To better differentiate the various financial products targeted to self-storage customers, Phoenix-based MiniCo Insurance Agency has published a list of best practices for offering tenant insurance. MiniCo’s best practices address regulatory requirements, program selection, carrier rating, lease agreement, manager training, and customer communication.
MiniCo was founded in 1974 with tenant insurance as its sole product, and MiniCo President and CEO Mike Schofield wanted the company to be a leader in setting the standard as the industry resource to assist self-storage owners in the professional management of a tenant insurance program. Best practices provide guidelines for efficient operations within the confines of insurance regulatory requirements.
“There has been significant dialogue in the self-storage industry on the topic of financial products and models being marketed to protect a tenant’s stored property,” Schofield says. “As one of the pioneers in offering the tenant insurance model to the industry, we thought the creation of best practices for managing and offering tenant insurance was long overdue.”
Schofield says some of this dialogue has led to a misunderstanding about tenant insurance, protection plans, and captive programs. “We are trying to provide guidance in the tenant insurance program and bring some clarity and consistency throughout the industry and hopefully eliminate some of the misunderstanding between the various products that are available,” Schofield says.
During the past four decades, MiniCo Insurance Agency has developed multiple insurance models and products to address the specific needs of self-storage operations. MiniCo has aligned its operations with highly rated insurance carriers that have a reputation for paying claims and serving customers properly.
“MiniCo’s customer storage insurance products have served the industry and the tenant well for many years by responding to the tenant at the time of a loss,” Schofield says. “It has been a product that has historically protected the reputation of the industry by doing what the insurance product was designed to do: pay claims for covered losses.”
Self-storage tenant insurance is offered with a contract through an insurance carrier, which absorbs the risk without putting any liability on facility management. Owners and managers are not liable for losses with tenant insurance.
The insurance company typically provides all the marketing materials, customer documentation, employee training, policy issuance, and claim handling
Guidelines For Operating Safe And Secure Facilities
MiniCo’s best practices encompass more than two dozen recommendations not only for offering tenant insurance, but also for operating a safe and secure facility and reducing liabilities for owners.
“Our goal is to equip owners with the information they need to better operate their business and reduce liability,” says James Appleton, MiniCo’s director of sales and special risk.
The best practices outline the regulatory requirements for self-storage operations in offering tenant insurance such as MiniCo’s Pay-With-Rent and TenantOne Direct products.
While a limited lines insurance license is required in certain states to offer tenant insurance at a storage facility, Appleton notes that a property and casualty license and background checks are not required. Facility managers have said the limited license is not difficult to obtain, requiring only a minimal amount of paperwork to acquire and at a reasonable fee.
MiniCo recommends selecting a tenant insurance program that utilizes an A.M. Best “A” rated carrier. “That indicates the financial stability of the carrier and the ability to pay claims,” Appleton says. “We want to align ourselves with a financially sound carrier that has the ability to fulfill their obligation (to pay claims).”
The best practices address several elements of the lease agreement, because this document provides legal protection for both tenants and owners and limits the owner’s exposure.
MiniCo suggests that the lease include a provision explaining that the facility does not insure the tenant’s property and tenants are required to provide evidence of insurance on stored property.
The lease should include a limitation of value and non-bailment provisions to explain the tenant’s responsibility in the event of a loss. The lease should state that the owner has no care, custody, and control of the product being stored in the unit.
“As a self-storage operator, you are not taking possession of goods so the operator has limited liability on what you put in that space,” Appleton says.
Some operator’s utilize lease language that places a value provision on stored goods—usually a maximum of $5,000. That’s an effort to contractually bind the tenant to acknowledge that the worth of stored goods will not exceed the value limit. This can mitigate the operator’s financial exposure and precludes the tenant from claiming that expensive collectibles, jewelry, or heirlooms were damaged or stolen from a storage unit.
MiniCo also advises lease agreement verbiage that discourages tenants from storing explosives or highly flammable material or any hazardous substances.
Many state associations produce model leases that directly mirror the lien laws in their respective states. By adopting model lease agreements, owners can reduce their legal liability in the event of a lien sale, as long as proper procedures are followed.
Best Times To Offer Insurance
The best practices also recommend offering tenant insurance at the time of lease signing. “We recommend evidence of insurance, so at the time someone leases a unit, they either need to present some form of insurance certificate or the declaration page of their homeowners or renters policy to show they are accepting liability for their goods, or they can select from the various coverages the facility offers through a tenant insurance program,” Appleton says.
“Your conversion ratio is going to be much higher in doing it at the time of leasing,” Schofield adds. Generally, a higher percentage of new customers sign up for insurance at the time the rental agreement is signed versus those who delay coverage. Another benefit of making it a policy to offer insurance at the time of lease is that it may help limit the chance of a tenant purchasing the insurance subsequent to a loss with the intent to file a fraudulent claim.
Some managers discuss the insurance during walk-through as they are showing units, and others mention it when prospective tenants initially call the office. Some facility websites also have the insurance notice displayed prominently on their home page.
Another important practice is to have a property management software program that integrates insurance activity and reduces handling for managers and staff. Some software is designed to auto-populate information fields of the insurance application, saving the manager’s time.
At the time of rental and insurance sign-up, the software program will track the transaction and then generate an insurance activity report and automatically calculate the facility’s commissions at the end of the month. Some programs will contact the insurance agency immediately after the customer signs up for coverage and a policy is issued electronically.
“The software captures significant efficiency within the process,” Schofield says. “It eliminates errors and provides better service to the tenant and operator.”
Taking Preventive Measures
Risk management is a key ingredient of best practices. This includes maintaining appropriate security systems to protect tenants’ goods as well as preventive measures to keep employees and customers safe.
Proper fencing, security cameras, signage, and other forms of communications are critical components to risk management. It also includes the human element, where a manager performs daily lock checks and general inspections of the entire premises.
“Your objective is to create a deterrent visually and also have various security equipment in place,” Schofield says. “It’s all an effort to not only provide security for the tenant’s stored goods but also to mitigate assaults, break-ins, and slip-and-falls. If you don’t have proper lighting, people could be step in potholes or trip over curbs. All those create expenses associated with the cost of insurance.”
A broad risk management program along with insurance provide a safe environment for tenants’ goods. “Many of the things that are going to impact safety and security of the tenant’s stored goods also are going to impact overall risk management of the entire facility,” Schofield notes.
For example, security cameras and electronic locks are becoming more sophisticated and are designed to deter burglars as well as prevent certain calamities. New electronic locks now incorporate heat sensors that can actually notify the local fire department should temperatures inside a storage unit reach dangerous levels.
“If you can have the fire department on location from notification of heat rising in a certain area, you can hopefully eliminate the severity of the type of claims that occur from fires,” Schofield says.
Tenant insurance generally includes standard property coverage , including fire, smoke, burglary, lightning, windstorm, hail, water damage, earthquake, building collapse, explosion, vandalism, rodent/vermin damage, and riot.
MiniCo’s best practices also recommend providing training to employees on disaster protocols, tenant notification, and the owner’s right to restrict access following a calamity. It is also advisable to encourage tenants via ongoing communications to inventory, photograph, and document the contents and value of their stored items.
MiniCo’s tenant insurance best practices are available at www.minico.com/bestpractices.