Cyber incidents are the top threat to businesses, according to the latest Allianz Risk Barometer survey, up from third place in 2021. This result follows several significant data breaches and hacks last year, including the Colonial Pipeline ransomware attack, which caused a six-day shutdown and cost the company $4.4 million to regain access to its systems.
Business interruption fell to the second most important concern in a year marked by the continued presence of the coronavirus pandemic, cyberattacks, and natural catastrophes. Still, the report notes that the pandemic “has exposed the fragility and complexity of modern supply chains and how multiple events can come together to cause problems, raising awareness of the need for greater resilience and transparency.”
Natural catastrophe risk ranks third on the list – a jump from sixth in 2021. Global insured catastrophe losses increased to $112 billion in 2021, the fourth highest on record, according to Swiss Re.
While cyber is ranked as a more immediate threat to business than climate change, the report says these two perils are “linked by the fact that two of the most significant impacts expected from changes in legislation and regulation (the fifth top risk) in 2022 will be around big tech and sustainability.”
Pandemic outbreak fell to fourth place for 2022, with many companies comfortable that they are now better prepared for the consequences of these occurrences. According to the report, 80 percent of respondents believe they are “adequately” or “well” prepared.
The 11th annual report was developed from a late 2021 survey of 2,650 risk management experts from 89 countries and territories, including Allianz customers, brokers, industry trade organizations, risk consultants, and underwriters, with a focus on large- and small to mid-size companies.
Construction material costs rose dramatically in 2021, altering the underwriting and pricing of commercial property insurance. A recent report by Westchester – Chubb’s excess and surplus specialty product group – details the causes of rising commercial property insurance prices and how they can be mitigated.
The report cites three main factors driving the increase:
More frequent and severe insured losses due to extreme weather;
A supply chain crisis that has generated higher costs for construction materials; and
Rising inflation, which totaled nearly 7 percent in December 2021 from the previous year’s period and is the largest one-year increase in the past 40 years.
Weather, extreme and unpredictable
According to NOAA National Centers for Environmental Information, there were 20 weather-related disasters with losses exceeding $1 billion occurred in the United States between January and September 2021. Between 1980 and 2020, the average number of these types of losses was seven.
In the first half of 2021, about $42 billion in insured property losses were recorded by the insurance industry, representing the highest figure in a decade, according to Swiss Re.
Despite this dramatic rise in losses, the report says, catastrophe risk models “may not fully capture the potential losses attributable to unusual weather events like the December 2021 tornado outbreak, Hurricane Ida, and Winter Storm Uri.” The unpredictability of these storms, alongside a need for better hydrological, topological, and geospatial data gathering and analysis, continues to pose a threat for insurers trying to anticipate risks associated with commercial properties.
Supply chain
2021 also saw a fluctuation of pricing changes for many materials — particularly those used for building – courtesy of the pandemic’s disruption of the global supply chain. Although the exorbitant lumber prices fell in the second half of the year, the prices of materials like copper piping and tubing dramatically increased, according to the report. This posed a challenge for insurers to approximate future costs for underwriting and pricing purposes.
If an unexpected major storm hits a heavily populated region, thousands of homes may need to be repaired or replaced at the same time, pushing the cost of goods and labor – and, ultimately, insurance – even higher. In November 2021, the report says, it was estimated that commercial properties were undervalued for insurance underwriting purposes by more than 30 percent.
Inflation
In addition to pandemic-driven cost increases, underwriters are concerned about the broader inflation picture and its potential impact on interest rates.
“High inflation of the 1970s and early 1980s, for example, adversely affected the industry, resulting in weaker underwriting performance and reserve levels,” the report says. “Rising interest rates, on the other hand, deteriorated the value of fixed income assets.”
Economists recently polled by Reuters said they expect the U.S. Federal Reserve to tighten monetary policy to tame persistently high inflation at a much faster pace than they believed a month earlier.
Where do we go from here?
Westchester’s report offers several strategies to help combat rising commercial property insurance costs:
Insurers, reinsurers, modeling firms, brokers, and risk managers need to develop more accurate and near-real-time data on building condition, drainage systems, real estate trends, and access to construction materials and labor;
Risk managers and property owners should consider entering agreements with contractors before weather events to ensure that materials and services are available when the need arises;
To ensure more comprehensive underwriting of a building’s replacement value, more frequent and in-depth property damage risk appraisals from qualified sources are needed; and
Insurers should consider upgrading loss prevention services provided to commercial property owners and rewarding policyholders with discounts and credits for taking certain risk-mitigation measures.
By Captain Andrew Kinsey, Senior Marine Risk Consultant at Allianz Global & Corporate Specialty
When an Amazon package arrives at our door, we scarcely give any thought to what it took to get here. It’s likely that your school supplies or article of clothing has traveled a great distance across the ocean by vessel.
International shipping accounts for 90 percent of world trade, and the old saying “there’s many a slip ‘twixt the cup and the lip” is appropriate. Much can go wrong between the point of origin and destination — and lately Marine insurers are keeping a close eye on developments in our climate, the economy, and public health that could influence the odds of a successful delivery.
The annual Safety and Shipping Review produced by Allianz details trends and developments in shipping losses and safety and is a valuable resource for Marine insurers. Here are some of the major highlights.
Losses at sea
First, let’s look at losses of vessels at sea, where the trend is stable. There were 49 total losses of 100 gross tons or more in 2020, compared to 48 a year earlier. Credit better safety measures, regulation, improved ship design and technology, and advances in risk management. Behind the numbers, however, are a host of volatile factors, such as extreme weather, machinery breakdown, fires, and even piracy. Ship operators can improve fire detection and firefighting on large vessels and ensure that machinery has been inspected and is in good working order. Also, weather impacts can be mitigated by improving forecasting and vessel routing.
Another big concern of insurers is shipping containers lost at sea. Last year, more than 1,000 fell overboard in the first few months due to rough weather and heavier loads. A surge in demand for consumer goods is another factor; in response, containers are being stacked aboard at unprecedented heights, leading to concerns that they aren’t being properly secured. In all, more than 3,000 containers were lost at sea in 2020, compared with a longer-term average of 1,382 per year.
Pandemic impact
Next is the global pandemic, which has had little effect on Marine insurance claims to date. It’s quite possible that claims could increase as more vessels are put back in service and we see the effects of delayed maintenance. Another big concern is crews confined to their ships in ports due to public health mandates, which delays crew changes and medical treatment. Crew fatigue leads to human error – a major cause of many losses.
These are factors that warrant immediate action by all stakeholders in the supply chain, including cargo owners. One solution is to designate merchant seaman as vital workers so they can receive vaccines and move about freely.
Bigger ships, bigger problems
Size does matter in global shipping. Remember the ship stuck in the Suez Canal for over three months? The Ever Given incident was a vivid illustration how hard it is to free large vessels. When it takes more equipment and more manpower, someone must pay. Not to mention the societal and economic cost of supply-chain disruption. There’s a real possibility we will see bare shelves and lots of “items unavailable” this holiday shopping season.
So if bigger vessels cause bigger problems, why are there so many of them? It’s all about economies of scale and fuel efficiency, and shipping companies really can’t be blamed for trying to comply with increased environmental regulations and attempting to reduce their operating costs. However, large vessels pose problems for the supply chain, often overwhelming ports when so many containers are dropped off at once.
Vessel size also has a direct correlation to the potential size of loss, and this is an issue that keeps Marine insurers up at night. Too often, cargo is misdeclared or improperly declared, which can result in fires. For example, if self-igniting charcoal, chemicals or batteries are not properly stowed, the risk of ignition escalates dramatically. And if the item is improperly declared in the first place the crew doesn’t know what it’s dealing with in an emergency.
Compounding the problem is inadequate fire detection and firefighting capabilities on large vessels; for this reason, the International Union of Marine Insurers (IUMI) is rallying stakeholders to establish more stringent standards.
At first glance, it appears the risks associated with global shipping are a moving target. But more careful scrutiny reveals patterns and trends that, when carefully analyzed, can lead to improved loss mitigation, thus reducing the “slips” that can occur in transit.
Captain Andrew Kinsey is Senior Marine Risk Consultant at Allianz Global & Corporate Specialty and chairs the technical services committee of the American Institute of Marine Underwriters, which is a Triple-I Associate Member.
By Loretta Worters, Vice President, Media Relations, Triple-I
Despite the prevalence of cyber threats and the increasing number and severity of incidents, directors, officers, and C-suite executives remain too much in the dark when it comes to cyber risk and insurance, Risk & Insurance writer Alex Wright describes in this month’s cover story, Vigilance Demanded.
While specific policies are available to cover the risk, many policyholders still expect to be covered under their property and liability policies — but are not. Risk & Insurance, an affiliate of the Institutes and the Triple-I’s sister organization, notes that commercial insurance policies still suffer from a lack of clarity regarding damage from cybercrimes.
Confusion around coverage can lead policyholders to experience unexpected coverage gaps.
“In a best-case scenario, a cyber incident may trigger coverage under multiple insurance policies and increase the available total limit to respond to a covered event,” said Adam Lantrip, CAC Specialty’s cyber practice leader. “In a more common scenario, multiple insurance policies may be triggered but not coordinate with one another, and the policyholder spends more on legal fees than the cost of having purchased standalone cyber insurance in the first place.”
Of particular concern to insurers is silent – or “non-affirmative” – cyber risk, in which potential cyber-related events or losses are not expressly covered or excluded within traditional policies. In such cases, insurers can end up having to pay unexpected claims for which the policies weren’t adequately priced.
“Cyber risk is present in just about every insurance policy now,” said Tracie Grella, AIG’s global head of cyber insurance. “But because it hasn’t been factored into the underwriting of standard policies such as property, or properly identified, assessed, priced for and put into the aggregation model, it presents a huge systemic risk that can’t simply be ignored.”
Silent cyber first manifested in the WannaCry, Petya and NotPetya cyber-attacks of 2017, which devastated everything from shipping ports and supermarkets to advertising agencies and law firms, the article explains. The resulting losses from the encryption of master files and subsequent Bitcoin ransom demands for restoring access were the costliest on record, surpassing $3 billion.
Underwriters, brokers, and policyholders need to understand how ever-evolving risks and legal frameworks will affect their policies. They also need to keep themselves appraised of the scale of the problem and understand the most common misconceptions and coverage disputes around silent cyber.
It has been said the best way to eat an elephant is “one bite at a time.” Social inflation is an elephantine topic, so we’re launching a series of blog posts dedicated to each piece of it in turn, starting with litigation funding.
“Social inflation” refers to rising litigation costs and their impact on insurers’ claim payouts, loss ratios and, ultimately, how much policyholders pay for coverage. It’s an important issue to understand because – while the tactics associated with it typically affect businesses perceived as having “deep pockets” – social inflation has implications for individuals and for businesses of all sizes.
The insurance lines most affected are commercial auto, professional liability, product liability, and directors and officers liability. There also is evidence that private-passenger car insurance is beginning to be affected. As increased litigation costs drive up premiums, those increases tend to be passed along to consumers and can stifle investment in innovation that could create jobs and otherwise benefit the economy.
Much of what is discussed and published on the topic has been more anecdotal than data based. Reliably quantifying social inflation for rating and reserving purposes is hard because it’s just one of many factors pressuring pricing. We’ve found that the most meaningful way to think about social inflation and its components is to compare their impact on claims losses over time with growth in inflation measures like the Consumer Price Index (CPI).
Litigation Funding
It’s been said that the best way to eat an elephant is “one bite at a time.” Because of the diversity and complexity of social inflation’s causes and effects, we’re launching a series of blog posts dedicated to each one in turn. The first set of posts will look closely at litigation funding: the practice of third parties financing lawsuits in exchange for a share of any funds the plaintiffs might receive.
Litigation funding was once widely prohibited, but as bans have been eroded in recent decades, the practice has grown, spread, and become a contributor to social inflation.
Litigation funding seemed a good place to begin this series because it’s a distinct legal strategy with a clear history that doesn’t involve a lot of the sociological subtleties inherent in other aspects of social inflation. We’ll look the emergence of the practice, how it came to the United States from abroad, and track its evolution with that of social inflation. We’ll also discuss the current state of litigation finance, along with ethical concerns that have been raised around it within the legal community.
This series will be led by IRC Vice President David Corum with support from our partners at The Institutes and input from our members, as well as experts beyond the insurance industry. As befits any discussion of a complex topic, we look forward to your reactions and insights.
Among the many things we’ve missed since the start of the pandemic, travel has been one of the most notable. Whether for business, to visit distant family members, or just get away from our now-too-familiar surroundings, many of us have been keenly anticipating a return to air travel.
Flying is among the safest activities people can engage in (see infographic). But new concerns are being raised about risks emerging in a post-COVID-19 world.
The risks highlighted in a recent report from Allianz Global Corporate & Specialty (AGCS) include “rusty” pilots, “air rage”, new aircraft, and even insect infestations.
The industry is slowly rebounding, and AGCS notes that the airline teams have stepped up to ensure that air travel remained safe, despite layoffs, financial struggles, and the pressures attending an overnight shift to remote working.
“But as more aircraft return to the skies,” the report says, “there has been much discussion about the hazards that may arise from such an unprecedented period, as well as some of the changes the sector will see.”
Earlier this year it was reported that dozens of pilots had notified the Aviation Safety Reporting System about making mistakes after climbing back into the cockpit. Operated by NASA, the Federal Aviation Administration (FAA) watchdog system enables pilots and crew members to anonymously report mechanical glitches and human errors.
“Many of the pilots cited ‘rustiness’ as a reason for the incidents after returning to the skies following months of lockdown,” AGCS reports. “While there have been no reported incidents of out‑of‑practice pilots causing accidents injuring passengers, mistakes reported included: forgetting to disengage the parking brake on takeoff, taking three attempts to land the plane on a windy day, choosing the wrong runway, and forgetting to turn on the anti‑icing mechanism that prevents the altitude and airspeed sensors from freezing.”
Condition of aircraft
At the peak of the first wave of the crisis, airlines parked around two thirds of the total global fleet. More than a year later, many are still mothballed.
“This unprecedented situation has resulted in a host of new challenges,” AGCS writes. “Loss exposures do not just disappear when airplanes are parked.”
Rather, the risks and their costs change. AGCS cites fears of damage among grounded aircraft during thunderstorms in Texas that pelted the region with golf ball‑sized hail.
Aircraft are large and tricky to maneuver on the ground, and ground incidents can result in costly claims. When operators transferred fleets from the runways to storage facilities at the start of the pandemic there were a number of collisions. It would not be surprising, therefore, to see more such incidents as planes are moved in preparation for reuse.
The European Union Aviation Safety Agency has reported “an alarming trend…of unreliable speed and altitude indications” related to accumulations of foreign objects, such as insect nests in areas of aircraft that provide flight-critical air data information.
“This has led to a number of rejected take-off and in-flight turn back events,” the agency reports.
On the other hand, as many airlines have retired larger aircraft earlier than planned due to COVID-19, there will be many newer planes on the runways and in the air, which presents its own challenges from an insurance coverage perspective. As we’ve written previously, more modern planes are more expensive to repair or replace when there is an incident, leading to more expensive claims.
Air rage on the rise
In May 2021, an attendant on a Southwest Airlines flight attendant had two teeth knocked out after an altercation with a passenger over wearing a mask – the latest in a spate of highly publicized incidents that moved the FAA to issue a warning about a spike in unruly or dangerous behavior. More recently, an American Airlines flight to the Bahamas was canceled when some among a group of high school students refused to wear masks.
In a typical year in the United States, there tend to be no more than 150 reports of serious onboard disruption, the AGCS report says – but by June 2021 that number had already reached about 3,000, including about 2,300 involving passengers who refused to comply with the federal mandate to wear a mask while traveling.
Few COVID-19 claims
The aviation industry has seen few claims directly related to the pandemic to date, AGCS says, also noting a decline in slip-and-fall and lost-baggage claims at airports because of the reduced number of passengers during the pandemic. Such claims are expected to return to more typical levels as people resume traveling, and insurers will need to be mindful of new hazards that could affect claims experience.
Extreme weather and other climate-related hazards.
And now, zombies.
Swiss Re’s chief economist this week said failures of hundreds of “zombie companies” over the next few years are among the concerns prompting insurers to reduce risk and charge higher premiums – a trend that is likely to continue as corporate failures increase.
Zombies – companies that lack the cash flow to cover the cost of their debt – are “a ticking time bomb” whose effects will be felt as governments and central banks withdraw measures that have helped keep these companies alive during the pandemic, Jerome Haegeli told Reuters.
The sobering prediction comes as stock prices hit records and the U.S. economy appears headed for 6.5 percent growth this year. Haegeli said these strengths are illusory because they’re based on temporary fiscal and monetary support.
Insurers are being cautious: reining in underwriting risk, being more prudent about investment allocations, and even taking precautions on insuring operations and supply-chain risk.
“They are not getting fooled by the short-term picture,” Haegeli said. “If you look at the market today, everything looks great. However, it’s illusionary to think that this environment can last” as “life support” is withdrawn in coming months. And that, he said, will bring an increase in long-overdue bankruptcies.
It’s tempting to presume that, as the pandemic-driven aspects of the economic crisis are brought under control, recovery will proceed apace. After all, the economy was doing fine before the pandemic hit, right?
But in September the Bank for International Settlements (BIS) pointed to a “pre-pandemic increase in the number of persistently unprofitable firms, so-called ‘zombies’, which are particularly vulnerable to economic downturns.”
Before the pandemic, the BIS said, about 20 percent of listed firms in the United States and United Kingdom were zombies and 30 percent in Australia and Canada. By comparison, zombies constituted about 15 percent of listed companies in 14 advanced economies in 2017 and 4 percent before the 2008 financial crisis.
Absent any reason to believe these companies’ situations substantially improved during the pandemic or that the contagion didn’t spawn more zombies, the expectation of more corporate collapses seems reasonable.
Add to this rising losses due to hurricanes, severe convective storms, and wildfires; the threat of sea level rise; and the growing reality business and government disruption from cybercrime, and the likelihood of increasing premiums and reduced coverage limits seems strong.
By Marielle Rodriguez, Social Media and Brand Design Coordinator, Triple-I
To celebrate Asian American and Pacific Islander (AAPI) Heritage Month, we spoke with Joann Wang, Co-Founder and Director of Operations of East Side Stories (ESS), a NYC-based non-profit organization dedicated to sharing the AAPI experience through film, media, and education. ESS brings together local talent, AAPI creatives and filmmakers, AAPI-owned businesses, and other community organizations to create meaningful storytelling and conversations around the AAPI experience.
We spoke to Wang on what inspired her to found ESS, how her crew prepares for pandemic-related liabilities on a film set, and the dogged resilience and solidarity of AAPI small businesses and their supporting communities.
Joann Wang
Let’s talk about your background. What inspired you to found East Side Stories (ESS)?
I’m Taiwanese-Mongolian, and I’m a full-time school counselor and a part-time vocational counselor. Shane, our freelance filmmaker, and I started ESS as a passion project. We started doing our “Stories From the Heart” series and interviewing more than 50 Asian Americans on love and what it means to them. We met tons of great people during that project which was back in February 2020. Shortly after, a lot of the hate crimes against Asian Americans really sparked. We saw so many people who were really upset wanting to do something about it. During that time, because of COVID, we had not done anything with ESS. It was still just a YouTube channel.
We had decided to make ESS into a nonprofit organization because we felt that it would be a great way for people to channel their energies and what they want to do to tell Asian American and Pacific Islander stories. You can’t always rally or protest, but you can channel your feelings into a creative project and create something more meaningful, and we figured a nonprofit would be the best way for people to do this.
What is the mission of East Side Stories? What do you hope to achieve and inspire in others through your organization’s work?
ESS’ mission is to serve our creatives and to serve our community through education and storytelling. We hope that ESS is not only going to be a platform where we can spread education and information about being Asian American and Pacific Islander, but that it could be a meeting point for creatives to learn and share information and resources, and to connect with the community. A lot of businesses we see are not able to market themselves, so that’s where ESS would love to step in — “Let’s help you create a fun video to market your business. Let’s tell your story because you’re someone that’s doing amazing work for the community.”
What are some liabilities to think about when working on a film set and working in media production? How do you prepare for these liabilities for your crew and your organization?
We must make sure that our crew members are safe especially because of COVID liabilities, health liabilities, and any type of commercial liabilities. ESS currently operates as a volunteer-based organization so we’re all very bare bones right now. We’ve been using a lot of liability waivers to cover for ESS, but we hope to have more substantial compliance documents in place in the future.
Our Health and Safety Compliance Officer, Tori Wong, is a nurse foremost, and she’s an actress who works in media a lot and is a COVID compliance officer for other big sets. We worked together and created the health and safety protocols, so we follow a lot of what is recommended for standard businesses. For every single shoot that we have, crew members must check in with somebody on set that does COVID compliance. We have COVID compliance officers that go through training. Everyone must wear masks and do temperature checks, and there are particular zones that both talent and crew must stay in.
I know nonprofit insurance and liability is big, but because our organization is so young, and this is all our first time making a nonprofit, it’s been a lot of reading and learning. Taking a stab at the insurance part hasn’t come up yet, but I know it’s coming. We’re still in the process of getting our foundation set up, and then slowly rolling all the compliance into place.
2020 has been a rough year for small business owners, especially those in the Asian American community. Through your encounters and conversations with small business owners and other non-profits, in what ways have AAPI small businesses and the AAPI community demonstrated resilience and solidarity during the pandemic?
We’ve already collaborated with so many organizations and met so many people, and they’re all doing amazing work and bringing together businesses, for example, Welcome to Chinatown, Soar Over Hate, and Asians Fighting Injustice.
AAPI businesses have a fight in them and a huge will to live. That is why we’ve survived for so long, and ESS just wants to capture that. If we don’t amplify what everyone has been doing, people aren’t going to be able to see all the amazing work being done. It will inspire even more organizations to pop up.
Also, no one is afraid to share resources. I can message one organization and say, “Hey, I am trying to connect with someone with an organization who can do XYZ” and they will automatically help me get in touch with them. No one is gatekeeping, and that’s beautiful. That’s what community is about.
Let’s talk about ESS’ upcoming short film “An Essential Delivery”. How does this film capture the challenges and resilience of those working in AAPI small businesses and the gig economy?
This story is about a young woman who lost her marketing job and has to pick up a job as a food delivery worker, and she hides it from her mom, which is not the typical “model minority” story. The film is about essential workers. Shane was the one who came up with the idea after seeing videos of food delivery workers and their hardships. We put together a crew, and for a lot of them it was their first time working on a short. I saw people coming together, and I was blown away by the patience they had and in teaching the newer work crew members. We did it on a very small budget because all the people donated their time. We had around five restaurants that donated their space for us to shoot “An Essential Delivery,” so that was amazing because they didn’t even ask anything back from us.
Let’s talk about your TogethernESS program and your AAPI Community digital series. These provide an opportunity to engage and collaborate with AAPI businesses, organizations, and figures to share their stories. Can you give us insight on the work you do for these?
The TogethernESS program is something that we’re doing for the community. Organizations reach out to us when they want to create something, like a video or graphics, or attain any type of creative service. We can provide them with our nonprofit rate, or we work on a sliding scale with them. We’re still trying to build in a model where we can perhaps provide pro bono. We also want to be able to pay our creatives for their hard work. The TogethernESS program also includes work that we do with Soar Over Hate for their Care Fair event and Asians Fighting Injustice and their rallies. It’s been great so far.
The AAPI Community digital series lives on our YouTube channel. That series is focused on profiles of community members and organizations. When someone on our team has a particular person that they want to do a profile on and it aligns with our mission, we go and cover their story.
What are your goals for ESS in 2021 and beyond? What projects do you have in the works and is there anything you’re particularly excited to share with your audiences?
This year, we’re doing a feature length film documentary on Ace Watanasuparp, the owner of Spot Dessert Bar. Typically, our schedule is three short films a year, and we’re also launching our mentorship program. These are things I’m really excited about for 2022. This year we’ve been shooting a lot of the feature length film, and it’s been really cool to see and connect with all these awesome people. Other than that, just watching the organization grow and seeing and meeting people has been nice and heartwarming.
The future looks brighter every day for the cannabis industry.
From recent findings that cannabis components may lead to treatment or even prevention of coronavirus infection in lung cells to yesterday’s vote by the House of Representatives in favor of the Safe Banking Act, barricades to full legalization just keep falling.
This isn’t the first time the act – which would protect banks from federal penalties for doing business with cannabis-related businesses that comply with state laws – has made it through the House. It was first introduced in March 2019, and the House has approved it three times, only to have the Senate Banking Committee block its progress. But with the current Democrat majority, apparent bipartisan support, and growing public and state-government support for cannabis legalization, the fourth time just might be the charm.
The Drug Enforcement Agency characterizes cannabis as a Schedule I drug, defined as having “no currently accepted medical use and a high potential for abuse.” Without legislative change, banks and insurers can’t do business with business without risking running afoul of federal drug laws.
“There’s more optimism now and an assumption that they’re going to work to pass some of these bills that have been in motion for a while now, but never hit the point of actually moving forward,” said Max Meade, cannabis insurance advisor at Brown & Brown Insurance. “I’m also seeing more conversations around working to bundle some of these bills that they’ve been talking about and do a larger cannabis reform.”
As states continue to decriminalize marijuana to different degrees, one of the biggest issues facing cannabis businesses is the 280E federal tax burden, which means cannabis businesses can’t expense the normal cost of goods or anything a normal business can during the course of operation, from utilities to payroll and rent. This means marijuana businesses often pay federal income tax rates in the 65–75 percent range, compared to 15-30 percent for other businesses. They are taxed on their gross revenues, unlike all regular businesses, which pay tax only on income after their expenses.
The Small Business Tax Equity Act would provide an exception into the Internal Revenue Code to let cannabis operators – as long as they’re in compliance with state laws – make the same deductions as any other business.
Easier to operate
Passage of these laws would make it easier for cannabis-related businesses to operate. The CLAIM Act would let these businesses obtain insurance to cover the same risks of theft, damage, injury, loss, and liability as all other businesses.
“There are upwards of 30 surplus lines carriers and several managing general underwriters that currently service the cannabis industry across many lines of coverage,” the National Law Review reports. “There also is a small handful of admitted carriers that operate in California, and most recently in Arizona.”
While market capacity for property, commercial general liability, product liability and workers’ compensation coverage has expanded – these policies remain more expensive than the same coverage purchased by similar companies in other industries. Passage of the CLAIM Act would open the doors for more insurers and should bring the cost of insuring marijuana-related businesses much less expensive.
THC persistence a challenge
But challenges will remain – particularly with respect to the workplace. When marijuana was illegal under both state and federal law, employers would typically prohibit employees or employment candidates from using marijuana off-duty as a condition of employment. But as states have begun to permit medical marijuana, things have gotten a bit hazier.
No state requires companies to accommodate on-duty marijuana use. As with recreational marijuana, no state that permits medical marijuana requires employers to accommodate on-duty marijuana use, possession, or impairment. States will often explicitly state that medical marijuana laws don’t affect an employer’s drug-free workplace policy.
Does workers compensation cover a workplace accident in which the injured employee tested positive for marijuana? Persistence of THC – the main psychoactive compound in marijuana – complicates this question, and state courts have differed on this issue, depending on the individual details of each case.
THC persistence also complicates issues around impaired driving.
By Loretta Worters, Vice President, Media Relations, Triple-I
(Photo by Mahmoud Khaled/Getty Images)
When mega containership Ever Given wedged herself across a one-way section of the Suez Canal during a sandstorm last month, it brought 10 percent of global trade to a halt for a week. The ship – owned by Taiwanese container transportation and shipping company Evergreen Marine Corp. – was finally refloated and traffic in the canal was able to resume.
A Risk & Insurance cover story, published by Triple-I sister organization Risk & Insurance Group (RIG), describes how – in the context of a trend toward larger container vessels and a global supply chain already disrupted by COVID-19 – this incident should serve as a wake-up call for insurers.
Looking at the Ever Given grounding and disruption of canal traffic from a marine insurance perspective, RIG author Gregory DL Morris highlights the impact on cargo insurance claims and the potential for cargo spoilage. He also discusses compromised maneuverability of these massive vessels in high winds and references an increasing number of on-board fires, challenges surrounding salvage, and lack of suitable repair facilities, noting, “Underwriters need to be aware of this.”
Despite the likelihood that immediate property loss in this case will be minimal, megaships pose serious challenges to marine insurance and risk management. According to MDS Transmodal, a transport and logistics research firm, average vessels capacity grew 25 percent between 2014 and 2018, with ultra-large containerships accounting for 31 percent of the total capacity deployed in the second quarter of 2018. Transmodal attributes this trend to industry consolidation through mergers and acquisitions, as well as growing trade lane co-operation through alliances, slot sharing, and vessel-sharing agreements.
Even as traffic through the canal resumes, terminals will experience congestion. In addition, the severe drop in vessel arrival and container discharge in major terminals will aggravate existing shortages of empty containers available for exports. Delays in shipments, increased costs, and product shortages are therefore likely.
“The fact is that an already heavily disrupted maritime supply chain has taken another hit that will further affect its fluidity, with long-term consequences related to congestions, lead times and predictability,” said Jens Roemer, chair of the Sea Transport Working Group of the International Federation of Freight Forwarders.
While traffic through the canal is now moving, the global supply chain’s vulnerabilities may only now be beginning to become clear.
“Whether a blizzard in Texas or a sandstorm in Egypt,” Morris writes, “the narrow focus on minimal inventories that rely upon just-in-time delivery leaves little allowance for weather or accident.”
