Article

Strengthen Your Business by Requiring Residents Insurance

By Steven Hein, Vice President, National Sales Manager, Assurant Specialty Property

While the rental market forecast in New Jersey varies by location, one thing is clear. It is now more vitally important than ever for community owners and managers to take measured steps to mitigate risks and expenses resulting from property damage caused by their residents. More and more property owners and management companies, in New Jersey and other regions of the country, are requiring residents to provide proof of liability coverage prior to signing or renewing a lease.

In many cases residents lack the financial resources to reimburse the property owner or manager when residents cause damage to the property. Conventional practice has been to require a security deposit to offset this risk. However, the security deposit provides inadequate relief against damage resulting from an overflowing bathtub, fire or other causes. Therefore the primary benefit of a liability lease requirement is to allow a resident to contribute funds towards meeting the property’s commercial deductible, should they be responsible for damage caused by a covered peril.

The purchase of renters insurance is a completely separate transaction from the lease agreement. Companies that require insurance as part of the lease agreement see their residents act similarly to consumers who lease or purchase a vehicle. Since the “buying” decision is based on the qualities of the apartment (and, in the case of the vehicle, its product features), the insurance requirement itself and its cost do not detract from the final purchase decision.

Community owners and managers implementing a liability lease requirement may also benefit from a potential reduction in commercial insurance premiums. They can realize additional cost savings and increase their property’s cash flow by demonstrating to their commercial insurance carriers that they require liability coverage from their residents.

Over the years, some insurance providers have created programs that catered directly to the needs of property owners and managers. Of critical importance is the ability to provide a liability-only policy, which meets the minimum requirement at an entry-level price point. These companies also give residents the option to add coverage for their personal belongings, which can add value to the resident’s experience.

These companies also provide additional consumer-friendly enhancements like Involuntary Unemployment Insurance and Additional Living Expense coverage. The Involuntary Unemployment Endorsement which is an optional addition to a renters insurance policy is designed to subsidize a portion of rent expenses should the resident unexpectedly lose employment. Additional Living Expense coverage pays some of the resident displacement costs (e.g. hotel, meals, etc.) when a resident has to temporarily move due to a situation that may arise from a property being temporarily uninhabitable. In both instances, the additional protections ease the financial and emotional burdens of these stressful situations for the resident and the leasing staff.

Another critical factor for property owners and managers to consider is their ability to generate advertising revenue from insurance providers. Insurance providers that offer all support services in-house have better control over service levels, enabling property owners and managers to preserve the resident experience and generate greater ancillary income.

According to the National Multi-Housing Council (NMHC) Cost of Risk survey, the industry has seen a shift from 3 percent of the market enforcing a liability lease requirement in 2005 to 44 percent in 2009. Owners and managers can benefit from lessons learned by early adopters and receive optimal financial benefits by adopting a liability lease requirement. They can also benefit by partnering with one of the companies providing a renters insurance program that specializes in servicing the needs of owners, managers and residents. Experience has proven time and again that this improvement in property profitability can be realized without affecting owners’ and managers’ core business of leasing apartments.

Steven Hein is Vice-President and National Sales Manager for Assurant Specialty Property. He has developed business strategies for insurance and other related products for the multi-family housing industry since 1998. Mr. Hein has been invited to speak about the emerging trend of requiring liability insurance as a condition of rental agreements at various industry events, including the National Apartment Association (NAA) Legal Forum. He also collaborated with the NAA and the Texas Apartment Association (TAA) to draft required insurance language into the lease document. Assurant Specialty Property companies develop, underwrite, market and administer specialty property, renters and personal lines of insurance. As a leading provider of renters insurance, Assurant Specialty Property has established collaborative relationships with market leaders in the multi-family housing industry, serving seventy clients with over 1.5 million units. Questions and comments about this article should be sent to steven.hein@assurant.com.