Cover Story

Reefer Madness

As more states legalize marijuana, property and casualty insurers are on a crazy ride.

Marijuana legalization is a growing risk exposure starving for quantification.

State legalization of marijuana introduces a plethora of legal and logistical complexities for property-casualty insurers. Not only does it expand accident exposure, but insurers are also getting caught between federal laws, which deem marijuana illegal, and each state’s individual laws.

Forty-six states and the District of Columbia allow medical marijuana in various degrees. Nine of these states allow recreational use. And more states are following suit. Marijuana is also more potent than in the past because there is more of its active ingredient, THC (delta-9 tetrahydrocannabinol), which causes cognitive impairment that can lead to vehicular and on-the-job accidents.

“Marijuana legalization raises a lot of questions and uncertainty for insurers. [Insurance is] a business based on predictability,” says Robert Passmore, assistant vice president of personal lines policy for the Property Casualty Insurers Association of America (PCI). Legalizing marijuana has been made possible by the growing cannabis industry and the support of the American population. In a Harris Poll released in July 2018, 85 percent of respondents agree that marijuana should be legalized for medical use and 57 percent are fine with recreational use.

There are anecdotes that point to marijuana’s dangers. One example is a driver under the influence of marijuana and sedatives who hit a church bus and killed 13 people,1 which resulted in the National Transportation Safety Board’s recommendation that the state of Texas do more to prevent alcohol- and drug-impaired driving. However, there is very little research showing how marijuana legalization is impacting P&C insurers. Only the Insurance Institute for Highway Safety’s (IIHS) studies of automobile claims in recreational use states shed some light on this growing trend.

The recent IIHS study concludes that vehicular crashes have risen as much as 6 percent in Colorado, Nevada, Oregon and Washington — states where it is legal to use marijuana recreationally. The study, “Legal pot: Crashes are up in states with retail sales,” was published in IIHS’s Status Report in October 2018. Other research, however, finds no relationship between legalization of marijuana and fatalities.2

Meanwhile, major insurance organizations, including ISO and the National Council on Compensation Insurance Inc. (NCCI), lack the data to follow the impact of marijuana.

Since legalizing marijuana is leading to greater use of a drug more potent than ever and a likely increase in accident frequency, the insurance industry needs to find out its true cost. P&C lines realizing the greatest impact are automobile, both personal and commercial, and workers’ compensation.

Going to Pot

During U.S. President Barack Obama’s administration, the federal government, through the Cole Memo, began a hands-off approach to enforcing federal law in states where marijuana was legal. Despite the administration’s relaxed stance to state-legalized cannabis, the U.S. Department of Justice’s Drug Enforcement Administration (DEA) denied a petition to move it from a Schedule I drug (no currently accepted medical use) to a Schedule II drug, (currently accepted medical use, but high potential for abuse, like prescription opioids). The DEA’s position was based on a U.S. Department of Health and Human Services’ conclusion that marijuana’s risks outweigh its potential benefits.

President Donald Trump is also open to adjusting federal marijuana policy in some form. However, during his time as U.S. attorney general, Jeff Sessions rescinded the Cole Memo. Despite decades-long warnings concerning the risk of addiction, health problems and suppressed cognition due to cannabis, legalized marijuana is becoming big business. For 2018, retail sales in the United States are expected to reach $8 billion to $10 billion, a nearly 50 percent increase from 2017, Marijuana Business Daily reports. Sales are projected to rise to $22 billion by 2022.

The marijuana industry is effectively changing people’s attitudes, says Dave Monteau, a former administrator of self-insured workers’ compensation groups in Oregon. In New York, for example, marijuana interests spent about $3 million on lobbying over five years, successfully convincing Gov. Andrew Cuomo to reverse his opposition to legalizing the drug, the Rockland/Westchester Journal News reports.

Despite decades-long warnings concerning the risk of addiction, health problems and suppressed cognition … legalized marijuana is becoming big business. For 2018, retail sales in the United States are expected to reach $8 billion to $10 billion, a nearly 50 percent increase from 2017.


From a regulatory perspective, former California Insurance Commissioner Dave Jones started, and was chairing, the National Association of Insurance Commissioners’ (NAIC) Cannabis Insurance Working Group in August 2018. The group will consider insurance regulatory issues surrounding the legalized cannabis business “from seed to sale, including availability and scope of coverage, workers’ compensation issues, and consumer information and protection,” according to a California Department of Insurance news release. A working group has not been established to look into marijuana’s growing insurance losses, however.

Growing Risk

Marijuana’s potency is stronger than it used to be due to higher levels of THC. In 2014, the level of THC in confiscated samples was 12.2 percent, up from about 3.8 percent in the early 1990s.3 This is due largely to the competition between growers to deliver the best high.

Legalization also encourages greater use. Prevalence is the highest since the federal government began tracking it more than 30 years ago, with intake doubling in most age groups.4 Specifically, for Americans aged 19 to 28 years, annual use rose by 7.2 percentage points from 2012 to 2017, according to the National Institute on Drug Abuse’s Monitoring the Future report published in July.

Some workers’ compensation sources see medical marijuana as a step towards the larger goal of permitting recreational use. “The genesis of medical marijuana utility was nothing more than a thinly veiled strategy by those favoring its use,” says Monteau. Since marijuana use was high in certain areas of Oregon, and claim costs associated with the drug were much more expensive than other claims, some employers in high-use areas were prevented from joining the groups under Monteau’s management.

After recreational use was legalized in Colorado, Nevada and Oregon, medical use declined, according to a Marijuana Business Daily article published in July 2018. In the three years (2013 to 2015) after Colorado moved from legal medical to recreational use, intake rose by 12 percent to 11.8 percent for 12- to 17-year-olds; 16 percent to 31.5 percent for 18- to 25-year-olds; and 71 percent to 13.6 percent for adults aged 26 and older, according to the Governors Highway Safety Association (GHSA)’s report, “Drug-Impaired Driving,” released in 2018.

There is also evidence that just as the incidence of driving under the influence of alcohol is decreasing, driving under the influence of pot is growing. Polls suggest that people believe driving while stoned is safer than under the influence of alcohol.


Besides increasing claim frequency, marijuana use can also boost litigation costs, says Peter R. Foley, principal of C.L.A.I.M.S, LLC, a claims policy consulting firm. “It will raise losses but it is difficult to pinpoint data.” Since recreational marijuana use is now legal in Canada, it is important to watch the effect of claims there too, he adds.

Causation Concerns

Marijuana research varies greatly by areas of study, data, methodologies and conclusions, making it difficult to reach public policy consensus. And since marijuana remains classified as a Schedule I drug by the DEA, research does not come easily.

On its website, the National Highway Traffic Safety Administration states that the extent to which marijuana contributes to vehicle crashes is “unclear.” However, research comparing fatal crash statistics before and after cannabis legalization shows increases in drug-related fatalities. In Washington state, for example, the percentage of pot-related fatal crashes more than doubled from 8 percent before legalization in 2012 to 17 percent between 2013 and 2014, reports the AAA Foundation for Traffic Safety.

The Denver Post, after conducting its own investigation, offers similar findings. The newspaper reports that in 2013, drivers tested positive for marijuana in about 10 percent of all fatal crashes. That increased to 20 percent in 2016. Cannabis use is showing up in the bloodstream in 69 percent of fatalities in 2016, up from 52 percent just two years earlier, it reports. The GHSA report suggests the best overall estimate of the drug’s effect on crash risk is an increase of 25 percent to 35 percent.

There is also evidence that just as the incidence of driving under the influence of alcohol is decreasing, driving under the influence of pot is growing. Polls suggest that people believe driving while stoned is safer than under the influence of alcohol.5 Breathalyzers that can measure levels of marijuana and alcohol are in the testing phase.

Making a direct link from positive marijuana test results to impairment to accidents — whether on the road or on the job — is difficult because the drug can last in the body up to 30 days. To make matters worse, marijuana is often used with other drugs and alcohol.

Driving under the influence of marijuana is illegal in all 50 states and the District of Columbia. However, determining impairment from marijuana is “much more complicated than alcohol,” Passmore of PCI says. In some states, the legal limit for marijuana is a whole blood THC level of 5 ng/mL.6 And while police officers are adept at perceiving alcohol impairment, many need training to detect drug impairment to assure immediate testing, the GHSA report notes.

“While auto insurers are facing increased costs associated with driving under the influence of marijuana, it is difficult for them to do anything to combat the issue until law enforcement solutions are solidified,” says Roosevelt Mosley, principal with Pinnacle Actuarial Resources. Currently, insurers have underwriting and rating rules to address the increased risk of a driver with a DUI in his or her history, and the insurer can access this information from traffic citations, accident reports or court conviction records. However, “Until there is a reliable way to determine if a driver is high, insurers will not have access to that same type of information for high drivers,” he explains.

Workers’ Comp-Sequences

From marijuana’s role in causing accidents to issues associated with returning to work after an accident, legalized marijuana affects workers’ compensation in several areas. Depending on the state, testing positive for marijuana can mean outright claim rejection or indemnity benefit reductions. In Colorado, employers can terminate employment, hampering return to work, explains Amy Newton, associate vice president of claims for Pinnacol Assurance. Pinnacol Assurance is Colorado’s competitive state workers’ compensation fund and covers 50 percent to 60 percent of the state’s workers’ compensation market.

The insurer was the only organization that provided workers’ compensation claims data to Actuarial Review. In 2015, Pinnacol Assurance received 13 claims with a positive test or admission of marijuana use or both out of more than 40,000 claims, Newton says.

More Americans in the workforce are testing positive for pot, according to Quest Diagnostics’ Drug Testing Index released in May. This is most dramatic in states that have legalized recreational marijuana since 2016 with Nevada increasing by 43 percent, Massachusetts by 14 percent and California by 11 percent. Use has also grown 8 percent for federally mandated, safety-sensitive workers, such as airline pilots, first responders and nuclear power plant workers.

Meanwhile, the rules for assuring a drug-free workplace have relaxed. Michael Murray, a national loss control leader at Gallagher Global Brokerage USA, suggests that some states consider the “100 percent drug-free, no tolerance policy” to be discriminatory and a violation of the Americans with Disabilities Act (ADA).

There is enough confidence that drug-free workplace programs reduce accidents that states and some carriers offer premium discounts. However, there is “no or insufficient evidence” to support or refute a statistical association between cannabis use and occupational accidents and injuries, according to the report “The Health Effects of Cannabis and Cannabinoids: The Current State of Evidence and Recommendations for Research.” Released in 2017 by the National Academies of Sciences, Engineering, and Medicine (NASEM), the report’s conclusions are based on a large-scale literature review of 10,000 marijuana-related studies since 1999.

The biggest workers’ compensation challenge from marijuana legalization, Murray says, is on-the-job medical marijuana use. “Certain states impose a duty to accommodate marijuana use for valid cardholders,” he says. Pennsylvania passed a law in 2018 prohibiting employers from discriminating against employees approved for using marijuana for medical reasons. “Lawful, off-site use of medically prescribed marijuana has been determined to be a valid reasonable accommodation under the Americans with Disabilities Act and state disability laws,” he explains, with the exception being safety-sensitive positions.

Cure or Comorbidity?

Marijuana has the potential to address a whole host of ailments. However, for every condition it can improve, there are already drugs approved by the U.S. Food and Drug Administration (FDA), says Mark Pew, senior vice president of product development and marketing for Preferred Medical, a pharmaceutical benefit management company that services workers’ compensation claims.

Marijuana is known to create comorbidities such as abuse, addiction and health problems that can interfere with healing and returning to pre-injury employment. Although addiction is complex, recent data suggest that 30 percent of cannabis users may have some degree of marijuana-use disorder.7

The FDA has approved synthetic THC-based medications to help cancer and AIDS patients. Like the plant-based cannabinoids, the synthetic version’s side effects include the same “high” and euphoria as natural marijuana. Nabilone can be habit-forming and Marinol can cause new or worsening psychosis. Cannabidiol-based Epidiolex® treats children with severe forms of epilepsy. Lacking THC, it became a DEA Schedule V drug in September.

Marijuana is also being touted as a resource to help manage opioid addiction, though more research is needed, according to the NASEM report. The report does state, however, that there is substantial evidence that cannabis can be effective for treating chronic pain conditions.

Medical experts and researchers are trying to understand the specific components of marijuana that are effective for chronic pain and how to best integrate its use with other non-opiate based therapies. “Patient belief is terribly important,” says Michael Shor, MPH, managing director at Best Doctors’ Occupational Health Institute. The placebo response can typically be evoked in 30 percent of patients, he explains. But on the other side, he observes, “Every message we get from advertising tells us there is a pill that will cure every ill.”

Chronic pain is a very frustrating clinical condition. To optimize recovery, patients need interdisciplinary approaches as soon as possible and support from every profession involved with an injured worker’s claim. And while Shor has seen some patients benefit from marijuana for pain relief, several risk factors deserve consideration first. Internal research by Best Doctors and others show that biopsychosocial risk factors, such as smoking and substance abuse histories, and physical or emotional abuse as children, can place injured workers at much higher risk for developing chronic pain and opiate dependencies. Pew offers that insurers should be more open to covering other ways to learn coping skills for pain, such as cognitive behavioral therapy, yoga or anti-inflammatory diets.

Although addiction is complex, recent data suggest that 30 percent of cannabis users may have some degree of marijuana-use disorder.


Rather than encouraging managed and individualized treatment, many state laws allow medical use as the patient desires. Unlike drugs approved by the FDA, which have determined appropriate use, dispensing, marketing, manufacturing and other factors for all 50 states, Pew notes, “Marijuana is the only ‘medicine’ that is self-procured and self-prescribed.”

Though some states require one or two doctors to recommend medical marijuana, he explains, in other states, becoming a registered patient is easier. “Universally it’s the patient that determines what strain, dosage, frequency, duration, formulation is appropriate for treatment,” says Pew. Guidance may come from a dispensary “budtender,” but there is generally no guidance from a clinician or pharmacist.

This can lead to potentially dangerous use of medical cannabis. In a Colorado survey, 70 percent of 400 licensed pot dispensaries said they offer marijuana for curtailing morning sickness in pregnant women, Bob Troyer, the U.S. attorney general for the District of Colorado, writes in a September Denver Post op-ed piece. This goes against expert advice. Legalization does not assure drug purity either. The state also issued over 40 recalls of retail marijuana laced with pesticides and mold, he writes.

Pot use also differs. “There are several ways to ingest marijuana beyond smoking — vaping, edibles, oils, tinctures — and each have different modes of action,” Pew explains. For example, an edible is generally more potent and takes longer to take effect while being processed through the digestive system compared to smoking or vaping.

Because of its euphoric effects, marijuana use can also hamper return to work. Unfortunately, there are no clinical studies showing marijuana’s impact on return to work, Pew says. Dave Monteau says return-to-work durations are always longer when marijuana is involved, thus adding to claim costs.

Covering Cannabis

Auto liability insurance generally covers liability claims regardless of impairment, but first-party coverages such as medical payments or no-fault do not have to pay for the claimant to get medical marijuana to treat the injury from the claim, Passmore says.

Workers’ compensation insurers, however, do have to cover medical marijuana in some states. Laws and court decisions requiring insurers to cover cannabis vary. In Colorado and Washington, two states where medical marijuana has been legal for years, workers’ compensation carriers do not have to cover marijuana due to its DEA Schedule I status. But as states continue to relax marijuana laws that could change.

In other instances, workers’ compensation carriers have different philosophies concerning payment for medical marijuana. Some insurers are looking at marijuana as a “viable alternative” while others “think marijuana is not medicinal” and will not reimburse for it, Pew says. Liberty Mutual, for example, has a process for injured workers seeking treatment with medical marijuana, which includes meeting with claims, legal and medical staff.

Regardless of the state, some insurers are paying injured workers directly and others pay their attorneys, but reimbursements are after-the-fact, he explains. In New Mexico, the nation’s only state with a fee schedule for medical marijuana under workers’ compensation, the injured worker first covers the drug out of pocket.

Injured workers can use medical marijuana there when treatment is deemed reasonable and necessary. The state follows medical treatment guidelines of the Work Loss Data Institute and the New Mexico Department of Health determines conditions appropriate for treatment. The maximum amount of reimbursement is $12.02 per unit, which is one gram dry-weight equivalent, for up to 230 units per quarter. Actual payouts were 10.5 percent of the annual allowed maximum of $11,058 in 2016 and 2017. Use is limited. Total reimbursement for medical cannabis was $46,826 in 2016, which rose to $58,401 in 2017.

As for the cost of medical marijuana in workers’ compensation, some insurers are conducting cost-benefit analyses of medical marijuana, sources say. “(But) nobody wants to go on the record,” Pew says. This is not only for competitive reasons, but also because insurers are trying to avoid a clash with federal regulations as payers of medical marijuana. Insurers are required to report medical transactions through the NCCI Medical Data Call, says Kathy Antonello, FCAS, the organization’s chief actuary. However, “To date, no payments for medical marijuana have been reported to NCCI.”


Marijuana is a drug that deserves respect for its potential to harm and heal. On one hand, it is leading to more accidents and carries an addiction risk. But on the other hand, it also offers relief for some patients.

Pew offers that insurers should be more open to covering other ways to learn coping skills for pain, such as cognitive behavioral therapy, yoga or anti-inflammatory diets.


While the cannabis industry is growing, thriving and attracting investors, it is not covering the accidents, injuries and deaths that the drug causes. The degree of insurer losses is not yet known, but those will certainly increase as the use of marijuana will across the U.S.. To complicate matters, P&C carriers are also facing legal and logistical issues from clashing federal and state laws and policies that will take several years to resolve.

Since marijuana remains an illegal drug under federal law, much of the research needed to realize scientifically reliable conclusions remains beyond reach right now. However, the insurance industry is in a unique position to shed light on marijuana’s cost of risk and potential clinical benefits. Tracking the impact of marijuana will not be easy. It will cost insurers to code and develop the mechanisms necessary to realize the drug’s impact on risk. But in the long run, uncertainty could cost even more.

4 Drug and Alcohol Dependence