UK insurance market’s attitude to CBD food and drink

From supplements and skincare, to infused chocolates and even pet products, global sales of cannabidiol (CBD) products are soaring. Despite the UK’s CBD market being at a relatively nascent stage compared to that of the US and Canada, it is still one of the largest in Europe with an estimated 7.8 million individuals in the UK claiming to have used CBD products in 2020.¹ Indeed, the European CBD market is expected to see sales revenue reach £1 billion by 2025.

However, by introducing CBD products into an existing brand or product range, there is a need for manufacturers to make sure they are taking the necessary precautions to manage unforeseen risks. As consumer demand for CBD continues to grow, so too does the need for manufacturers to understand the changes to their risk profile and any insurance implications.

Innovation is one of the main growth drivers for CBD products. As CBD has become more widely accepted, we have seen a marked shift in demand for CBD infused food and drink products. Whilst CBD oils and supplements are currently classified as the front runners in the market, it is now becoming more common to see specialised CBD cafés, restaurants and boutique retailers online, highlighting its increasing prevalence and popularity.

As CBD products shift from being a novel alternative to a mainstream product ingredient, its association with cannabis means there remain many unknowns and potential misconceptions around its use and effects. The insurance industry has therefore not yet established a consistent underwriting stance or standard practice surrounding CBD food and drink risks. As such, manufacturers operating in this already highly regulated sector have been further exposed to a complex array of risks and scrutiny – challenges which have made some insurers reluctant to underwrite CBD products.

There is concern around quality, purity and legality

Considering the risks involved and regulatory restrictions, manufacturers planning to produce CBD food and drink products should not only examine how those products would alter their risk profile, but also how these will impact their wider insurance programme. Underwriting CBD risk doesn’t, in principle, differ too broadly from other food and drink products, but where the liability insurance market generally has an appetite for food and drink manufacturers, the inclusion of CBD infused products may hinder that appetite.

At Lockton, we have approached eight leading liability insurers to explore the UK insurance market’s attitude and willingness to underwrite CBD food and drink risks.

We found that out of those approached, only three leading markets explicitly indicated their appetite for CBD-related risks. Two markets expressed concern regarding CBD risks due to potential client non-compliance and potential poor practices. In particular, they raised concerns around the level of product quality, purity and legality. Current legal regulations state that levels of tetrahydrocannabinol (THC) – the main psychoactive compound found in hemp – in products must be below 0.2 percent in order to be permitted for sale in the UK. But this can be difficult to accurately identify. Indeed, a 2019 Centre for Medicinal Cannabis (CMC) study revealed that out of 30 CBD oil products in the UK, seven had measurable amounts of THC despite being declared as THC-free. Similarly, the Food Safety Authority of Ireland (FSAI) last year found that 37 percent of the tested products contained THC levels that would exceed the safe limits set by the European Food Safety Authority (EFSA) if consumed as per the products’ recommended dosage. Without the reliable technology needed to accurately track and detect these levels, manufacturers potentially expose themselves to the risk of inadvertently selling an illegal product.

The remaining three markets strictly reject CBD-related risks, with one strongly considering underwriting them to be against their ethical practices and beliefs.

So, while the market is growing significantly, there is a strong sense of disunity between markets in terms of underwriting CBD risk. While some express a strong rejection, others are far more willing to consider.

What does this mean for manufacturers?

Moving forward, manufacturers looking to leverage this space should consider the following when looking to insure themselves against CBD product-related risks:

• The development of any new product requires extensive research and consideration. This is especially the case with CBD, where there has been a history of stigma, negative association and misinformation
• Underwriters are most likely to consider CBD food and drink risks if the acquired CBD supply is hemp-derived, legally approved, and if CBD is part of broader product lines, rather than a manufacturer’s sole line of production
• Underwriters may look to work on a case-by-case basis. As such, they may require additional information from manufacturers on their relevant quality control and safety measures, appropriate authorisations to produce and sell the product and intended channels for distribution. To avoid uncertainty, manufacturers should also transparently communicate the origin and nature of the acquired CBD supplies, as well as providing certificates of analysis (COA) that ensure the purity and quality of the insured products
• Manufacturers will need to consistently monitor the changing regulatory frameworks and guidelines governing CBD production and distribution, as changes in legislation may impact the insurability of CBD food and drink risks in the UK
• Insurers may require chemical engineers and specialist risk managers to be involved in the assessment of risk before quotations are provided or considered for CBD food and drink products.

In line with evolving legislation and regulation, manufacturers will need to be agile, responsive and highly detailed in their approach. There remains some scepticism within the UK insurance market, with a proportion of leading markets reticent to offer cover. But with CBD products rapidly expanding and showing no signs of slowing down, it now appears a question of when, not if, insurers will need to understand more about the CBD product risk and develop a clear and common underwriting stance.

References

1. Alphagreen Report