This article should be a cost-effective wake-up call for approximately three out of four operators. According to a 2008 survey, 73 percent of self-storage operators do not offer a storage insurance option to their tenants. Why? This same survey suggests that 52 percent of the operators not offering insurance to address property damage or theft claims believe it is too much trouble.
The truth is you can avoid trouble and maintain good customer relations by offering your customers an insurance option, or by retaining some limited financial responsibility and responding to your customers in a positive manner when their property is damaged.
Understanding Liability
The self-storage industry has worked hard to develop a strong wall of legal insulation for the self-storage operator. Statutes in most states now recognize the limited liability of the operator for loss or damage to tenants’ stored property. Many states laws are further enhanced by a provision the operator may include in the rental agreement that eliminates their legal liability for negligently caused damage to stored property.
These protections work well in theory but are often challenged in practice. Your agreement may be clear that you take no responsibility for your customers’ stored property, but when the agreement conflicts with what your customer feels to be fair and reasonable after a loss, an argument and a legal challenge may follow.
Insurance for tenants’ stored property was developed almost 30 years ago at the request of self-storage operators as a way to deal with liability issues. When your customers have a way of being compensated for their loss or damage, their motivation to argue, complain and sue is often eliminated. Rental car companies and phone service providers understand this, and so should you.
There are many ways for you to provide this service to your customer. Let’s look at your options.
Brochure applications. The oldest and perhaps simplest option is to provide your customers a brochure that will allow them to purchase insurance on their stored property through a postage-paid mail-in application included in the brochure.
A more recent but equally simple evolution of the mail-in option is referral to the website of an insurance provider that allows your customer to purchase insurance for stored property online. Depending upon the insurance provider you select, you may be asked to pay a nominal fee for the pre-printed materials you give to your customers or it could be free.
Pay-with-rent. Another tenant insurance program allows you to offer your customers the option of purchasing insurance and paying for their coverage along with their monthly rent. This pay-with-rent insurance option requires you to collect and account for the premiums with an insurance-tracking module in your self-storage management software program, which is now available in most self-storage management software. Also, a higher percentage of customers will purchase this option over those who are given a mail-in application or directed to a website.
An additional benefit is insurance providers will pay you a commission or administrative fee for this service. However, you may be required to obtain an insurance license to provide this service. A number of states, including Arizona, California, Florida, Illinois, New Jersey, North Carolina and Texas, have enacted limited licensure laws that specifically recognize this activity and require the facility or the individual manager to obtain a license. In other states, similar laws are either pending or the issue has not yet been reviewed and considered.
Limited financial liability. Another option is for you to act as a landlord by accepting or retaining some limited responsibility in your rental agreement. We are not talking about offering insurance to your customer. The concept is for you to accept or retain some responsibility as a service provider, and permit your customers some limited compensation for their loss as part of your rental agreement.
Your agreement probably contains a non-liability provision, and your rental charge has been set in contemplation that you will not have to respond to property damage issues raised by your customers. A number of self-storage operators are currently backing away from the typical lease, eliminating any responsibility by offering customers the option of having the operator accept or retain some limited financial responsibility for damage to property in exchange for a modest increase in rent. The increased rent is charged to fund the payment to customers for damage to stored property.
When your roof leaks or a storage unit is burglarized, even the most reasonable tenants will tend to believe that you have failed to provide them with the service in which you have been paid. Operators who choose to retain or accept limited financial liability for damage to customers’ property through their rental agreements have an option of purchasing insurance to transfer part or all of this contractual liability to an insurance company.
Act Now
While the tenant insurance options discussed in the preceding paragraphs will often work to avoid tenant disputes and litigation or even provide an additional layer of legal insulation to the self-storage operator, the alternative of accepting some limited responsibility to resolve claims for property damage will go further in resolving the customers’ expectations of the service in which you have charged them.
The concept of the storage operator’s ability to accept or retain responsibility for stored property has also been challenged in the regulatory arena. Concerns are being brought to regulators’ attention by an insurance provider that storage operators are crossing into the business of insurance.
However, as of the writing of this article, states that have thoroughly reviewed and taken a firm position on the issue, with the notable exceptions of New Jersey and Texas, have come to the opinion that an operator may either accept or retain limited responsibility for stored property within the context of their rental agreements and may charge for this assumed or retained financial liability. The concept remains an unresolved issue in some states including Connecticut, Kentucky and Pennsylvania.
Let’s return to the original premise of this article: most self-storage operators do not offer their customers a tenant insurance option or a lease that retains or assumes some responsibility for damage to stored property, and most of those operators who do not claim it is too much trouble to do so. This is a matter of customer service, of meeting customer expectations, and avoiding problems arising from the inevitable property loss.
The optional solutions are simple to implement and will either cost you little or nothing, and could increase your revenue stream. If you are one of the majority of operators who do not currently offer your customers some way to recoup for their losses to property stored in your facility, put down the magazine, pick up the phone and call your insurance provider.
Scott Lancaster is the regulatory compliance officer for Deans & Homer. He started his insurance career in 1976 as a licensed insurance agent and broker in California. Deans & Homer has provided insurance products designed to respond to the unique risks of the self-storage industry since 1974. For more information, call 800.847.9999; visit www.self-storage-insurance.com.
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