By Matt Schaller
Deciding whether to offer customers tenant insurance or a tenant-protection plan can be a tricky dilemma for many self-storage operators. To make an educated decision that’s right for your business, it’s important to understand the differences and similarities between the two products. Since the coverages offered are very similar from provider to provider, we’ll focus on program type rather than coverage conditions. Let’s take a closer look at both.
Self-storage tenant insurance is the transfer of risk from one entity (your tenant) to another (your provider’s insurance carrier) in exchange for payment. This is a two-party contract. Payments are pooled by the insurance carrier to pay claims within the pool. The carrier is required to provide the tenant with a contract (policy) that outlines the terms of coverage and his rights under the contract.
Selling insurance requires an “agent or producer” license in all 50 states. Special “limited licenses” are available in about 19 states that have a special license class for self-storage operators, with legislation pending in a few more states. The limited license simplifies the licensing process for operators and their employees.
Along with the licensing issue, the tenant-insurance carrier must follow each state’s insurance guidelines when changing rates or commissions. Under such regulations, these items can’t be arbitrarily adjusted by the facility owner/operator who’s now an insurance agent. The provider’s carrier must submit any changes to the state’s insurance department for review and approval.
Protection plans are essentially a three-party contract. The operator and the tenant enter into a contract that becomes part of the lease agreement. The storage operator purchases a contractual-liability insurance policy to protect against exposure to financial loss brought on by the contract it executes with the tenant. The insuring agreement then indemnifies the storage operator for financial loss it sustains in an event or occurrence that damages tenant property.
The terms and conditions affording protection to the tenant are entered between the storage operator and the tenant as part of the lease agreement. Since it’s a condition of the lease, the storage operator isn’t required to be licensed. Instead, the liability policy that indemnifies the operator is the insurance and requires the agent selling the policy to the storage facility be licensed. Currently, no states forbid the sale of contractual-liability insurance policies that protect storage operators from financial loss incurred as a matter of their business practices.
Deciding on a Program
Clearly, the first parameter in deciding on a program is whether your state is a “limited licensing” state for self-storage tenant insurance. If your state doesn’t have a self-storage licensing law, you can’t legally sell insurance without an “insurance producer or agent” license from your state for each individual offering the program. If this is the case, your option is limited to protection plans or nothing at all. If you conduct business in a limited-licensing state, you’ll have to make a determination between offering insurance or a protection plan.
Paramount in your search for a provider should be whether the company is customer-oriented and will be responsive to your tenants. Remember, it’s your facility’s reputation on the line. No one will know or care about your provider or its insurance carrier. Tenants want their claims handled quickly and fairly.
With this in mind, how do you evaluate providers to ensure you find the right one for your operation? Here are some things to keep in mind:
- Research the financial strength of the insurance carrier standing behind the provider’s obligation, whether that’s the tenant insurance “insuring company” or the owner’s contractual-liability policy backing the protection plan.
- Ask if your state is one of the 31 that requires a full agent insurance license or one of the 19 offering limited licenses for self-storage operators.
- Research the provider’s claims-paying record. You can easily do a Google search or check with fellow owner/operators you trust.
- Always get a copy of the provider’s insurance-carrier policy terms and conditions so you’ll thoroughly understand how it affects your tenants. In the case of protection plans, get a copy of the lease addendum-indemnity agreement from the plan provider. In both cases, read the fine print!
As you weigh your options, you’re in control of establishing a plan or program, training your employees in how to sell it, and making sure each tenant signs an understanding of his obligation and yours. Having a signature on file makes for a much easier conversation with an irate tenant if something does go wrong. In court, it certainly looks better that you not only offered an insurance program but that the tenant was made aware of his options, which can be attested by his signature.
I hope you now have a better understanding of what tenant-insurance programs and protection plans entail and why it’s important to offer one of them to your customers.
Matt Schaller is president of Arizona-based Tenant Property Protection, which partners with self-storage operators nationwide to provide tenants with protection of goods while maximizing a facility’s revenue potential. Matt has more than 28 years of experience in the self-storage and insurance industries, and has worked with companies that provide tenant insurance and property-protection plans. He’s licensed as a Certified Insurance Counselor and a Certified Risk Manager. For more information, call 877.575.7774; visit www.tenantpropertyprotection.com.