Though insurance premiums represent one of the largest line-item expenses for self-storage facilities, proper coverage is a lifeline for your operation in the event of a loss. In fact, it’s central to business continuity. While you must shield your business in today’s litigious environment, the good news is there are many ways to reduce exposure and affordably manage your risk.
Working with an experienced insurance agent who understands the industry is extremely important. Many storage-specific coverages must be explicitly requested and aren’t available in standard insurance policies. Sometimes the least expensive ones, or enhancements, are the most important to have. Here are some you should consider:
Customer goods legal liability. A typical self-storage lease states that the business owner isn’t responsible for a tenant’s stored goods. If a customer brings a lawsuit alleging that his property was damaged due to negligence, the legal costs and any judgment determined in the courts can be detrimental to your operation. This specialty form extends coverage to the owner for this exposure.
Sale and disposal liability. State statutes govern the sale and disposal of tenant property as well as the auction process. If an error is found during any step, your business could be vulnerable to lawsuits claiming loss or damages. A court ruling that determines an operator is negligent may result in high legal costs and payouts. This specialty self-storage coverage provides legal defense, even if a customer’s lawsuit is found to be groundless.
Business interruption. In the event of a catastrophic loss, such as a facility flood or fire that halts business operation, this coverage is extremely important. Most policies provide up to 12 months of coverage; however, some self-storage facilities may take more time to rebuild. In those cases, a longer period may need to be considered.
Self-storage insurance policies should also include an “extended period of indemnity” form, which continues the business-income payment during lease-up. For example, let’s say a fire causes damage to several units, and you rebuild the portion of the building that was destroyed. The 50 units that were occupied prior to the loss may take an additional five months to refill. This enhancement will extend coverage during the lease-up process. It isn’t typically included within a standard policy.
Ordinance or law coverage. The older a self-storage facility is, the greater the likelihood that building codes have changed since it was built. This specialty enhancement provides protection for a covered loss including the expenses associated with repair, rebuilding or reconstruction of a building when it doesn’t meet current standards. It also covers any increased cost of construction for things such as adding a sprinkler system or updating wiring and plumbing. This even holds true if a structure can’t be rebuilt to its previous specs. It can be a very expensive mistake to skip this important protection at minimal cost.
Cyber liability. Technology use is advancing rapidly in self-storage, but while innovation offers competitive advantages, cyber risks can impact your computer systems and network. The theft of account data by hackers or unauthorized use of confidential information has been increasing. The use of WiFi and mobile devices exponentially increases vulnerability to cybersecurity breach and is a significant liability to self-storage businesses that aren’t prepared. To this end, look for a cyber-liability insurance policy that includes coverage for privacy, data recovery, crisis-management costs and data extortion.
And just so you know: The size of your business is irrelevant. Data breaches can occur to any computer that connects to the Internet. Many small businesses have been targeted, since there’s a greater likelihood that their data security isn’t strong.
Employment-practices liability. Employment-related claims are on the rise due to staff turnover, layoffs and even business growth. Whether you outsource human resources, hire your own self-storage managers or contract a third-party management company, you’re at risk of an employment-related claim. Discrimination, wrongful termination and harassment are all examples of incidents that would be covered under this policy. Coverage for wage-and-hour defense and even third parties (tenant to tenant) are usually available upon request.
Flood/earthquake coverage. Did you know that more than 20 percent of flood claims come from outside high-risk areas? Flooding is the most common and costly natural disaster throughout the United States. It can occur anywhere, anytime.
Don’t make the mistake of thinking you can rely solely on government disaster assistance and programs to recover from a loss. In addition to the National Flood Insurance Program managed by the Federal Emergency Management Agency, there are private-insurer options available; however, flood and earthquake coverages aren’t typically included in a packaged commercial policy. If you’re interested, you can request to add them by endorsement or obtain a separate policy.
Design Your Own Program
Each self-storage facility is unique. By working with your insurance agent, you can design a policy that fits your needs and budget. Here are a few important tips for getting the right coverage at the right cost:
- Provide accurate building data and property characteristics. Don’t forget to list any security features, such as video cameras, gates and fire sprinklers, as this provides favorable underwriting results at a reduced cost.
- The cost of materials and labor is constantly changing, and in the event of a natural disaster, prices can surge! Carefully evaluate the replacement value of your assets and choose the limits that will best protect your business.
Finally, don’t be afraid to use a broker, who can serve as a valued adviser. A good one will provide education and a risk-management strategy as well as help you manage expectations to become a smarter insurance consumer. When you look at what drives insurance pricing, it’s a function of what you do and how you run your business. Leveraging information revealed through the underwriting process and demonstrating a commitment to ongoing risk management and safety practices will allow you to achieve more favorable rates.
Choose Your Deductibles
Everyone wants lower premiums. One way to reduce the cost of your self-storage insurance policy is to have skin in the game and take a higher deductible. If you go that route, consider what amount is comfortable and the cost benefit. Most policies carry a property deductible anywhere from $1,000 to $10,000. Deductibles may also vary for higher risk perils such as wind, hail, flood or earthquake, so read the policy details. Reviewing the options may create enough savings to take on a little more risk without breaking your budget.
Do Your Homework
When purchasing an existing self-storage facility, ask for the prior claims history during your due-diligence period. You’ll want to know about any past issues (break-ins, fires, water damage, roof damage) and whether they’ll have any significant impact on your insurance premium.
Another important point to keep in mind is that having a safety plan designed to reduce risk exposure will help reduce your insurance costs. By working with an agent who specializes in self-storage, you’ll be able to review multiple competitive options to best protect your business from unforeseen events.
Brian Bogdanoff is a vice president with Insurance Office of America (IOA), which provides self-storage insurance (property and casualty, and tenant protection). Headquartered in Longwood, Fla., IOA operates in more than 60 locations throughout the U.S. and London. For more information on disaster plans and comprehensive business insurance, contact 561.350.9507 or [email protected].