Extreme Weather and Self-Storage Insurance: A Closer Look at Today’s Hard Market

Over the past few years, many self-storage operators have experienced an extreme weather event at their facilities, often with catastrophic consequences. There were more than a dozen weather-related disasters in 2022 alone, each causing a billion dollars or more in damages. Record flooding occurred in many areas, and wildfires roared through California, Colorado, Idaho, New Mexico, Oregon, Texas and Washington.

While the names of storms change and the locations vary, here’s what’s apparent: They’re becoming more frequent and powerful. Further, replacement costs for businesses are rising, and the time required to replace and repair gets longer and longer as skilled (and willing) workers are in short supply.

The result is many insurance companies have had to pay out billions of dollars in claims—much more than they anticipated. Carriers, including those that serve the self-storage industry, use historic data to determine the probability of potential disaster for all areas of the country. However, unpredictable natural and man-made calamities are happening at such alarming rates that it’s extremely difficult to prepare for worst-case scenarios.

While insurance companies can determine fixed costs such as operating expenses, rent and labor, they have no surefire way of precisely determining the highest potential cost: actual insurance claims. When possibilities become difficult to predict, carriers decide to either stop providing insurance for certain types of claims, or they increase the premium for the coverage to offset the growing risk. The insurance industry calls this a “hard market.” It occurs when demand for coverage exceeds the number of companies that are willing and financially able to provide it.

What This Means for Our Industry

Insurance companies are constantly working to balance fair premium prices with the cost of potential claims. They analyze the history of claims made compared to payments collected over years and decades, then use this data to create affordable policies that’ll help protect their customers for the events that lie ahead, whatever they may be. They’re keen to point out, however, that statistics only show us how we got where we are, not necessarily where we’re going.

From the insured’s perspective, premium increases are understandably frustrating. However, it isn’t sustainable for insurance companies to lose money year after year. In the current hard market, it’s only reasonable that accounts with heavy losses should experience increases in rates and deductibles, or possibly changes in coverage.

That said, we’re seeing some carriers implement hikes of 40% or more. As 2023 unfolds, we don’t see any easing of rate pressure from of our carriers. Self-storage facilities that’ll likely see the heaviest impact will be those in storm-prone and high-crime areas, older or converted properties, and those built with wood-frame construction.

What You Can Do

Many self-storage owners only think about their insurance policy when it’s time to pay their premium, but you should be reviewing your policy any time you make a business change. A quick call to your agent can be eye-opening! For example, if you buy a facility with non-storage retail spaces, how would your policy respond? Even certain repairs, renovations and additions can affect your insurance.

Navigating a hard insurance market can be difficult. It’s really important to plan ahead and work with a specialized agent who knows the unique needs of self-storage. They can walk you through the process and help you determine the best policy for your business.

Jenny Bortman is vice president at Universal Insurance Programs, which has created and provided specialized insurance coverages to the self-storage industry for more than 20 years. For more information, call 602.222.8300 or email [email protected].