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Why You Should Offer a Self-Storage Tenant-Insurance Program and How to Get Customer Buy-In

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By Stephanie Tharpe

Tenant insurance has become a hot topic in the self-storage industry. The practice of operators offering coverage to tenants has become so commonplace that some customers who inquire about our rental rates want to know if our prices include insurance. Most of the industry real estate investment trusts now require customers to have coverage, and several operators I’ve spoken to also require tenants to protect their goods.

It’s important for facility managers to understand how tenant insurance protects customers as well as how it can benefit his business. First, take a close look at your rental agreement to ensure it specifies your facility isn’t responsible for damage to customer goods. Common language typically reads something like, “The owner and the owner's employees and agents shall not be responsible or liable for … including but not limited to, theft, mysterious disappearance, vandalism, fire, smoke, water, flood, hurricanes, rain, tornadoes, explosions, rodents, insects, acts of God, or the active or passive acts or omissions or negligence of the owner, the owner's agents or employees.” That sounds all well and good, but let’s face it: We can’t always write ourselves out of liability.

At my company, we’ve offered tenant insurance to customers for nearly two years, and the results have been amazing. While the claims have been few, those that were filed were handled quickly and to the satisfaction of tenants. Let’s take a closer look at how offering a program can be beneficial to customers and your business, as well as how to stimulate buy-in.

Primary Benefits

If an unfortunate loss occurs, I want my tenants to have quick access to financial compensation. Even though our lease states we’re not responsible for damage to tenant property, this won’t stop disgruntled tenants from taking us to court if an incident occurs and they aren’t insured. What if the facility catches fire or is wiped out by a storm, or a truck smashes into a building? Facility managers often become friendly with customers, and naturally, tenants will want you to do something when there’s damage to personal property. Tenant insurance removes the responsibility from managers to “fix it.”

Offering tenant insurance also provides your owner with an extra wall of protection. Whether there’s one claim or 20 after an unfortunate incident, he won’t have to reach into his pocket to compensate impacted tenants as a "good will" move. I know of several occasions in which owners have written checks just to keep a customer satisfied.

Finally, the revenue that can be generated from tenant insurance is all found money, meaning the absence of a program is a lost opportunity. When properly implemented, a program usually generates more revenue than truck rentals or the sale of boxes, locks and packing supplies. If you manage a facility with 400 units and 85 percent physical occupancy, you could expect to have 60 percent of your tenants insured within five months. That level of buy-in equals $735 per month to the facility and an increase in property value of $126,000 based on a 7 percent capitalization rate.

In 2015, our seven Nashville, Tenn., locations tallied $186,000 in insurance sales. Our lowest performing store produced $19,000, while our highest produced $41,000. These are significant numbers you can use if trying to convince your owner to bring on a plan.

Choosing a Plan

There are different types of tenant insurance and tenant-protection programs from which to choose. If you’re tasked with shopping for plans, check your state statute to see what laws apply. Some states require a limited license to sell insurance. Thoroughly compare each plan, and then make an educated decision on the criteria that work best for you and the business. Some key questions to ask include:

  • What training will be provided?
  • What marketing tools will be provided?
  • Who will answer my questions if my customers or I need support?
  • How much time will I have to spend on a claim?
  • Who will assist me in reaching out to my existing tenant base?
  • What will be the out-of-pocket cost to enroll current tenants?

Answers to these questions were determining factors when my company chose its provider.

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