Are you ready to offer your self-storage tenants coverage for their stored possessions? If so, what kind of plan should you offer? Will your customers appreciate the service? Will it be a burden on your management staff?
These are questions every facility operator faces. Below, I’ll discuss how tenant insurance and protection plans work. I’ll also offer advice on how to choose the right provider for your business and how to offer your program to customers.
Tenant Insurance vs. Protection Plans
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. This is a two-party contract. Payments are pooled by the insurance carrier to pay claims within the pool. The carrier is required to provide the tenant with a contract (policy) that outlines the terms of coverage and his rights under the agreement.
Selling insurance requires an “agent” or “producer” license in all 50 states. Special limited licenses that have a special class for self-storage operators are available in about 30 states, with legislation pending in a few more. The limited license simplifies the licensing process for operators and their employees, but still requires stringent procedures and recordkeeping, which can be a burden. As licensed insurance professionals, storage operators must adhere to their states’ insurance laws and regulations.
Protection plans involve three parties. The storage operator and the tenant enter a contract as part of the lease agreement, and then the operator purchases a contractual liability insurance policy to protect against financial loss brought on by this contract. The insuring agreement under the policy indemnifies the operator for any loss he sustains from damage to tenant property.
Again, the terms and conditions are between the storage operator and the tenant. Since they’re part of the lease, there’s no requirement for the facility operator to be licensed. Currently, no states forbid the sale of contractual liability insurance policies that, in this case, protect the storage operator from financial loss incurred as a matter of business practice.
When choosing the right program for your business, you must first determine whether your state offers a limited lines license for self-storage tenant insurance. If it doesn’t, a protection plan will be your option. If it does, you have a choice. When considering tenant insurance, research your state’s licensing requirements, including background checks and costs.
Choosing a Provider
Critical in your decision-making process will be your research regarding providers. You want to work with a company that’s customer-oriented and will be responsive to tenants. Remember, it’s your facility’s reputation on the line. No one will know or care about your provider or its insurance carrier. Tenants want their claims handled quickly and fairly.
So, how do you evaluate providers to ensure that you find the right one for your business?
- Research the financial strength of the carrier behind the provider’s obligation, whether that’s the tenant insurance “insuring carrier” or the owner’s contractual liability policy backing the protection plan. The A.M. Best website provides consumers with information regarding company financial size and stability ratings.
- Research you provider’s claims-paying record. Google is a great way to find out how providers rate for customer service. Check with fellow owner-operators you trust and inquire about what works for them.
- Request a copy of the provider’s insurance-carrier policy terms and conditions so you’ll thoroughly understand how it affects your tenants and what duties you’ll have as the licensed agent. In the case of a protection plan, get a copy of the lease-addendum indemnity agreement from the plan provider. In both cases, read the fine print.
- Make sure the provider is integrated with your management software to make reporting easy for your staff and operation isn’t burdensome and time-consuming.
As you weigh your options, remember that you’re in control of establishing the plan and training employees on how to sell it, as well as ensuring each tenant signs and understands his obligation and yours. Having a signature on file makes for a much easier conversation with an irate renter if something does go wrong. In court, it certainly looks better that you not only offered the tenant an insurance or protection plan, but that he was aware of his options, attested by his signature.
Now that you’ve selected a program and provider that work for you, how do you roll out your offer to tenants? Operators who provide a tenant-insurance program or tenant-protection plan can make it optional or “lease-compliant” (mandatory).
Optional means the tenant is offered the coverage at point-of-lease and can accept or decline it. Operators in competitive markets may elect to run an optional program to stay price-competitive. New locations in lease-up may choose optional until they reach an occupancy conducive to the additional pricing pressure of a lease-compliant program.
Lease-compliant programs require the tenant to provide proof of insurance for his goods in storage as a requirement of the lease agreement. If he doesn’t provide proof, he’s automatically enrolled in the program of choice for the minimum coverage available to satisfy the obligation.
Large industry operators and real estate investment trusts have been using this model for many years. As small and mid-size operators strive to produce greater revenue, this type of program is gaining favor with them as well. In some cases, operators surrounded by competitors that use a lease-compliant program may choose to “fall in line” to remain viable. The key benefit is that when a loss occurs, hassles are considerably reduced, as all tenants are properly indemnified.
A third offering type, exclusive to protection plans, is a bundled plan, in which a standard coverage limit is included with every lease as a tenant amenity. The customer doesn’t have an option to accept or decline coverage, as it’s automatically included in the rental price. This takes the burden of selling off the manager’s shoulders. This method is also popular for unmanned sites, where there isn’t a manager to actively sell the program. Keep in mind, nearly every state’s insurance laws restrict this type giveaway in anti-rebating laws, so this offering isn’t legal for tenant-insurance programs.
Filling a Need
Offering goods coverage at your storage facility, regardless of type, fills a valuable need for your tenants. Ninety percent of people who live in apartments have no coverage option for goods stored off the premises. Similarly, those between houses have no homeowner’s coverage for their goods in storage. Most aren’t aware of this until a loss occurs and they’re now looking at the storage operator for resolution and reimbursement. Your insurance or protection plan meets a need when the customer has no other coverage option.
In addition, tenant insurance or protection plans are the second leading source of revenue behind rent for storage operators who properly implement a program. For some operators, this income generation is the true motivator. For others, it’s the peace of mind of knowing tenants are protected in the event of an unfortunate occurrence. Again, operator preference and business model will dictate how the program is offered.
Matt Schaller is president of Arizona-based Tenant Property Protection, which partners with self-storage operators nationwide to provide protection of tenant goods while maximizing facility revenue. He has more than 30 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 877.575.7774; visit www.tenantpropertyprotection.com.