By Keith McConnell
Many self-storage operators are planning ahead for 2014 in terms of sales, marketing, facility improvements and other initiatives. Another critical part of your annual planning—one that’s often overlooked—should be your insurance coverage.
The following industry trends highlight the need for certain coverages. Your ability to stay informed about potential exposures and establish necessary insurance and risk-management strategies may help you protect your valuable investment from costly losses down the road.
Trend: Increasing Losses From Weather-Related Events
Over the past few years, insurance companies have seen a dramatic rise in the number and value of claims paid to repair damage caused by weather-related events such as hail and wind. In areas prone to these types of catastrophic events, some self-storage owners may have experienced a sharp increase in premiums; others may have been declined coverage at renewal time.
Recognizing this trend, some insurance companies now offer endorsements designed as a mutually beneficial compromise for the insured and carrier. A cosmetic loss-limitation endorsement offers business owners a premium credit for facilities in specific locations. The endorsement limits coverage for cosmetic hail damage to a metal roof. Hail damage to roll-up doors, siding, downspouts and gutters is not reduced on some policies. In addition, hail damage to the roof resulting in the failure of the metal roof covering to perform its intended function of keeping out the elements is not affected by this endorsement.
Another consideration is an actual-cash-value endorsement for your roof, which establishes a depreciating value. It provides coverage for roofing while limiting the insurance company’s potential liability based on the age and condition of the insured structure.
Finally, all self-storage operators need to understand the critical role business-income coverage plays in the ability of a business to survive a catastrophic loss. Also known as business-interruption coverage, it protects your operation’s income in the event of a loss requiring reconstruction. The coverage provides regular business income and extra expenses incurred for a set time period, with additional time following reconstruction while spaces are being rented. Typical policies offer 12 to 15 months of coverage, while some offer options for 18 to 24 months.
Trend: Requiring Tenants to Provide Evidence of Insurance Coverage
Once considered a non-essential service by many self-storage professionals, tenant insurance is becoming a topic of true interest. Requiring tenants to provide evidence of insurance coverage at the time of lease has become a growing trend.
From a risk-management perspective, implementing a tenant-insurance program at a self-storage facility is a plus. It reduces the owner’s liability exposure in the event of tenant loss. Some programs include coverages that protect the facility in addition to tenants’ stored belongings.
While tenant insurance may be considered a must-have coverage, it’s important to carefully evaluate available programs. Look for an insurance product underwritten by a carrier with an A.M. Best “A” rating or higher and pay attention to the policy details. If you’re going to offer a program, it’s vital to understand what’s covered, what's excluded, and how tenants’ claims will be addressed, including whether the policy functions as the primary insurance in the event of a loss.