A look at how cannabis will impact your life insurance rates

Legal. Cannabis.

Those two words have been on the minds of insurance companies for quite some time, and now that legalization is finally here, consumers and industry professionals alike are wondering what its impact will be.

Today, we’re going to zoom in on life insurance, a segment of Canada’s insurance landscape that’s been bracing for the green light since at least 2016, when many major providers began updating their underwriting protocols to account for recreational cannabis use — an activity that, like tobacco use, was previously viewed as high-risk. To stay current — and competitive — a growing number of life insurance providers in Canada have redefined cannabis consumption as “low-risk”, so that it has little to no impact on premiums.

With special insight provided by Lorne Marr, director of new business development at LSM Insurance, here’s a look at why life insurance is changing vis-à-vis legalized cannabis, how rates are now being calculated, and what to expect from Canada’s life insurance industry moving forward.

Why providers are relaxing their stance

Life insurance companies aren’t lightening up on lighting up because they hold liberal views on recreational drugs; rather, they’re in the business of acquiring new — and hopefully lifelong — customers. So to not scare away prospective customers with unaffordable premiums, they’re softening their position on cannabis. It’s a business decision, first and foremost.

“Once you have one of the bigger ones, like Sun Life and Manulife, taking a stance that they’re not going to charge smoker rates if you consume a certain amount [of cannabis] per week — usually it’s two joints per week or under — then the others kind of have to follow suit. You can’t really afford to lose that market share,” says Marr.

“And I think they’re starting to get more data on it as well. The risks of smoking marijuana versus smoking tobacco tend to be less, so that’s part of the reason why they’re relaxing it,” says Marr. “It’s also being more socially accepted, so you’re getting more and more people being upfront that they smoke marijuana, whereas before a lot of people were smoking marijuana but weren’t mentioning it on the application.”

Cannabis is still a factor in determining premiums

Life insurance relies on policyholders honestly disclosing various risk factors, although sometimes insurers will demand blood or urine samples too — especially when faced with claims. Insurance companies calculate premiums through formulas that take a range of factors into account, including age, health status, family health history, lifestyle choices (tobacco use is a major risk factor that insurers charge a premium for), and as of late, cannabis use. But just because moderate use is no longer considered a high-risk activity doesn’t mean insurers have stopped paying attention to cannabis altogether.

“Quantity of use is always a variable; some companies will allow up to four joints a week, but most companies are two joints a week or the equivalent in edibles,” says Marr. “So that’s generally considered a non-smoker, but it depends on other factors too. If someone is smoking or using marijuana and they have certain depression-related issues, or other anxiety or mental nervous disorders, that may not fly. Marijuana in combination with those other issues may result in higher premiums. Also, if someone were to get any type of impaired driving charge using marijuana, that may also impact things.”

Term, permanent, and beyond

There are many types of life insurance, but most Canadians opt for either “term” or “permanent”. Term life insurance is the most common, covering policyholders for a determined time period — 5, 10, 15, 20, 25, or 30 years at a time. With a term policy, rates also start off lower and go up as you get older. Permanent life insurance, on the other hand, is designed to provide payouts to the policyholder’s family at the time of the policyholder’s death. Permanent rates “start off a little higher and generally don’t go up as you get older,” Marr explains.

So does the type of life insurance one holds have an impact on how cannabis use is viewed? Early indicators point to no, but when you move beyond term and permanent, the picture gets a little more complicated.

“With term or permanent, there’s not much of a difference in terms of cannabis use, but then there is something called a fully underwritten policy and a simplified issue policy,” Marr says.

“With a fully underwritten policy, the rates are usually a little lower, but they’re going to be more stringent on the requirements; you may have to complete a blood test or urine sample, and usually they’ll be a little more stringent on the marijuana use, with two times a week being the max,” he continues. “Whereas a simplified issue, there’s a series of health questions, no medical tests; those tend to be a little more liberal with the amount of marijuana you can use, and the premiums on those are also a little bit higher.”

What’s the deal with edibles?

As of October 17, 2018, Bill C-45 — also known as the Cannabis Act — stipulates that “adults” (the age of majority varies by province) will be allowed to purchase dried cannabis flowers, cannabis seeds, cannabis oils, and cannabis plants from provincially authorized retailers. But a big part of the recreational cannabis market is excluded from the initial government offering: edibles.

It’s estimated that food products containing cannabis won’t be available through provincial channels for at least another year, but this hasn’t stopped people from including the buds or oils in their own baked goods, drinks, and snacks. So how does the life insurance industry view the edible segment of the newly legalized cannabis market? Much the same.

“Life insurance companies probably won’t view edibles differently than other kinds of marijuana. Edible users should still be able to qualify for non-smoker rates,” says Marr. “Keep in mind, this has been the industry’s view of marijuana products for the last year almost. Marijuana wasn’t legal and you were still allowed to consume two joints a week — or the equivalent in edibles — and get non-smoker rates.”

What can we expect down the road?

Whether or not you’re in agreement with Bill C-45, there is consensus across the political spectrum on one thing: legalized recreational cannabis is here to stay. With a market estimated to generate anywhere between $4B to $10B in sales annually, there’s no putting the genie back in the bottle. So what can we expect to see from the life insurance industry moving forward? Data, data, and more data.

“Insurance companies will start to use data more and more,” says Marr. “They’re going to use predictive-type data to help with their underwriting; they’re going to look at the person’s occupation, the types of activities they’re involved in, and any other kind of data they have, in order to factor it in with marijuana to determine how to underwrite people.”

“That’s a trend that’s happening already, a kind of intelligent or automated underwriting, where they take data and use it to predict,” continues Marr. “They were doing that before, but they were using a person to do it and ask questions, whereas now a lot companies are steering towards data and using algorithms to predict how they underwrite individuals. So marijuana usage may be combined with other data in order to make a decision. Things like postal code, occupations, income levels; they may not have used that before for decisions, now they will.”