“If it looks like a duck and quacks like a duck, then it’s gotta be a duck.” This is not the case when it comes to self-storage tenant insurance and protection plans. There’s definitely a difference. The goal of this article is to clear up some confusing information floating around the industry with facts about these two distinct offerings.
The Programs and Differences
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. Those payments are pooled by the insurance carrier to pay claims within that pool. The carrier is required to provide the tenant with a contract (policy) that outlines the terms of coverage and his rights under that contract.
Tenant-protection plans are a contractual relationship between the tenant and the storage operator. Under a protection plan, the operators agrees to retain limited responsibility for the tenant’s property under very specific terms and conditions. Facility owners can assume this risk on their own or insure all or part of the risk through associations or contract liability-insurance policies currently offered by some companies.
The biggest difference between tenant-insurance programs and tenant-protection plans is licensing. Fact: All 50 states have insurance rules and regulations to which self-storage operators must adhere. Of those, only 16 allow storage owner/operators to legally sell tenant insurance under a limited license. In the other states, your insurance provider may be operating under an “assumption.” However, anyone at a storage facility who offers tenant insurance to a customer would be required to be a licensed insurance agent. That would include the storage owner, should he ever need to fill in for the manager. On the other hand, a protection plan is not insurance, therefore, no licensing is required.
The second biggest difference is the ability to offer remuneration for each policy sold. All states have laws when it comes to paying insurance commissions. Since property-protection plans are not an insurance product, they don’t fall under these regulations.
Along with the licensing issue, the tenant-insurance product’s carrier must follow each state’s insurance guidelines when changing rates or commissions. Under such regulations, rates and commissions can’t be arbitrarily adjusted by the facility owner/operator. The tenant-insurance provider’s carrier must submit any changes to the state’s insurance department for review and approval.
Protection plans don’t have these requirements, so carriers have the flexibility to adjust rates and commissions as long as it doesn’t go against public policy. Also, because protection plans don’t fall under insurance regulations, such programs have either had opinions issued by state insurance departments or been upheld by the courts.
It’s important to note that just because a state has adopted a limited license, it doesn’t mean protection plans can’t be offered. Some state self-storage associations have been lobbying for limited-insurance licenses that allow operators to sell tenant insurance. However, you’d probably agree with the statement, “There’s a lawyer around every corner.”
Both tenant insurance and protection plans have been subjects of litigation. The juiciest cases are class-action lawsuits brought by ambulance-chasing attorneys bent on scoring a big settlement from the giants in the self-storage industry. Be aware, most of the complaints filed involve allegations that a company forced its tenants to buy its program without any type of opt-out. Make no mistake: Not having tenant insurance or a protection plan is not a defense against a lawsuit, whether individual or class action. Here are some recent examples:
- SpareFoot Storage Beat, Public Storage Faces Class-Action Suit Over Tenant Insurance
- Alabama’s 13 WVTM Birmingham, 13 Investigates: Storage Unit Insurance Follow Up
- Kentucky Self Storage Association Newsletter, Second Quarter 2014, Kentucky Court: Protection Plan Is Not Insurance
- State of Oregon Department of Consumer and Business Services Insurance Division
The Customer-Service Aspect
You may be asking, “Do I need to offer tenant insurance or a protection plan to my tenants?” Savvy self-storage operators know one of the simplest revenue sources in the market are fees garnered from the sale of insurance or protection plans. The more you sell, the more you make.
Plus, let’s not forget, the more tenants are protected, the fewer headaches for you and your staff. It’s just good customer service to offer a plan. You can be sure that stuff can and will happen to tenant goods—whether it’s Mother Nature or a human doing something foolish! No matter how secure and well-constructed your facility is, as an owner, operator or manager, you’ll be the one your tenant goes to when something bad occurs.
How will you respond to these issues? If you have no plan to offer, what are the financial, emotional and opportunity costs? Will you have to pay out of pocket to avoid bad publicity? How will you respond to the ravenous media when a disaster occurs affecting multiple units and tenants? Do you think tenants who’ve lost everything really want to hear, “Our lease says it was your responsibility”? And to whom will they cry first, the media or a lawyer?
In a nutshell, having a plan is place for your tenants is good customer service, an additional source of revenue, a risk-management tool and a public-relations backup in the event of a catastrophe.
Finding a Provider
Paramount in your search for a provider should be whether the company is customer-oriented and will be responsive to your tenant. Never forget, it’s your facility’s reputation on the line. No one will know or care about your “provider” or its “insurance carrier.”
So how do you evaluate providers to ensure you find the right one? Here are some things to keep in mind:
- Research the financial strength of the insurance carrier standing behind the provider’s obligation.
- Ask if your state is one of the 34 that requires an insurance application and license for the facility owner and his employees to sell the provider’s insurance product.
- Find out if the prospective provider is also a storage operator. Could it compete against you and have access to some of your financial information?
- Research the provider’s claims-paying record. You can easily do a Google search or check with trusted fellow owner/operators.
- Ask if the protection plan is self-insured or a contractual liability-insurance policy available to the operator.
- Always get a copy of the provider’s insurance-carrier’s 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!
There are options, and you do have control over these situations by establishing a tenant-insurance program or a property-protection plan, training your employees in how to sell it, and then making sure each and every tenant has signed 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. It would certainly look better in court that you not only offered an insurance program but the tenant was made aware of his options, which can be attested by his signature.
Hopefully, you now have a better understanding of what these two products are and why it’s important to offer one of them.
Matt Schaller is executive vice president of Arizona-based Tenant Property Protection. Licensed in 50 states, the company partners with self-storage operators nationwide to provide tenants with protection of goods while maximizing a facility’s revenue potential. Mr. Schaller has more than 27 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 317.440.9182; visit www.tenantpropertyprotection.com.