Going through an event that leads to an insurance claim can be a traumatic experience. Making a claim and recovering the covered amount from your insurance company shouldn’t be. To alleviate future headaches, here’s a foundation on which you should build your insurance program, and some basic rules for getting through the claims process.
There are three critical elements in any insurance-claim process. The first is preparation—the foundation. The second is documentation, followed by cooperation. Let’s look at how this applies to the insurance for your self-storage facility.
To build your insurance foundation, buy the right type of insurance in an adequate amount. As a facility owner, you face substantial risks to your investment in the form of:
- Direct physical loss to your business property
- Resulting loss to your income
- Potential liability for injury to others
- Damage to other peoples’ property
These risks are typically insured through a single policy designed to cover property and liability exposures. You may also need some additional coverage not provided in a “standard package” policy. Here’s a breakdown of insurance coverages to consider.
Will you rebuild or repair after a loss to your buildings or business personal property? Most property policies sold today will cover this if you actually do replace, repair or rebuild. But your insurance limits need to be adequate to pay for that replacement. This means you need to keep your property insurance in line with the cost to rebuild or replace. Construction costs generally go up over time. Many self-storage owners add new buildings to their facilities to satisfy increased demand. These changes need to be reflected in changes to your property insurance limits.
For a property or income loss, your insurance is a contract of indemnity. This means that after a claim is resolved, you should be restored to the same financial condition you were in before the insured loss occurred. If you choose not to rebuild or replace, your property loss will be valued at actual cash value or the depreciated value of the property prior to the loss. If you repair or replace, most policies will pay for the current cost to rebuild, even if it exceeds the original building cost, assuming you have purchased adequate insurance. Many policies will even pay for additional expenses to bring the damaged property up to code. This is a particularly important coverage for owners of older self-storage properties to consider and discuss with their insurance representatives when purchasing insurance.
Some properties may be subject to hazards that are typically excluded from standard property-insurance policies. Two very common hazards typically excluded are flood and earthquake. If your property is in an area particularly susceptible to damage from these hazards, you may need to purchase separate insurance.
Loss of Income
Direct loss to your business property will often result in a loss to your rental income as well, which may continue beyond the period necessary to repair or rebuild. It will take time to lease up the restored property. Some insurance policies will continue to pay for loss of rental income after property restoration until units are rented, some will not.
When considering your insurance needs, look at your current rental income, the time period necessary to restore your property to rentable conditions following a severe loss, and the time needed to re-rent the units to the occupancy level prior to the loss. Be sure your limit is adequate to cover all the income you could lose.
How much do you need? This is a good question with no easy answer. This is not a good place to cut back on limits to save premium dollars. Rates and premiums for liability insurance don’t increase dollar for dollar as they often do in property insurance. For example, $1,000,000 of liability insurance will generally not cost double what you would pay for $500,000. Get quotes for several levels and purchase enough to cover what you believe to be the maximum damage in which you might be liable.
Also, your insurer should provide specialty coverage for customer’s goods legal liability and sale and disposal legal liability. These are exposures unique to your business operation. The coverages are offered by many companies that provide insurance designed for the self-storage business, but are not included in many small-business packages sold by insurance companies and agents who are not familiar with the industry.
Facilitating a Claim
The claims process includes everything that happens after you first become aware of an event that will cause you to make a claim on your insurance policy up until the time your claim is settled. The process can be broadly broken into two periods: the time before you notify the insurance company of the event leading to your claim, and the time when you’re working with your insurance carrier to resolve it.
Through this process, one thing that will get you through as quickly and painlessly as possible is documentation. The other is cooperating and working closely with your company’s representative, probably an adjuster.
The claims process begins as soon as you’re aware of the event that leads to the claim. In the case of loss or damage to property, take pictures and gather names and statements from any witnesses. If you believe further damage to your property can be avoided by immediate action, take steps to keep things from getting worse.
Perhaps you could make temporary repairs to a damaged gate, door or window to prevent inappropriate access to your facility. Or put a temporary covering on a damaged roof to prevent water from leaking into units.
If the event involves a potential liability claim, such as a customer injury on the property or damage to customers’ stored goods, again, document the loss. Obtain photos, names and statements from any individuals with knowledge of the incident. Do not admit or accept responsibility. You may not have been negligent or liable for the damage or injury. You must work with your insurer’s representative to determine the best way to handle the potential claim.
Now it’s time to present your claim to your insurance representative. Some people are reluctant to report an incident unless they’re sure it will lead to a covered claim. They’re afraid the report could impair future eligibility for insurance or increase premiums even if no claim is ever paid. You may not need to make a formal claim if you’re unsure if the event is covered or will actually lead to a liability claim, but it’s wise to talk to your representative to help make a coverage determination. And be sure to put the company on notice of a claim in a timely fashion, as required by almost every policy.
Once your claim has been reported, the process involves “proving your claim.” You’ve already begun by documenting what happened as well as you could. The insurance company now needs to validate the claim by:
- Verifying a covered incident or accident has occurred
- Verifying the event occurred during the policy term
- Determining the amount payable to you or to a third-party claimant
Your documentation immediately following a loss should help establish the first and second parts, while the foundation you built by purchasing the right types and amounts of insurance should ensure you’re fully indemnified for the third part.
If the amount of your loss exceeding any applicable policy deductible is small, the entire claim may be handled over the phone and by mail. However, significant losses will generally be handled by either a company or independent adjuster, who will be assigned to work with you through the process. If the loss involves a third-party liability claim against you, your insurance company will most likely retain an attorney to represent and defend you.
In all cases, your claim is most likely to be handled well if you develop a close working relationship with the claims adjuster and attorney assigned to your case. Keep them up to date on claim-related developments—repair estimates, notices, etc. Provide them with information to help establish the amount of your claim. Run permanent repair or replacement bids by your adjuster before approving them and getting the work done to avoid conflicts after you have incurred those costs. If your claim includes a loss of rental income, historical records of occupancy, rental income, unit turnover or historical rent-up periods for your facility or in your market will be important in proving your loss.
You want your insurance company to pay you full value for insured losses. The adjuster’s job is to be sure the amounts paid by your company are in line with their contract―not less and not more. Your best path to receiving your full contract benefit is to establish a good relationship with your claims adjuster and keep an open line of communication on all parts of your claim with him.
If you believe you have a problem with the adjuster that cannot be resolved, it’s important to discuss this with your insurance agent or representative. It’s always in the best interests of the insurance customer and company to have a claim resolved in a reasonable and agreeable manner according to the policy contract rather than to have a dispute delay its resolution.
While a solid foundation of appropriate insurance and good documentation helps assure maximum indemnification for your claim, it’s timely cooperation that will move the process quickly to a successful conclusion.
Scott Lancaster is the regulatory compliance officer for Deans & Homer, which has provided insurance products designed to respond to the unique risks of the self-storage industry since 1974. Lancaster started his insurance career in 1976 as a licensed insurance agent and broker in California. For more information, call 800.847.9999; visit www.self-storage-insurance.com.