By Keith McConnell
The economic climate puts pressure on self-storage business owners to seek additional sources of revenue, and a tenant-insurance program can be one of them. But before you choose a program based solely on dollar signs, there are a few important things you would be wise to consider.
There are generally two types of tenant-insurance programs: mail-in and pay-with-rent. Mail-in programs require very little hands-on work for the facility operator and don't include an administrative fee. Pay-with-rent programs require facility staff to perform certain tasks and pay facilities an administrative fee.
Customers who choose pay-with-rent tenant insurance remit their premiums along with their rental fee each month. The facility is responsible for recordkeeping. Once a month, the operator will submit a report to the insurance provider and send the collected premiums minus the administrative fee due to the storage business. Some states require that facilities offering a pay-with-rent program obtain a limited license.
Understanding the Benefits
The range of facility compensation among pay-with-rent tenant-insurance programs can be diverse. Some providers offer a flat rate per policy, others include a percentage of total premium, and some base the administrative fee on a combination of factors. Compensation may be tied to the participation rate or the number of policies purchased each month, with administrative fees paid on a sliding scale. In this scenario, the highest level of compensation would be reserved for the highest participation numbers.
Participation rates are an important consideration for more than just calculating the administrative fee. Whatever program you choose, youll earn more revenue if more of your customers elect to purchase the insurance.
Administrative fees are earned every month the customer purchases insurance. For example, a $4 per policy administrative fee adds up to $48 in additional revenue for each tenant who participates for a full year. So for every 100 insured tenants at your facility throughout the year, thats a potential $4,800 in added revenue. With that in mind, its critical that you examine the coverages offered and premium prices to determine if the product is something your customers would perceive as valuable and worth the expense.
Keep in mind that not all programs offer the same coverages, deductibles or limits. There are unique benefits available such as replacement-cost coverage, rodent and vermin damage, and zero-dollar deductibles. Some programs even offer benefits for the facility owner such as coverage in the event of a fire originating in an insured tenants rented unit. You should also determine if the program is an insurance product or a warranty, and make sure you understand the difference.
Choosing an Insurance Partner
To find the best partner, interview prospective tenant-insurance providers and find out how theyre willing to work with you to help increase tenant participation. Do they offer customized periodic training for your managers? Will they send you marketing materials to display in the office and around the property? Will they help you create letters or e-mails to send to your tenants?
Its wise to research tenant-insurance providers to identify their financial stability, so be sure to consider the underwriters A.M. Best Co. or Moodys credit rating. You also may want to ask for claims references. Customers who experience a loss and then feel slighted during the claims process often turn to the facility for answers. Choosing an insurance provider with an excellent claims reputation represents a service for your tenants and a benefit for your facility.
Formula for Success
The self-storage operations that experience the highest level of success in offering pay-with-rent tenant insurance generally share a number of characteristics:
- Customers perceive value in the coverages offered
- Range of premiums and coverage limits
- Low or no deductible
- Benefits for the facility
- Customized training by insurance provider
- Commitment by ownership/management to offer insurance to all tenants
- Require customers to provide evidence of insurance to comply with the lease
- Ongoing training to reinforce the culture
- Underwritten by a carrier with a strong financial rating
- Excellent reputation for handling claims
One of the most important factors influencing customer participation in a tenant-insurance program is already in place: your staff. Facility managers should be appropriately trained to offer the insurance program to customers and explain that their stored belongings are not insured by the facility. There also must be a culture within the facility to reinforce the training among the staff and ensure coverage is offered to every new customer at the time of leasing. Current customers who havent purchased insurance should be reminded regularly that coverage is available.
There are a number of factors to consider when selecting a tenant-insurance program, but its certainly worth your time to find the program that will provide the best value for your customers and the most opportunity for your facility to earn revenue.
Keith McConnell is the vice president of business development for Phoenix-based MiniCo Insurance Agency LLC, which provides specialty programs for self-storage businesses including property-casualty insurance and tenant-insurance programs. For more information, call 800.447.8383; e-mail [email protected].