Customers are usually unaware that their valuables aren’t automatically insured while stored at a self-storage facility, so it’s imperative that the site manager inform them of the need for coverage and their options to secure it. Most rental agreements state the tenant is solely responsible for loss or damage sustained to their personal property, but they might easily miss this information. It’s up to the manager to emphasize it. If they don’t and a loss were to occur, the renter might feel they’ve been misled. The last thing you need is for a customer to turn into a “social media assassin” and trash your business reputation!
This is why, in addition to disclosing your facility’s coverage requirements, you should offer options for protecting stored goods. A tenant-protection plan is an excellent solution. Courts in California and other states have ruled that this is not insurance. It’s a three-party agreement in which the tenant and facility operator are the first and second parties. Here’s how it works:
- The renter contracts with the operator through a signed lease addendum. In consideration for an additional fee per month, the operator agrees to shield the tenant from property damage or loss, within specified limits.
- The third party is added when the self-storage owner purchases a contractual liability-insurance policy that assumes any obligation to the tenant. This is a “reinsurance” agreement. The third-party provider receives a portion of the administrative fees.
- If the tenant suffer a loss, the owner becomes legally responsible only if they’re proven to be negligent or they breach some other duty to the tenant.
Unlike with tenant insurance, self-storage operators offering protection plans aren’t required to be licensed, and fingerprinting isn’t required. The agent selling the contractual liability-insurance policy is the one who must be licensed.
In terms of coverage, a tenant-protection plan generally covers a self-storage customer’s property loss due to burglary as well as damage from fire, water and smoke. Some plan providers also cover against building collapse, explosion, wind damage, vandalism and lightening. Offering a protection plan helps soften the blow when the unexpected happens, and it’s also a thoughtful option that shows you care about your tenants and their valuables.
Since your self-storage business doesn’t cover loss or damage to tenant property, offering a protection plan is a benefit and amenity for customers. The more who are covered by a plan, the better it is for your staff and business. It’s much easier to deal with an upset customer when they have coverage in place and somewhere to turn for assistance—particularly someone other than the site manager!
Advantages Over Non-Storage Policies
Not all of your new self-storage tenants will have a renters or homeowners insurance policy. But even if they do, it may not cover the contents of a self-storage unit.
Customers with insurance policies often don’t know their deductible or what the policy actually covers. If they have homeowners insurance, it very likely provides “actual cash value,” which is replacement minus depreciation. That’s different than full replacement cost. When a tenant purchases a $3,000 plan and loses $3,000 in property, they expect to be reimbursed $3,000, not some lower amount! Another issue with homeowners and renters policies is there’s a chance the premium will increase if the customer files a claim.
One of the best features of a tenant-protection plan is how easy it is for facility operators to administer. That said, not all plans and providers are alike, so it’s important to shop carefully. A good plan shouldn’t have any kind of deductible—none. Customers should be reimbursed on the full replacement cost to repair or replace an item, and providers should handle each claim professionally and quickly. How claims are handled is a reflection on your self-storage business.
Optional vs. Mandatory
As a self-storage operator, you can offer you tenant-protection plan on an optional or mandatory basis. If you go with optional, the task of selling the plan to each new customer falls to facility staff. But let’s face it: Some managers are resistant to upselling and may not be effective at handling objections. They may also have a bias against tenant insurance without understanding how a protection plan differs.
This is why many of the largest self-storage operators have gotten rid of optional plans and adopted for a mandatory or lease-compliant option. In this model, each new tenant is required to show proof of coverage for their stored property. If they have coverage through a renters or homeowners policy, a copy of the declaration page is placed in their file. If they don’t, the manager must present the protection plan and sign up every tenant as part of the job.
To increase buy-in, savvy operators have taken managers out of the sales process by rolling the price of the protection plan into the self-storage rental rate. This offers many benefits. Not only is tenants’ property protected, managers are relieved of having to deal with the claims process. Another strength is operators can market the fact that protection is provided at their facility and included in the rental fee, a strategy competitors may not have!
Selling a self-storage tenant-protection plan, particularly via a mandatory or lease-compliant program, can amount to substantial additional revenue. Make your program work for you by using the added income to remodel or upgrade, expand your portfolio, enhance your marketing budget or increase staff recruitment by offering better wages and benefits. Not only will there be extra cash for these types of projects, having a protection plan in place can increase your business value should you decide to put your property up for sale.
All self-storage facilities should offer a quality tenant-protection plan that offers full replacement cost. Trust me, when claim time comes—and it eventually will—you won’t be sorry! By having most or all of your customers covered, your property and casualty company could recognize the value of your program and lower your insurance premium.
Terry D. Anderson is CEO and 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 38 years of experience in nonprofit, retail and professional services. For more information, call 877.575.7774; email [email protected].