Property insurance can be one of the largest expenses for any self-storage operation; however, having the appropriate protections in place can be a lifeline if your business ever faces a devastating loss. Some facility owners overlook or disregard important, industry-specific coverages, particularly if they’re fixated on cost. If you want to shield your company from calamity, you can’t afford to do so.

Without business insurance, you may have to pay out of pocket for costly damages as well as legal claims against your self-storage operation. Depending on the incident, this could be financially devastating. The good news is there are many ways to reduce your exposure and affordably manage your risk.

Work With Your Agent

Before we talk about specific self-storage insurance products, understand this: It’s critical that you’re able to consider your broker a trusted adviser. Working with an experienced agent who understands the industry is vitally important in obtaining appropriate policies at a competitive cost. Many storage-specific coverages must be explicitly requested and aren’t available in a standard insurance policy.

Review your coverages annually with your agent. Each self-storage operation has unique needs and budgetary requirements. Assessing your insurance terms, conditions, limits and deductibles is an important step.

Also, make sure you’re using an accurate property value on your policy. This is critical at a time when the cost of construction materials and services is rising. If you ever have to rebuild all or a portion of your self-storage facility, sufficient coverage limits will be crucial.

Coverages to Consider

Business-income insurance. In the event of a catastrophic loss that forces you to close your self-storage operation, such as a flood, hurricane, tornado or fire, this coverage helps replace lost income. Most policies provide up to 12 months of coverage; however, some facilities may take more time to rebuild, and you may need a longer term. Additional forms are typically available that extend the period of indemnity following reconstruction to continue business-income payment during lease-up.

Customer goods legal liability. A typical self-storage lease states that the owner isn’t responsible for a tenant’s stored goods. However, if a customer brings a lawsuit alleging that his property was damaged due to negligence, the legal costs and any judgment determined in court can be detrimental to your operation. This policy covers defense costs even if the lawsuit is found to be groundless.

Sale and disposal liability. State statutes govern the treatment of delinquent tenant property as well as the auction process. If an error is found during any step, your self-storage business could be vulnerable to lawsuits claiming loss or damages. A court ruling that determines you to be negligent may result in high legal fees and payouts. This insurance assists with those costs.

Cyber liability. The use of technology is advancing rapidly in self-storage, but while innovations like software and automation offer competitive advantages, there are cyber risks to your computer systems and networks. The theft of account data by hackers and unauthorized use of confidential information has been increasing. The use of WiFi and mobile devices exponentially increases vulnerability to a cybersecurity breach and is a significant liability if you aren’t prepared. This coverage protects against these dangers.

Flood/earthquake coverage. Flooding is the most common and costly natural disaster across the United States. It can occur anywhere, anytime, and flood maps are constantly changing. In fact, more than 20% of claims come from outside high-risk areas.

Don’t make the mistake of thinking you can rely solely on government disaster assistance to recover from a loss to your self-storage business. 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.

Pollution coverage. Dangerous chemicals, hazardous waste and contamination can pose a significant threat to self-storage staff, tenants and visitors. Even if you specify in your lease that certain items are strictly prohibited from being stored, it can be difficult to keep your site completely safe from illegal or banned substances. Most general insurance policies exclude pollution, so consider having a liability policy that addresses potential events.

Acquisition Tips

If you’re in the due-diligence phase on a self-storage facility acquisition, ask the seller for the insurance-claims history, preferably spanning the last three to five years. Note any past incidents (break-ins, fires, water and roof damage, etc.) and discuss whether they’ll have a significant impact on your premiums with your agent.

Also, review the lease agreement used by the current owner to ensure it’s up-to-date with important hold-harmless, indemnification and value-limitation clauses. If changes are required, follow an appropriate process to notify existing tenants and have them sign an updated lease.

Be Safe

Business insurance can be expensive, but it can also save your self-storage operation. One way to reduce risk exposure and costs is to establish a safe workplace. This is essential to success. Once you’ve made your safety plan, share it with your insurance agent. They can review it, make suggestions for improvement, and offer you multiple competitive options for coverages that’ll defend your company against unforeseen events.

Ultimately, the factors that drive the cost of insurance are tied to how well you run your self-storage facility. 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 and results.

Brian Bogdanoff is the director of property and casualty insurance for Storable, which provides self-storage insurance coverage in all 50 states. In addition to insurance, Storable offers a comprehensive suite of intuitive products that work together to increase business efficiency and profitability. For more information, call 888.525.1760 or email [email protected].