More self-storage owners and operators are recognizing the value of tenant insurance. Not only does it give tenants a low-cost way to insure their stored property, but it also can generate extra revenue.
With more operators looking to maximize profit, some are turning to revenue-generating add-ons like boxes, locks, car washes and truck rentals. Increasingly, tenant insurance is part of that mix.
Some operators still are leaving that money on the table, though. It could be because they’re reluctant to bring up the topic of insurance with prospective tenants, said Keith McConnell, vice president of business development at MiniCo Insurance Agency, which serves the self-storage industry.
“They’re fearful that tenants might take their business elsewhere if there are additional costs on the monthly rent,” McConnell said. “But in reality, it’s becoming much more standard in the industry to include insurance within rental payments.”
Other reasons for this apprehension could include the notion that offering the insurance is too time-consuming or that the insurance is too hard to understand.
How Tenant Insurance Works
Typically, tenant insurance is provided as either a “direct” or “pay with rent” program.
Direct programs (or mail-in programs) are offered through a brochure that a manager gives to a tenant when the lease is signed. A customer fills out the application and deals directly with the insurance company.
Under pay-with-rent programs, an operator rolls the cost of the coverage into the rental rate. Pay-with-rent programs require a small amount of administrative work on the facility’s part. To compensate the facility, the insurance provider pays an administrative fee.
“Because operators can earn additional revenue based on the policies issued, pay-with-rent programs are an attractive option because everybody’s looking for additional revenue streams in addition to selling boxes or packaging services,” McConnell said.
Revenue potential depends on how big a facility is and how many tenants participate. For example, McConnell said that if a 500-unit storage facility has 105 insured tenants and earns a $4 administrative fee per policy each month, it would generate $5,000 annually. That may completely offset the cost of the facility’s commercial insurance premium, he said.
What Owners and Operators Should Know
Owners and operators should research their state’s laws regarding tenant insurance before signing up with an insurance provider. In many states, self-storage managers can sell tenant insurance without becoming licensed insurance agents. However, new laws in several states require an owner or operator to obtain a license to offer pay-with-rent insurance.
McConnell said facilities also should pay attention to training and support offered by the insurance provider. He said one of the most important elements in successfully running a tenant insurance program is properly training staff on insurance offerings.
Also, a facility shouldn’t wait until a tenant is signing on the dotted line to raise the insurance issue.
“By bringing it up throughout the process, there’s not that uncomfortable, last-minute add-on,” McConnell said. “You can tell tenants upfront that it’s $75 a month for a 10×10, and we have insurance for $9 per month, so your total monthly amount would be $84.”
The Jenkins Organization, a Houston-based storage operator, now requires every tenant at its facilities to carry insurance.
Jenkins Organization President Ricky Jenkins said: “That can be through their homeowner’s or renter’s policy, and if they don’t have it there, they’re required to purchase the insurance we offer or some other insurance. We’ve had very little pushback.”
Jenkins explained that if a tenant turns to his renter’s or homeowner’s policy for a claim involving stored items, he’ll be faced with a deductible, and oftentimes it’s greater than the value of those items.
“The policies we offer have no deductible, so they [tenants] see value. They pay it with their rent. The majority of tenants choose a $2,000 policy that costs $9 a month,” Jenkins said.
Jenkins’ carrier is SBOA Tenant Insurance, which pays a $5 administrative fee to a facility on a $9-a-month policy. So if a property has 500 tenants and achieves a 60 percent coverage rate, the facility would reap $1,500 in monthly fees.
Another Option: Tenant Protection
Unlike tenant insurance, a storage operator who adopts a tenant protection plan buys insurance for his property and offers tenants a “premium lease,” said Joe Torrisi, executive vice president of insurance services at On The Move Inc. Insurance Agency.
In this case, operators and third-party managers accept limited responsibility for tenants’ stored property, with the policy covering the risk. They charge tenants as they see fit and often build this into the rental rates.
“When tenants walk into our customers’ facilities, they can get a standard self-storage rental agreement where the facility isn’t responsible for any loss or damage to their property,” Torrisi said. “Or they can get a premium lease for an additional $8 a month—the facility sets the price—and the facility has limited responsibility for their property up to $2,500, or whatever the protection plan limit is.”
The tenant isn’t buying insurance from the facility; the tenant is simply signing a premium lease, Torrisi said, and the facility assumes limited responsibility for their property.
“My customers say, ‘I don’t want to sell insurance. I just want to charge as much rent as I can, so if I can give tenants a premium lease and get another $8 a month, I’m all in,’” Torrisi said. “It’s a revenue-generating option for the owner, but since they’re not selling insurance, there’s a lot less paperwork and red tape.”