marijuana plants grown with a state license — and not exceeding the legal state limit — would be “limited to the perils and limits under additional protection for trees, shrubs, plants and lawns.”
But, says Wells, this does not address the more perplexing problem of marijuana’s monetary value and conflicts between state and federal laws.
“Even if insurers are writing policies in line with state laws, there’s the critical problem of valuation,” says Wells, who is currently working on an update to her seminal 2014 paper title Marijuana Legalization: Implications for Property/Casualty Insurance. “It’s incredibly hard to establish a market value for marijuana across the board, and how this is handled is going to vary from state to state.”
For instance, a federal court in Hawaii ruled in 2012 that a homeowners policy did not cover the theft of her marijuana plants grown for medicinal use.
The homeowner, Barbara Tracy, was allowed to grow and possess marijuana for her own medical use, and after 12 plants were stolen she submitted a claim to USAA for $45,600. USAA initially agreed to pay Tracy $8,801 for the claim, but Tracy sued, claiming the plants had a far greater value.
USAA argued that because marijuana is federally classified as an illegal Schedule I substance (akin to heroin, morphine, and LSD) they were under no obligation to cover the loss at all. The court ultimately agreed with USAA, stating that even though Hawaii law permits the use of marijuana for medicinal use it is illegal under the Controlled Substances Act and therefore not subject to homeowners’ insurance coverage.
Some states are pre-emptively combatting these types of conflicts by including language in marijuana legalization laws that prevents insurers from denying claims like Tracy’s.
For instance, Oregon’s Control, Regulation and Taxation of Marijuana and Hemp Act states, “No contract shall be unenforceable on the basis that manufacturing, distributing, dispensing, possessing or using marijuana is prohibited by federal law.”
In other states, possession limits are so low that insurance companies aren’t bothering to fight claims.
For instance, Wells points out that Connecticut allows for the possession of up to 2.5 ounces of “useable marijuana” for medicinal purposes.
“If 2.5 ounces were stolen or lost in a fire, the value of that loss would probably be less than $1,000,” Wells says. “And an insurance company isn’t going to go to the mat over such a small claim.”
Nonetheless, there is a lot of money at stake here on the whole. According to Forbes, the legal U.S. marijuana market exceeded $6.5 billion in sales in 2016, and that number is only projected to climb in the coming years.
“First and foremost, the insurance industry needs to figure out whether or not they want to cover marijuana losses, and if they do they need to be prepared to pay claims.
If not, they need to change their contracts to expressly exclude it,” Wells says. “But that still doesn’t solve the bigger problem of how to value the plants. What is a fully-grown marijuana plant worth? No one has an answer to that yet.”
Marijuana and life insurance
As more and more Americans legally smoke cannabis for recreational and medicinal use, life insurance providers have had to grapple with its impact on the application and underwriting process.
According to insurance specialist Michael Quinn, life insurance providers are wrestling with whether or not smoking marijuana carries the same health risks as smoking cigarettes.
“Regular smokers are charged tobacco rates, which are often four times higher than those for non-tobacco users,” Quinn says. “But some insurers are deciding to treat marijuana differently.”
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For instance, Prudential tends to offer some of the lowest life insurance rates for medical marijuana users because they do not place them in the same risk pool as cigarette smokers.
“Based on your marijuana use alone, there is no telling what kind of rates you will be offered. You could technically get rates anywhere from substandard to preferred plus,” Quinn says. “However, Prudential looks at the reason behind your medical marijuana use, and this means that your rates will be based on the severity of your health condition.”
For instance, let’s say a hypothetical man named Jim smokes medical marijuana to help with insomnia. As a 50-year-old in otherwise perfect health, Prudential would offer him a preferred plus non-tobacco rate.
If, however, Jim uses medicinal marijuana to ease the symptoms of multiple sclerosis, he would get a higher rate based on the severity of the condition being treated, not his use of marijuana.
Nonetheless, the extent to which your life insurance might be affected by smoking marijuana will depend on the individual insurer and the frequency of your use.
“For underwriting consideration, the first thing we must determine is whether the use is recreational, or if the proposed insured had been issued a prescription for medical use,” says Pinney Insurance underwriter Mike Woods. “If it’s for medicinal purposes, underwriting is going to be looking to the specific issue that the marijuana is being used to treat."
For recreational use, Woods says the underwriter is going to want to know the frequency of use.
"Cannabis contains carcinogens, and evidence suggests that heavy cannabis use may be associated with oral cavity, pharynx, esophageal, and lung cancers," Woods says. "Because of those concerns, many carriers will assign tobacco use rates for any use.”
Marijuana's impact on businesses
For businesses in the legalized marijuana industry, insurance providers are still operating in unchartered waters, says Tim Davis, workers compensation and general liability insurance expert.
“Because marijuana is still against federal laws, this causes a major limitation in the marketplace for any business that serves or operates in the marijuana industry,” Davis says. “General liability exposure is still untested, and since the exposure is too new to have time to develop, we will have to see how the premiums for this industry shake out.”
For instance, if you own a marijuana retail store and someone falls while shopping there, general liability insurance would cover any medical costs incurred by the shopper. What’s more, product liability issues may come into play for marijuana retailers selling edible marijuana food products.
“Premiums are still incredibly high for the few carriers who offer insurance to the marijuana industry because no one knows yet if this type of insurance will be profitable,” says Davis. “There’s still no standard to follow across the board.”
When it comes to workers compensation insurance, Davis says there are a few more carriers willing to offer coverage to the marijuana industry.
“Workers compensation insurance is primarily run based on state laws, so you see that market opening up a little in states where marijuana is now legal,” Davis says. “But that number is still very limited due to the social stigmas attached to the product. Mostly, the carriers offering coverage are non-rated or smaller carriers who aren’t worried about a negative public image.”
Assuming the national trend for marijuana legalization continues, Davis believes this will change rapidly over the next five-to-10 years as courts and governments address some of the key coverage concerns and conflicts between state and federal law.
“Once carriers can properly assess what their risk is and know how the judicial system will defend the policies, it will be much easier for more major carriers to enter the market,” Davis says.
Marijuana and auto insurance
The intersection of legal marijuana and auto insurance has been fairly uncomplicated thus far, and that’s because the insurance ramifications for getting caught driving high are no different than those associated with driving under the influence of alcohol.
“If you’re convicted of driving under the influence of marijuana your insurance rates will go up, just like they would if you were charged with a traditional DUI for booze,” Wells says.
However, one of the most significant questions concerning legalization is whether or not more recreational pot legalization has lead to more incidents involving so-called drugged driving. It’s been four years since Colorado and Washington were the first to legalize recreational marijuana, and the data is still a bit unclear.
“I would say the legalization of marijuana has caused a spike in auto accidents for a few reasons, and the most significant one is that new users who don’t have any tolerance to marijuana often overuse it and are not aware of its effects until it’s too late,” says Lindsey Parlin, a Colorado-based criminal defense attorney who specializes DUI cases. “Even if you smoked 30 years ago, you might not realize that the effects of the marijuana out there today are much more significant.”
Nonetheless, it’s very difficult to find any empirical data that links marijuana legalization to an increase in stoned driving in any of the seven states that now allow for its recreational use.
“A big problem is that there is no separate DUI law for driving under the influence of marijuana,” says Sam Tracy, former chairman of the international nonprofit Students for Sensible Drug Policy. “They just sort of wrap it into the alcohol laws, so if you get charged with a DUI we don’t have data that splits out marijuana versus alcohol versus prescription drugs ... so we haven’t been able to get a solid understanding of the effects of legalization.”
Still, there are some who urge a great deal of caution despite the lack of data.
"With the higher prevalence of marijuana in the world, what we’re seeing is a sort of denial of the fact that marijuana can be impairing,” says Chris Cochran, spokesperson for California’s Office of Traffic Safety. “Marijuana is not a benign substance when it comes to driving ability. It throws off your perception of time, loosens inhibitions, and changes reaction times. We can’t just say, ‘Oh, people who are high drive slower and nicer.’
"Anything you put into your body that will alter your brain chemistry is potentially impairing and dangerous behind the wheel.”
Medical marijuana and health insurance
Even if you live in one of the 28 states that have legalized marijuana for medicinal use, don’t expect your health insurance to foot the bill.
Because of its federal designation as a Schedule I controlled substance, health insurance providers have their hands tied when it comes to reimbursing patients using medicinal cannabis, says Wells.
What’s more, marijuana is not an approved medical treatment by the FDA, and because of its Schedule I classification extensive clinical research on its medicinal efficacy has been difficult to obtain.
“That probably isn’t going to change anytime soon,” Wells says.