Protection Plan vs Insurance for Tenants?
Owner/Operators have a decision – what is in the best interest of my organization and customers?
In this article, we will dig into this dilemma, differentiate between the two products (protection plans vs insurance), discuss similarities and try to provide storage owners enough information with which to make an educated decision in the selection of a product right for their self-storage operation. Since the coverage offered to the tenant are very similar from provider to provider, we will focus on program type rather than coverage conditions.
Tenant Insurance
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 2- party contract. Those payments are pooled by the insurance carrier to pay claims within that pool. The carrier must provide the tenant with a contract (policy) that outlines the terms of coverage and his rights under that contract. Selling insurance requires an “agent or producer” license in all 50 states. Special “self-storage limited licenses” are available in about 19 states with a special license class for self-storage operators with legislation pending in a few more states to allow this limited license type. This limited license simplifies the licensing process for operators and their employees. With the licensing issue, the tenant-insurance product’s carrier must follow each state’s insurance guidelines when changing rates or commissions. Under such regulations, rates and commissions cannot be arbitrarily adjusted by the facility owner/operator who is now an insurance agent. The tenant-insurance provider’s insurance carrier must submit any changes to the state’s insurance department for review and approval.
Tenant Protection Plans
Protection plans are essentially a 3-party contract. The operator and the tenant enter a contract that becomes part of the lease agreement. The Storage Operator purchases a contractual liability insurance policy should they have any exposure to financial loss brought on by the contract they executed with the tenant. The insuring agreement then indemnifies the storage operator for financial loss they sustained in an event or occurrence that damaged tenant property. The terms and conditions of the lease affording protection to the tenant are entered between the storage operator and the tenant as part of the lease agreement. As it is a condition of the lease, no insurance license is required of the storage operator. The liability policy that indemnifies the storage operator is insurance and requires the agent selling the policy to the storage facility be licensed. Currently there are no states that forbid the sale of contractual liability insurance policies that protect storage operators from financial loss incurred as a matter of their business practices.
Deciding on a Program
Clearly the first parameter to decide on a program is if your state is a “Limited Licensing” state for self-storage insurance licensing. If your state does not have a self-storage licensing law, you cannot legally sell insurance without an “insurance producer or agent” license for your state for each individual offering the program. Your option then is limited to protection plans or offering your tenants nothing. If your state is a limited licensing state, you then have a determination to make between insurance or protection plans.
Diligence
Paramount in your search for a provider should be whether the company is customer-oriented and will respond to your tenant. Never forget, it’s your facility’s reputation on the line. No one will know or care about your “provider” or its “insurance carrier.” They want their claim handled quickly and fairly.
So how do you evaluate providers to ensure you find the right one? Here are things to remember:
- Research the financial strength of the insurance carrier standing behind the provider’s obligation whether that is the tenant insurance “insuring company” or the owners contractual liability policy backing the protection plan.
- Ask if your state is one of the 31 that requires a full agent insurance license or one of the 19 offering limited licenses for self-storage operators.
- Research the provider’s claims-paying record. You can easily do a Google search or check with trusted fellow owner/operators.
- Always get a copy of the provider’s insurance-carrier policy terms and conditions so you’ll understand how it affects your tenants. With protection plans, get a copy of the lease addendum-indemnity agreement from the plan provider. In both cases, read the fine print!
As you weigh these options, you have control by establishing a tenant-insurance program or a property-protection plan, training your employees in how to sell it, and then making sure every tenant has signed an understanding of his obligation and yours. Having a signature on file makes for a much easier conversation with an irate tenant if something goes wrong. It would look better in court if you not only offered an insurance program but the tenant knew his options, which can be attested by his signature.
Hopefully, you now have a better understanding of what these two products are and why it’s important to offer one .
Matt Schaller is President of Arizona-based Tenant Property Protection. The company partners with self-storage operators nationwide to provide tenants with protection of goods while maximizing a facility’s revenue potential. Mr. Schaller has over 28 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.