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Sunday, January 29, 2023

Cannabis: a growing insurance problem

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Hemp cultivation is one industry that is unlikely to disappear in a puff of smoke during an economic downturn. In fact, it is virtually guaranteed to have a real high.

the Drug use in England and Wales: year ending June 2022 A report published by the Office for National Statistics in December 2022 revealed that, since December 1995, cannabis has consistently been the most used drug in England and Wales.

It found that in the year ending June 2022, 7.4% of those aged 16-59 and 16.2% of those aged 16-24 reported using cannabis – this is similar to the numbers recorded for the year through March 2020 and the year through March 2012.

However, affected by property closures due to COVID-19 and a cost-of-living crisis that has left more buildings unoccupied – due to increased heating bills, for example – insurance sector sources have recorded a steady rise in cannabis-related claims over the past 18 months. .

Commentators believe this trajectory mirrors claims trends in 2008 and 2009, during the last national recession.

Amid this economic backdrop, landlords desperate to conserve their incomes can feel pressure to accept higher-risk tenants on their properties – and that could lead to the perils of growing cannabis.

Exclusive data from loss adjustment company Sedgwick International UK, with whom it has been shared insurance times In January 2023, it showed a 166% increase in malicious damage claims between 2021 and 2022 where cannabis cultivation was known to be the cause identified at the start of the claim.

What type of joint?

This problem is particularly prevalent in large warehouses and other spacious commercial properties.

Mark Farrant, managing director at loss adjusting firm McLarens, said: “Vacant premises are particularly vulnerable and are often broken into and taken over without the owner’s knowledge.

But on a large scale [cannabis] Production can take place in everything from office blocks to pub basements and we have handled claims in pubs, nightclubs and former shops.

“In 2019, a cannabis plant was discovered inside the former Gala Bingo hall in Kettering town centre.”

Although opportunities are limited, residential properties are now increasingly targeted for cannabis cultivation.

Stuart Williams, managing director at brokerage Thompson & Richardson, explained: “Recently, there has been a shift to residential rental properties. [for cannabis cultivation].

“Tenants who use these crops to harvest drug crops are now perhaps the biggest threat to private landlords.”

Across both commercial and residential property types, most cannabis-related claims are for malicious damage to walls, doorways, ceilings, fixtures and fixtures by organized cannabis gangs seeking to insert proper ventilation and heating equipment.

There are also significant fire claims on record – from accidents with heating equipment and from electrical tampering – as well as the strange flight of water claims due to leaks in irrigation systems.

Exclusion of fraudulent claims

Because insurance companies need to determine whether landlords and landlords are complicit in the cultivation of cannabis for tenants, fraud teams play a key role.

Laura Horrocks, Head of Fraud Technology and Intelligence at Sedgwick International UK, said: “Our starting point is to determine whether landlords and landlords are involved, negligent or innocent.

“If they are complicit, they might get a share of the profits, or they might get the rent and turn a blind eye. Or they could be negligent because they [have] Fails to screen the tenant appropriately.”

In many cases, landlords and landlords have finally returned to their premises after being locked out during the Covid-19 lockdown or because a tenant has intentionally denied them access.

Some landlords have also been put off by the fact that lease agreements only allow for inspections at certain intervals – usually after 90 days in the case of residential properties and often longer for commercial leases.

“More than half of the landlords and landlords will be innocent victims,” Horrocks continued.

“less than 10% [of owners and landlords] She was indeed proven complicit. But proving something is very different from suspecting it and insurance companies have to pay if there is no evidence.

“There could be another 30% to 40% of landlords and landlords who are complicit, negligent, or turning a blind eye.”

Possible solutions

Neil DeVries, principal and complex loss adjuster at Crawford & Co., reports that cannabis farming – by volume – still accounts for only 6% of the claims it investigates.

However, he added, these claims tend to be large – large losses he oversees are in excess of £100,000, with a current claim in excess of £750,000.

Therefore, insurance companies are stepping up their game to combat this problem.

RSA works collaboratively with technical claims teams and has established a task force to detect and prevent this type of fraudulent claim. It also shares relevant information with the authorities.

On the other hand, Zurich has amended its wording in all residential and commercial policies.

It now requires extensive quarterly inspections and obtaining written references and bank details from tenants, along with checking that at least one insurance payment has arrived via a bank account.

Meanwhile, Allianz compiles helpful advice for commercial property owners and their brokers on what constitutes a good reference check – this includes a review of an identity document with proof of address, a current bank statement, a previous owner’s reference and a current employer’s reference.

But insurers and loss adjusters contend that brokers also need to play their part in screening tenants and educating landlords about potential red flags — particularly with regard to tenants who pay cash, can’t provide references, or are reluctant to do business with landlords. Other signs include rising heating and electric bills and rocket-covered windows.

In the winter especially, it should ring alarm bells for property owners if there are more birds congregating on the roof than on other properties, if frost and snow are melting unusually quickly on the roof, or if there are high levels of condensation on the windows.

Scott Clayton, Head of Fraudulent Claims in Zurich, UK, said: “The message we want to spread is that we all need to get better at this, particularly in the commercial space where money is tight and people need tenants.

“We would like landlords to require photo ID and proof of previous addresses.”

Most of the proposed mitigation steps to combat cannabis-related claims revolve around asking tenants for original documents and verifying their authenticity—and that doesn’t constitute rocket science.

But, unfortunately, the most obvious and consistent guarantees are often the easiest to overlook.

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