Self-Storage Tenant Insurance and the Psychology of Risk: Understanding Your Customers to Sell More Product

Most self-storage operators offer some form of tenant insurance, which provides a safety net for customers’ stored belongings and protects against potential financial losses. It covers a range of risks, including natural disasters such as floods, earthquakes, hurricanes and tornadoes. It can also protect against theft or burglary and may cover damage caused by fire, water, mold and other threats.

As a self-storage operator, it’s important to understand how your customers think and the factors that influence their decision to purchase insurance and in what quantities. In this article, we’ll explore how peoples’ brains process the perception of risk as well as the impact of emotions and economic factors on their buying behavior. You’ll get insight to the subtle forces that guide your renters’ decisions, so you can more effectively communicate the benefits of tenant insurance and close more sales.

The Perception of Risk

Risk perception refers to the way in which a customer comprehends the probability and impact of negative events. It plays a crucial role in their decision of whether to obtain insurance for their items in self-storage. Essentially, they’re assessing the likelihood of something going wrong and the severity of the consequences if it does. Risk perception is influenced by several factors:

Personal experience. If a customer has ever had an item stolen or damaged while it was in storage, they’re more likely to believe it can happen again. These experiences can make future losses seem more probable and real.

Socio-cultural. A tenant’s background and values can influence their perception of risk. Some cultures encourage caution and believe that it’s important to safeguard possessions. Conversely, in communities with a strong sense of trust and security, perceived risk might be lower.

Value of stored items. Tenants are more likely to perceive risk around belongings they cherish, ones that have monetary or sentimental value.

Cognitive biases. Our brains can sometimes misinterpret information. For example, if a customer hears about a self-storage theft, they may overestimate the likelihood of such an event happening to them. I’ll address this in more detail below.

A self-storage customer’s perceived level of risk directly influences whether they decide to purchase tenant insurance. Those who sense a higher risk are more likely to opt for coverage to mitigate potential financial losses. The extent of perceived risk also affects how much insurance a customer will purchase. Those who are more sensitive to risk may opt for comprehensive coverage, while those with a lower perception may choose more basic options.

Cognitive Biases

Humans don’t always make logical choices, and that’s because we have cognitive biases that can distort our judgement. Let’s explore what these might be when a self-storage customer is deciding whether to purchase tenant insurance.

Loss-aversion bias. This is a tendency to avoid loss over acquiring gain. If a self-storage customer fears losing their stored items, it can drive them to purchase tenant insurance. In other words, the emotional attachment to their belongings can override a rational assessment of the actual risk.

Optimism bias. It’s common for customers to underestimate the likelihood of negative events happening to them vs. someone else. Those affected by this bias may believe that self-storage tenant insurance is unnecessary and may decline to purchase it, even when it could provide valuable protection against potential loss.

Availability heuristic. This is a mental shortcut that relies on immediate examples when evaluating a situation. Let’s say a customer recently heard a news story about a self-storage fire or theft. This may skew their risk perception and cause them to believe that these events are more common than they actually are. As a result, they may be more likely to purchase tenant insurance, even if the actual likelihood of these occurrences is low.

Anchoring effect. This refers to a person’s tendency to rely heavily on the first piece of information they receive—the anchor—when making decisions. When considering self-storage tenant insurance, an initial exposure to a high or low premium can anchor their expectations and influence their purchasing decisions. If they come across a price that’s higher or lower than what they anticipate, they may make a snap judgement rather than comprehensively assess their insurance needs. They may ultimately over-insure or under-insure, depending on whether the initial quote they received was perceived as high or low.

Tipping the Scales in Your Favor

Understanding the factors that impact a self-storage customer’s perceived risk and the cognitive biases under which they may operate can help you tailor your tenant-insurance offering and communication to meet their needs. To help them make better-informed decisions, consider these strategies:

Provide education and awareness. Help your customers understand the risks of using self-storage, providing information about theft and various types of damage so their perception is accurate. Launch educational campaigns through various channels including your website, brochures and during the initial rental to help prospects understand the need for coverage and its advantages.

Be transparent. Offer honest and accurate information about the likelihood and potential impact of storage-related risks. This will allow tenants to recalibrate their perceptions and help them develop a more realistic understanding of what it’s like to rent a unit. Through clarity, you’ll help them make more informed decisions about insurance coverage.

Encourage rational decision-making. Offer tools and resources to help self-storage customers objectively evaluate their risk. Many insurance companies offer online platforms that help renters assess their exposure, evaluate the need for coverage and compare options. These should be easy to use and provide clear, objective information so tenants can make informed choices.

The decision to invest in self-storage tenant insurance depends on many considerations. While your facility’s physical safety and security are important, psychological elements also play a significant role.

Understanding the psychology of risk is crucial for all self-storage operators. You can better customize your services and communication strategies by knowing how perceptions and biases affect customer decision-making. This knowledge helps your prospects make better insurance choices, which will ultimately benefit your business.

Mansoor Alam is a writer for Storage Protectors, a provider of contents and damage-waiver coverage insurance for mobile- and self-storage facilities in Canada, Europe, the United States and the United Kingdom. The programs are underwritten by Falvey Insurance Group Ltd. and administered by Carstin Insurance Partners/Airpark Insurance, a specialty insurance-brokerage firm. For more information, email [email protected].