Why Self-Storage Operators Should Consider a Tenant-Protection Plan, Plus How They Work

In the ever-competitive self-storage industry, operators continually seek ways to enhance profitability while ensuring customer satisfaction. Among the challenges they face is how to safeguard tenant belongings from potential damage or theft.

Traditional leases generally relinquish the self-storage operator from liability for stored goods, which can leave renters concerned about potential losses. This is where offering a tenant-protection plan can enhance your customer experience without raising your own risk. Such a program can benefit the business as well as its users. I’ll explain how it works, how it differs from tenant insurance, the advantages to facility owners and tenants, and how to choose a provider.

How It Works

At its core, a tenant-protection plan is an agreement between the self-storage operator and a provider who offers coverage against the loss of tenants’ stored belongings due to damage or theft. The tenant agrees to participation via the rental agreement and pays a monthly fee, usually $12 to $25. If an incident occurs, the customer files a claim, and the plan reimburses them up to the selected coverage level, typically ranging from $2,000 to $5,000. While the plan is referred to as “protection” rather than insurance to avoid regulatory complexities, it offers comprehensive coverage.

How It Differs From Tenant Insurance

It’s essential to understand how a self-storage tenant-protection plan differs from traditional tenant insurance, as these distinctions can significantly affect owners and customers.

Regulations and licensing. Unlike tenant insurance, a tenant-protection plan isn’t subject to regulations in most states. This means you don’t need insurance licenses, fingerprinting or errors-and-omission insurance to market your plan, thereby eliminating a layer of complexity and cost.

Flexible terms. With this type of plan, you work in concert with your provider to determine your rates, commission and terms. This allows you to customize the program to suit the specific goals and needs of the business.

Coverage for negligence. A tenant-protection plan covers losses beyond your control, including facility negligence. This eliminates the uncertainty that can exist with tenant insurance when it comes to subrogation and transfer of risk.

With a subrogation clause, an insurance company could sue a self-storage owner to recoup payouts for tenant claims if an incident occurred due to business negligence. Similarly, insurers may use a transfer of rights of recovery—essentially stepping into the tenant’s shoes—to go after anyone who might have caused the damage and get their money back.

This is why self-storage rental agreements often include a waiver of subrogation, under which the tenant agrees their insurance company won’t sue the facility if something happens to their belongings, even if it was the operator’s fault. The problem is if the tenant signs off on the waiver without the knowledge of the insurer, the insurer might not cover the tenant at all because they want the option to get their money back from the storage business.

A tenant-protection plan often eliminates this issue. In the event something goes wrong, it’s like a safety net that removes the tenant from being stuck in the middle of any protracted legal battle or potential push of liability back onto the storage facility.

Claims. A tenant-protection plan streamlines the process, with claims paid directly to tenants by the provider. This reduces administrative hassle for self-storage operators and ensures a smoother resolution for renters.

At the heart of a tenant-protection plan is its ability to effectively transfer risk and offer a straightforward solution for loss. As the self-storage operator, you can revise your lease to include mandatory protection-plan language or require proof of outside insurance. An additional addendum clarifies that liability for tenant belongings transfers to the protection provider up to the plan limits. This transfer of risk not only provides a solid legal framework but eases concerns and uncertainties for owners and tenants.

Advantages for Operators

A critical advantage of a tenant-protection plan is it covers losses even if an incident is due to negligence by the self-storage operation. This offers a more comprehensive level of protection for owners and tenants. Here are some other primary benefits:

Greater revenue. These plans can boost income by 5% to 8%, thereby increasing facility value by as much as 12%. This is particularly attractive to investors and potential buyers.

Claim processing. A good provider handles claims in a direct but documented manner, reducing the administrative burden for the self-storage facility and boosting business reputation.

No license required. Most states require self-storage owners to secure and regularly update a license to sell tenant insurance, but this isn’t necessary with a tenant-protection plan. This saves time and money, and streamlines the sales process.

Flexible terms. Protection plans offer flexibility in setting rates, coverage limits, commissions and other terms. Through language in your rental agreement, you also have an opportunity to auto-enroll tenants.

Reduced sales burden. Many protection-plan providers offer turnkey solutions that can be bundled right into your self-storage lease. This makes it easy for you to implement the program and for tenants to enroll.

Benefits to Tenants

Easy sign-up. Whether conducted on site or online, the enrollment process is typically streamlined and easy, saving customers time and effort.

Affordability. Protection plans are generally more cost-effective than traditional tenant insurance. Though monthly pricing may be equal in some cases, the critical savings come from not having to pay a deductible for claim losses—a tremendous advantage over programs that have multiple deductions, stop losses and actual cash value (depreciated value) for claims loss.

Simple claims process. Tenants can report claims directly to the protection provider, which ensures a quick resolution.

Broad coverage and reimbursement. Protection plans offer comprehensive coverage, including losses due to facility negligence. Customers should be reimbursed for the full replacement cost to repair or replace their lost or damaged property.

Choosing a Protection Partner

Selecting a tenant-protection plan is an important consideration that can significantly impact the success of your program. When weighing your options, consider the following factors:

Adding a tenant-protection plan to your self-storage service mix can boost revenue, mitigate risk and provide peace of mind to you and your customers. By understanding benefits and selecting a reputable partner, you’ll be able to deliver value to customers while maximizing your profitability. Protection plans aren’t just an add-on; they’re a strategic investment in the future of your operation.

Terry D. Anderson is CEO and president of Arizona-based Tenant Property Protection, which partners with self-storage operators nationwide to provide protection of tenant goods while maximizing facility revenue. He has 38 years of experience in nonprofit, retail and professional services. For more information, call 877.575.7774; email [email protected].