Why Renters Insurance Works for Residents and Property Owners
Slowly but surely, the rental industry is doing a better job of convincing renter’s that they need insurance.
A 2014 Insurance Information Institute poll conducted by ORC International found that only 37 percent of renters have renter’s insurance, up eight percent from 2011. The number has steadily grown since 2006, when about seven million policies were written. In 2011, some 10.7 million renters had coverage.
Good numbers if you’re a property management company. But they may not tell the true story.
Just how many renters kept their policies intact throughout the duration of their rent cycle is an unknown. They don’t take account into how many renters take out a policy to meet compliance at move-in and then drop it a few weeks later, all unbeknownst to the apartment
So, just when the property manager thinks the resident is covered, poof! Not so much.
“The resident may say they have another source for insurance and purchase from an unknown third party,” says Jay Stoltz of LeasingDesk Insurance. “They bring back a declaration page, showing they are compliant, then two weeks later the resident cancels, believing they have beat the system.”
Apartments should make renter’s insurance a priority
Compliance issues like this happen all the time, Stoltz said. Apartments are going to be vulnerable to uninsured residents unless they require it within a lease and keenly manage it. There are commercial solutions available to raise compliance and interested party solutions available to curtail this behavior, but it will always be a matter of proper property management.
Skipping out on insurance can be one of the biggest mistakes renters make, which is entirely avoidable. To encourage renters to purchase insurance, provide them with viable insurance options, prior to signing their lease. A loss of possessions as a result of natural disaster could keep tenants from paying rent on time, which hurts property managers in the end.
Both property and resident have a lot to lose
As difficult as it may seem to get residents on board, it’s more than worth it for properties to make renter’s insurance a priority, Stoltz says.
“First and foremost is it’s a way of cutting cost,” Stoltz said. There is no cost or capital outlay for an owner or PMC. Secondly, they have the potential to lower their commercial insurance by incorporating a lease mandate requiring resident renter’s insurance.”
Not surprisingly, the Insurance Information Institute poll showed the vast difference between homeowners who have insurance (95 percent) versus renters. Of course, financed homes are generally required to have insurance, but it’s very unlikely that a homeowner will drop coverage after the note burning party. There is an investment to be protected.
While the renter probably could care less about the physical unit being occupied, there is still much for the resident to lose. The inhabitant is responsible for potentially tens of thousands of dollars in property damage, and, yes, his or her “stuff” could be lost forever.
The key is overcoming a mindset that insurance is costly
There still exists an unsubstantiated believe that $12-$15 per month for renters insurance is a tough sell, Stoltz said. It’s overcoming a mindset the industry has fought over the years, that raising rents to include coverage would send residents scurrying for the exits. Interestingly, not long ago renters insurance used to be peddled door to door, resulting in the occasional smashed nose from a slamming door.
“Extremely ineffective,” Stoltz said. “Then everyone came to the realization that both parties have a mutual interest.”
A win for the resident, a bigger win for the property. The asset is protected and the resident is covered in the event, for example, of a grease fire or natural disaster.
Imagine the wonder when managers at a National Multi Housing Council meeting a couple of years ago realized that mandating renter’s insurance wasn’t a deal breaker. After a pilot test in his market, he realized there was no push back, and thus the trial run was cancelled. “Just go big, or go home,” he said
Having a place to go for the insured renter is reason enough. So, too, for the property management company.
“In the event there is a displacement requiring additional living expenses, you’re going to have these long lines of residents at the leasing office asking where they are going to live,” Stoltz said. “At the leasing office, the worst conversation you can have, is with a resident who isn’t covered and in need of a place to stay. With proper renter’s insurance coverage, you just say that you have a claims adjuster that is going to take care of you.”
That’s a much better conversation to have.