Kanna Risk Management respects and loves the idea of insurance, which is spreading risk among participants, or members of a similar group . Early methods for distributing risk were practiced by the Chinese, Babylonians and Greeks as long ago as the 3rd Millennium B.C.E. Yes! The Chinese merchants traversed river rapids and would spread their cargoes across many ships to limit the loss from any one disastrous event. The Babylonians who were financially astute, used loans for cargo and paid the lender an extra fee for cancellation of the loan if the ship was lost at sea.
In the first Millennium at Rhodes, merchants pooled premiums to reduce and reimburse any merchant who lost goods at sea. The Greeks had burial societies where citizens paid a small amount into a fund for death costs. And then Genoa, about the 13th century’s beginning, created the first insurance contracts not tied to an investment. So first marine, i.e., property, and then civil coverages were born.
During the Enlightenment in Europe, and as a result of the great London fire of 1666 which destroyed 13,000 homes, insurance became more of a necessity than a convenience. When Christopher Wren re-designed London, he included a location for “The Insurance Office”. In 1681 Nicholas Barbon and his associates in the back of The Royal Exchange insured 5,000 homes. By the end of the 17th century London was not only the world’s trade center, but with increasing demand for protection against disaster, the home of the coffee house opened by Edward Lloyd which became a meeting spot for the shipping industry. Thus was Lloyd’s of London born.
These men realized that not all losses happened at once and with interest paid monthly the pooling of similar claim possibilities would be sufficient to cover ad hoc costs. Today the industry has developed actuarial models to predict calculable losses of a non-catastrophic nature along with adequate premiums determined by mathematical models by actuaries who rely on historical data and computer simulations — such as Monto Carlo, a tested and still used liability format for premium determination.
You might ask what this all has to do with cannabis insurance. Well, without historical data, the current insurers are operating much like our ancestors cited above: no credible loss data. In the next issue we will discuss what can be done to provide assure adequate, complete coverages for this new industry and compare these issues for how and what the industry did after prohibition was lifted and alcohol became publicly sold and acceptable again. We know that there were new insurance programs developed in that time, with issues that apply now to the cannabis insurance industry.
See you then …