An Interview With Bob Bader

Bob Bader grewup in Detroit and attended Wayne State University, where he earned an MBA in marketing andfinance. His background includes experience as an Army Finance Officer, retail andcommercial sales with Firestone Tire & Rubber Co. and advertising sales with MarylandMatch Corp. In 1973, Mr. Bader was offered a position with one of the country's leadingcredit-insurance agencies and within two years was one of their top salesmen. He developeda model for strategic planning used by the company to open new markets, helped pioneerdevelopment of customer-support teams and was a member of the company's sales-advisoryboard. A promotion to Mid-West regional manager made him responsible for nine agents andthe company's largest block of business. A later promotion to vice president in LifeInvestor's (the agency's parent company) collateral-protection division rounded hisexperience in policy administration, claims settlement and reinsurance.

In 1984, Mr. Bader left Life Investors and formed his own agency to cut back on hisextensive travel and spend more time with his family--his wife, Toni, and four children.He began on his own by developing a successful mobile-home-insurance direct-mail program.In 1987, he began working with several people in the rent-to-own industry to developextended warranty coverage. That eventually developed into a "club" program,packaging several insurance products with travel, entertainment and home-healthcarediscounts sold through more than 2,500 rent-to-own stores. In 1991, at the request of acolleague involved in the self-storage business, Mr. Bader began developing an effectiveapproach to maximizing tenant-insurance participation. As interest grew in his approach,he began phasing out of his other operations to focus on building the stored-propertyinsurance program.

An now, Inside Self-Storage is please to present an interview with Bob Bader...

How long have you been in the insurance business?

In 1973, I started selling credit life and disability coverage to credit unions as anagent. After a number of promotions and some company consolidations, I wound up as vicepresident of marketing for the collateral protection division of Life Investors, a majorwriter of credit insurance. Aegon, the second largest insurance company in TheNetherlands, acquired Life Investors. (By the way, Aegon also just purchased TransamericaInsurance Company.) In 1984, I left Life Investors and formed Bob Bader Co. to focus ondeveloping mass-marketed property and casualty insurance programs.

Why don't you tell us a little bit about Bob Bader Co.?

Bob Bader Co. is a national insurance marketing and administrative organization. Wedevelop and provide mass-marketed insurance programs that help our clients reduceliability, improve relationships with their customers and allow them to make money frominsurance. Specializing in insurance add-on profit centers allows us to provide ourclients with the highest value and lowest cost product, dedicated support and the largestshare of profit-sharing in the industry. By limiting our product offering we can focus onbeing the experts in our field.

What makes your company different from other insurance agencies?

Most insurance agents/agencies may issue policies and pay small claims, but they canonly offer products commonly found in the marketplace. As a managing general agency (MGA)we have total control of our insurance programs--from design through marketing andadministration to claim settlement.

Our focus is on marketing. In fact, we look at ourselves as a marketing organizationmore than an insurance provider. Our scope is national and, although we do work withagents, unlike most MGA's, we prefer to develop relationships directly with our clients.By concentrating on a few products, such as our stored-property insurance, we've becomeexperts on point-of-sale training, client support, how to minimize administration and howto handle claims efficiently. That helps build volume, control losses and helps ourclients make money.

What kinds of insurance do you write?

We limit our writings to products we understand and that we can manage. Our expertiseis in point-of-sale products. We look for areas where there is a fundamental need forprotection, where there is a built-in payment stream, and where we can partner with ourclients and help them use insurance as a profit center. In the self-storage business, wewrite stored-property insurance, an optional tenant-insurance program that our clientsoffer their customers.

Why have you chosen to focus on tenant insurance?

All self-storage companies need tenant insurance. They need it to protect themselvesand to reduce their liability when tenants' property is damaged or destroyed. Tenants needinsurance, too--most do not have coverage. More than 75 percent of home and apartmentrenters do not have personal-property insurance. And today, more and more homeowners'insurance companies are excluding off-premises coverage in self-storage facilities becauseof the high number of break-ins.

Tenant insurance is a vastly underserved market. Although most storage-facilitymanagers offer coverage, most tenants don't buy it. That's either because mail-in brochureprograms don't work or because managers don't know how to present or are afraid to presentinsurance. That's where we can help. Training and support are two of our greateststrengths--because of our focus as a marketing organization.

Is all tenant insurance the same?

No. There are two types of tenant-insurance programs, and there are variations in thecoverage they provide. Most storage companies offer mail-in brochure programs becausethey're simple, they require no involvement or commitment, they don't require an insurancelicense, and because that's the way it was done 20 years ago. The most recent (in the last10 years) innovation in tenant insurance is pay-with-rent coverage. In a pay-with-rentprogram, customers sign up for coverage when they rent and pay their premiums along withrent each month. Pay-with-rent programs are legal, don't require an insurance license inmost states (except Texas and, depending on the program, possibly Florida) and, withtoday's data-processing systems, are so easy to offer and administer that they're almosttransparent.

What's the secret to having a successful tenant-insurance program?

The secret is to keep it simple. The less a manager says about insurance, the morelikely his customer will buy it. Of course, the manager has to say the right thing at theright time. What is said, and when, is critical. There is a right time to presentinsurance--when the lease is being completed. Any other time, regardless of what is said,is the wrong time and will likely result in a "no sale."

The other element--what to say--shouldn't take more than 15 seconds. Managers need totell customers that insurance is not included in the lease; it is available and thatpremium can be paid with rent. Tenants rent space because they want a safe place to keeptheir property. An insurance policy is a tangible representation that the facility is asafe place--otherwise the insurance company wouldn't offer coverage.

What kinds of tenant insurance do you offer?

Our stored-property insurance is a pay-with-rent program. We only offer pay-with-rentcoverage because it's the only kind that works. Less than 1 percent of tenants buymail-order coverage through brochure programs. What good is a tenant-insurance program ifnobody buys it?

Customers will buy insurance if it is offered properly and is affordable, and if it'seasy to make payments. Although we have some managers with 80 percent sign-up rates, 10percent to 20 percent participation is more normal.

How many storage companies use pay-with-rent programs?

Eight of the 10 largest self-storage operators offer pay-with-rent coverage. Ten of thenext 40 largest operators offer pay-with-rent programs. Although it's hard to determineexactly how many companies offer this coverage, we estimate that about 15 percent of sitesand 7.5 percent of operators offer pay-with-rent insurance.

If pay-with-rent insurance is so good, why don't more companies offer it?

Good question. That's something we've been trying to figure out for some time. Isuppose that inertia plays a big part. Since most companies have a mail-in brochureprogram, owners feel they're protected because they've offered coverage. I've made coldcalls on facilities and been told by managers that they have coverage available: "Ifyou want to buy it, but it's expensive and not very good." Imagine a mediocre lawyerrepeating that to a judge in a lawsuit after a catastrophic fire. How much protection willthat mail-order program provide when an owner has to admit that none or maybe one or twoof his customers were insured? Wouldn't saying that 25 percent to 30 percent of tenantsare insured provide a whole lot more protection? That's the type of protectionpay-with-rent programs provide.

Another reason more owners may not be offering pay-with-rent coverage is that theirfear or dislike of insurance keeps them from looking at alternative programs with an openmind. It's a fact of life that most people don't like insurance. Insurance is associatedwith bad things (death, fire, accidents, theft, etc.) Agents are pushy. Premiums arehigh--and they keep going up. And, sometimes its difficult to get what you feel you aredue from an insurance company. I'll be one of the first to admit that the insuranceindustry has a bad reputation. Our job is to show people that insurance can be friendlyand can help them provide better service to their customers, better protection forthemselves and more profit.

Is it legal to sell insurance the way you suggest? Don't managers have to belicensed agents?

Offering pay-with-rent insurance the way I just described is legal. Pay-with-rentinsurance policies are usually filed as "group insurance." Employees aregenerally allowed to offer enrollment in their company's group insurance program as longas their primary duties are not insurance related. Furthermore, managers are not insuranceagents. They do not solicit the public, and have no authority to bind coverage, change thepolicy or settle claims. As long as a licensed agent is involved (usually in writing thegroup-insurance policy) managers do not need insurance licenses.

Aren't there several states that have stopped the sale of pay-with-rentinsurance?

No. The Texas Insurance Commissioner and Attorney General recently won a court rulingagainst U-Haul barring the company from selling pay-with-rent coverage in Texas. Themerits of the suit dealt with U-Haul's marketing practices and not the issue of proprietyor legality of pay-with-rent insurance.

Can companies without sophisticated computer systems offer tenant insurance?

Yes. Keeping track of insurance premiums with a one-write peg-board or ledger-cardaccounting system is easy. In fact, we have some clients who prefer keeping a manualinsurance payment ledger even though their computer system provides printed monthlyreports.

Do all the data-processing companies support pay-with-rent insurance?

Most do--certainly the larger companies like Sentinel, Domico, Space Control, Hi-Tech,MSTC and Umbrella.

What are the biggest problems with tenant insurance?

At the facility, it's manager resistance. It's amazing how often an owner decides tooffer a pay-with-rent insurance program and managers flat out resist it. It's common tohear managers say, "I've got to much to do already," "Insurance is arip-off," or "My customers don't need it." All of these negative commentsmean that insurance won't be properly or impartially presented and that few customers willbuy it. That doesn't help the storage company, or its customers.

With customers, fraud is the biggest problem. When you consider that we make insurancevery inexpensive and easy to get--easier than through an independent agent--it'sunderstandable how attractive fraud is to tenants. Some seem to think that paying a $5insurance premium has better odds of paying out a $2,000 claim than winning the lottery.Fraud takes many forms. Some of the types of fraud we regularly encounter are whereproperty never put into storage is claimed stolen, where a real burglary takes place andthe customer pads his loss report with items that were not in the unit, or wherecustomer's property is damaged before it's put in storage. This last is a common problemwith property damaged by flood.

How do you fight fraud?

The advantage belongs to the customer. We have to prove that the loss didn't occur asclaimed, or that it wasn't covered by our policy. Sometimes we get beaten and pay becausewe can't disprove the loss. For the most part, however, people filing fraudulent claimstrip themselves up. We've been handling claims for a long time and our adjusters areexperienced in spotting things that aren't right. Overall, we're able to do a pretty goodjob weeding out the fraud.

What do you see for the future of tenant insurance?

First, as long as self-storage operators are considered landlords--one of the basicprinciples of the storage business--there will be a need for optional tenant-insuranceprograms. Second, as more storage companies become computerized, managers become morefamiliar with computers and software continues to become more user-friendly, we will seemore storage companies offering pay-with-rent insurance. Third, insurance offerings willcontinue to improve. We were the first to offer 100 percent burglary coverage. Deans &Homer added it last year and MiniCo just added it to their TenantOne program. We'veoffered earthquake coverage from the beginning. Deans & Homer now includes earthquakecoverage in their CSI+. We're always looking at other improvements we can make to give theinsured tenant more value and help the storage operator achieve higher percentages ofinsured customers.

Do you foresee more competition in this area?

That's a hard one for me to answer. Success always brings competition. We startedoffering stored-property insurance eight years ago because there was a need. Customersweren't buying insurance; the mail-order programs weren't working. We broughtmass-marketed, point-of-sale concepts we've used in other industries to the self-storagebusiness. That helped facility owners give their customers better service, get moreprotection for themselves and make more money.

On the other hand, tenant-insurance premiums are small, there is an unbelievable amountof fraud, every state has different insurance regulations, and collecting thousands of $5payments every month can be expensive. I believe we were fortunate to be in the rightplace at the right time. We had extensive group-insurance experience, an underwriter whounderstood our business, substantial other business, and we could afford the time it takesto build our program. All these things may be difficult for another company to duplicate.

Do you plan on expanding your programs?

We are successful because we focus on specific coverages and needs. That allows us tobecome the experts in those programs. Although we help some of our clients with theircommercial-property coverage, that's not our area of expertise. We will not be expandingour business-property-insurance offerings. Our next venture will be in the multi-familyhousing field. We have been working in the apartment industry for the past year,developing a new approach to renters' insurance--again, a mass-marketed, point-of-saleprogram.

How do you plan to grow your business?

The same way we got to where we are now: hard work, attention to customer needs and astrong sales effort. One fact of business life is that you have to grow. If a companydoesn't grow, it will begin to stagnate and customers will take their business elsewhere.We've just finished laying out some of the most ambitious marketing plans we've ever made.Everyone in our company understands that we are a sales and marketing organization morethan we are an insurance agency. We will continue to grow by plowing our earnings backinto the development of our business. That will help us give our clients better service,help attract new clients and payoff with continued growth.