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Self-Storage Protection Plans: Helping Tenants and Facilities Manage Risk

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By Kay Miller Temple

People store stuff, and lots of it. Stuff has value, whether it be based on cost, functionality or sentimentality. But the real value of stuff becomes fully apparent when that stuff is lost, damaged or destroyed.

Though a self-storage operator isn’t responsible for damage to tenants’ stored goods, bad things can happen at a facility, including natural disasters and accidents. Operators brace themselves for loss by actively managing risk through various measures. They can also help tenants understand and manage their own individual risk.

There are two options for customers to protect their stuff in storage: tenant insurance and tenant-protection plans. Both can bring in extra facility revenue, but the latter does impact owner risk. Because these products are sometimes influenced by state regulations, experts say it’s important to understand the particulars of each. Most self-storage operators are familiar with tenant insurance but may have questions about protection plans. Here’s an overview.  

History

The ability to manage the risk associated with storing goods has changed over the industry's history. In the early years, operators relied on a "release of liability" provision in their rental agreement, which stated stored property wasn’t the facility owner's responsibility. Then came a tenant-insurance product. At first, customers mailed their premiums directly to the insurance company, with no involvement from the facility operator.

But in the 1980s, when self-storage management software became a standard business tool, something new happened: Facility owners became directly involved with offering insurance. These transactions were focused on tenant convenience, says Ted Dobbs, protection sales leader with Phoenix-based Deans & Homer. Insurance products were offered, premiums were collected and sent to the insurer, and a commission was passed to the facility. Later, this involvement was determined by certain government bodies to be an insurance transaction requiring a license and subject to oversight by state insurance regulatory agencies.

Since then, assisting tenants with protection has become a "good news/bad news" situation, according to Dobbs, whose company has more than 35 years of experience insuring the self-storage industry. At the time of this writing, 16 states have enacted some form of law to allow a “limited license” for managers or facility owners to offer pay-with-rent insurance. This is good news for operators in those 16 states, Dobbs says, but it’s a problem for operators in the other 34 states and the District of Columbia. As an alternative to traditional tenant insurance, tenant-protection plans emerged in 2002.

The Basics

One philosophy behind the protection plan is risk sharing. Due to its flexibility—and with companies offering different products—there’s no strict, standard, one-size-fits-all definition of a protection plan. So perhaps understanding what a protection plan is begins with understanding what it’s not.

"The protection agreement is not insurance, it is not a warranty, and does not require the owner/operator to have an insurance license," Dobbs says. "The agreement is part of the rental agreement and is simply the transfer of some limited liability for loss or damage to stored property back from the tenant to the owner in exchange for additional rent. The facility owner may retain all of the potential liability created by this agreement, or they may transfer part of or all of that risk to an insurance company by purchasing a separate policy of contractual liability insurance."

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