How Cannabis Legalization May Affect Your Insurance

Almost 5 million Canadians may have consumed cannabis in 2017, spending more than $5.5 billion dollars on the drug, according to Statistics Canada, and whether you consume cannabis or not, there will likely be insurance price adjustments coming your way.

The numbers of Canadians using cannabis could soon skyrocket because on Oct. 17, the federal government is set to formally legalize cannabis and unlock a growing Canadian market, with more users and more production.  

It’s not clear yet how many more Canadians will take up cannabis use – some estimates put the figure at a 19 percent increase – but it is highly probable there will soon be more people using cannabis than ever.

So, what will this mean for your insurance?  

Home insurance 

Insurers are already responding to the impending law change, and will continue to reassess their rates and policies after legalization changes the cannabis landscape. 

The proposed regulatory rules will allow Canadians over the age of 18 to grow up to four cannabis plants per household. This presents challenges for the home insurance industry, as cultivating cannabis carries additional insurance risks – and additional insurance risks usually equal higher insurance premiums for policyholders. 

Home growing operations often include additional, high-powered heat-lighting and irrigation systems to enhance and maximize plant growth. But these additions increase the risks of fire, floods, and mould, as well as the threat of property crime.  

With these potential risk factors being associated with the legalization of recreational cannabis, insurance companies will need to adjust their rate calculations to account for the increased risk. As part of their risk assessment, many insurers will soon begin to ask renters and homeowners specific questions about cannabis cultivation when it comes time to buy or renew an insurance policy. Renters and homeowners should also contact their insurers if they intend to begin growing cannabis, as it is better to be safe than sorry when it comes to insurance coverage. 

Health insurance 

This is one area where insurers have already jumped the gun in making some changes, ahead of the legalization date. 

Earlier this year, Sun Life – which provides insurance to about one in every six Canadians – announced it would begin to cover medical cannabis. Sun Life’s decision came on the back of the decision by Loblaw Companies and Shoppers Drug Mart to cover employees’ medical cannabis through health insurer Manulife. 

Other insurers will almost certainly follow suit. As the number of Canadians consuming cannabis increases, insurers are going to have to be more accepting and proactive in offering their customers what they want and need. 

Auto insurance 

This could be where consumers will see the biggest changes to their insurance payments. Premium hikes in the car insurance industry are a distinct possibility in the coming months in Canada.  

Impaired cannabis users who drive under the influence are at increased risk of an accident – much like alcohol users who drive under the influence of booze- and crash rates have increased in jurisdictions with legalized cannabis.  

If we take the United States, for example, one study found that car crash insurance claims were about 3 percent higher in Colorado, Washington, and Oregon – the first few states to legalize in the U.S. – than if they had not legalized cannabis. Auto insurers have responded by increasing their prices in these states. In fact, in every U.S. state where cannabis has been legalized except Massachusetts, auto insurance rates have reportedly increased.

In Colorado, in particular, premiums increased by more than 50 per cent between 2011 and 2017, with the legalization of cannabis presenting one potential factor.  

There is reason to believe Canadian insurers will be closely monitoring the trends south of the border, and will respond accordingly. 

Life insurance

This is another area where insurers have made changes to their policies ahead of Oct. 17.  

In the past, insurers classified cannabis smokers in the same health-risk category as tobacco smokers. But that is changing. Many insurers have changed their view on the health risks of cannabis smoking, in line with recent health data.  

Cannabis smoking is simply not as harmful as tobacco smoking – so cannabis smokers are now considered non-smokers, for insurance purposes, by many insurers. This means cannabis smokers are in line for big savings when it comes to buying life insurance.  

Tobacco smokers can pay up to three times more than non-smokers in life insurance premiums, so this reclassification by life insurers is a big deal for both current cannabis users, and the many more Canadians who decide to start using cannabis after Oct. 17.

Changes are coming

Speculation will persist throughout the legalization process until insurance companies take an official stance on home, auto, and life insurance, but the precedence set in the U.S. suggests that changes are coming across the board. It is not so much a question of ‘if’ the legalization of cannabis will have an impact on Canadian insurance, but when and by ‘how much.’