In 1984, Mr. Bader left Life Investors and formed his own agency to cut back on his extensive travel and spend more time with his family--his wife, Toni, and four children. He began on his own by developing a successful mobile-home-insurance direct-mail program. In 1987, he began working with several people in the rent-to-own industry to develop extended warranty coverage. That eventually developed into a "club" program, packaging several insurance products with travel, entertainment and home-healthcare discounts sold through more than 2,500 rent-to-own stores. In 1991, at the request of a colleague involved in the self-storage business, Mr. Bader began developing an effective approach to maximizing tenant-insurance participation. As interest grew in his approach, he began phasing out of his other operations to focus on building the stored-property insurance program.
An now, Inside Self-Storage is please to present an interview with Bob Bader...
How long have you been in the insurance business?
In 1973, I started selling credit life and disability coverage to credit unions as an agent. After a number of promotions and some company consolidations, I wound up as vice president of marketing for the collateral protection division of Life Investors, a major writer of credit insurance. Aegon, the second largest insurance company in The Netherlands, acquired Life Investors. (By the way, Aegon also just purchased Transamerica Insurance Company.) In 1984, I left Life Investors and formed Bob Bader Co. to focus on developing mass-marketed property and casualty insurance programs.
Why don't you tell us a little bit about Bob Bader Co.?
Bob Bader Co. is a national insurance marketing and administrative organization. We develop and provide mass-marketed insurance programs that help our clients reduce liability, improve relationships with their customers and allow them to make money from insurance. Specializing in insurance add-on profit centers allows us to provide our clients with the highest value and lowest cost product, dedicated support and the largest share of profit-sharing in the industry. By limiting our product offering we can focus on being the experts in our field.
What makes your company different from other insurance agencies?
Most insurance agents/agencies may issue policies and pay small claims, but they can only offer products commonly found in the marketplace. As a managing general agency (MGA) we have total control of our insurance programs--from design through marketing and administration to claim settlement.
Our focus is on marketing. In fact, we look at ourselves as a marketing organization more than an insurance provider. Our scope is national and, although we do work with agents, unlike most MGA's, we prefer to develop relationships directly with our clients. By concentrating on a few products, such as our stored-property insurance, we've become experts on point-of-sale training, client support, how to minimize administration and how to handle claims efficiently. That helps build volume, control losses and helps our clients make money.
What kinds of insurance do you write?
We limit our writings to products we understand and that we can manage. Our expertise is in point-of-sale products. We look for areas where there is a fundamental need for protection, where there is a built-in payment stream, and where we can partner with our clients and help them use insurance as a profit center. In the self-storage business, we write stored-property insurance, an optional tenant-insurance program that our clients offer their customers.
Why have you chosen to focus on tenant insurance?
All self-storage companies need tenant insurance. They need it to protect themselves and to reduce their liability when tenants' property is damaged or destroyed. Tenants need insurance, too--most do not have coverage. More than 75 percent of home and apartment renters do not have personal-property insurance. And today, more and more homeowners' insurance companies are excluding off-premises coverage in self-storage facilities because of the high number of break-ins.
Tenant insurance is a vastly underserved market. Although most storage-facility managers offer coverage, most tenants don't buy it. That's either because mail-in brochure programs don't work or because managers don't know how to present or are afraid to present insurance. That's where we can help. Training and support are two of our greatest strengths--because of our focus as a marketing organization.
Is all tenant insurance the same?
No. There are two types of tenant-insurance programs, and there are variations in the coverage they provide. Most storage companies offer mail-in brochure programs because they're simple, they require no involvement or commitment, they don't require an insurance license, and because that's the way it was done 20 years ago. The most recent (in the last 10 years) innovation in tenant insurance is pay-with-rent coverage. In a pay-with-rent program, customers sign up for coverage when they rent and pay their premiums along with rent each month. Pay-with-rent programs are legal, don't require an insurance license in most states (except Texas and, depending on the program, possibly Florida) and, with today's data-processing systems, are so easy to offer and administer that they're almost transparent.
What's the secret to having a successful tenant-insurance program?
The secret is to keep it simple. The less a manager says about insurance, the more likely his customer will buy it. Of course, the manager has to say the right thing at the right time. What is said, and when, is critical. There is a right time to present insurance--when the lease is being completed. Any other time, regardless of what is said, is the wrong time and will likely result in a "no sale."
The other element--what to say--shouldn't take more than 15 seconds. Managers need to tell customers that insurance is not included in the lease; it is available and that premium can be paid with rent. Tenants rent space because they want a safe place to keep their property. An insurance policy is a tangible representation that the facility is a safe place--otherwise the insurance company wouldn't offer coverage.
What kinds of tenant insurance do you offer?
Our stored-property insurance is a pay-with-rent program. We only offer pay-with-rent coverage because it's the only kind that works. Less than 1 percent of tenants buy mail-order coverage through brochure programs. What good is a tenant-insurance program if nobody buys it?
Customers will buy insurance if it is offered properly and is affordable, and if it's easy to make payments. Although we have some managers with 80 percent sign-up rates, 10 percent to 20 percent participation is more normal.
How many storage companies use pay-with-rent programs?
Eight of the 10 largest self-storage operators offer pay-with-rent coverage. Ten of the next 40 largest operators offer pay-with-rent programs. Although it's hard to determine exactly how many companies offer this coverage, we estimate that about 15 percent of sites and 7.5 percent of operators offer pay-with-rent insurance.
If pay-with-rent insurance is so good, why don't more companies offer it?
Good question. That's something we've been trying to figure out for some time. I suppose that inertia plays a big part. Since most companies have a mail-in brochure program, owners feel they're protected because they've offered coverage. I've made cold calls on facilities and been told by managers that they have coverage available: "If you want to buy it, but it's expensive and not very good." Imagine a mediocre lawyer repeating that to a judge in a lawsuit after a catastrophic fire. How much protection will that mail-order program provide when an owner has to admit that none or maybe one or two of his customers were insured? Wouldn't saying that 25 percent to 30 percent of tenants are insured provide a whole lot more protection? That's the type of protection pay-with-rent programs provide.
Another reason more owners may not be offering pay-with-rent coverage is that their fear or dislike of insurance keeps them from looking at alternative programs with an open mind. It's a fact of life that most people don't like insurance. Insurance is associated with bad things (death, fire, accidents, theft, etc.) Agents are pushy. Premiums are high--and they keep going up. And, sometimes its difficult to get what you feel you are due from an insurance company. I'll be one of the first to admit that the insurance industry has a bad reputation. Our job is to show people that insurance can be friendly and can help them provide better service to their customers, better protection for themselves and more profit.
Is it legal to sell insurance the way you suggest? Don't managers have to be licensed agents?
Offering pay-with-rent insurance the way I just described is legal. Pay-with-rent insurance policies are usually filed as "group insurance." Employees are generally allowed to offer enrollment in their company's group insurance program as long as their primary duties are not insurance related. Furthermore, managers are not insurance agents. They do not solicit the public, and have no authority to bind coverage, change the policy or settle claims. As long as a licensed agent is involved (usually in writing the group-insurance policy) managers do not need insurance licenses.
Aren't there several states that have stopped the sale of pay-with-rent insurance?
No. The Texas Insurance Commissioner and Attorney General recently won a court ruling against U-Haul barring the company from selling pay-with-rent coverage in Texas. The merits of the suit dealt with U-Haul's marketing practices and not the issue of propriety or legality of pay-with-rent insurance.
Can companies without sophisticated computer systems offer tenant insurance?
Yes. Keeping track of insurance premiums with a one-write peg-board or ledger-card accounting system is easy. In fact, we have some clients who prefer keeping a manual insurance payment ledger even though their computer system provides printed monthly reports.
Do all the data-processing companies support pay-with-rent insurance?
Most do--certainly the larger companies like Sentinel, Domico, Space Control, Hi-Tech, MSTC and Umbrella.
What are the biggest problems with tenant insurance?
At the facility, it's manager resistance. It's amazing how often an owner decides to offer a pay-with-rent insurance program and managers flat out resist it. It's common to hear managers say, "I've got to much to do already," "Insurance is a rip-off," or "My customers don't need it." All of these negative comments mean that insurance won't be properly or impartially presented and that few customers will buy it. That doesn't help the storage company, or its customers.
With customers, fraud is the biggest problem. When you consider that we make insurance very inexpensive and easy to get--easier than through an independent agent--it's understandable how attractive fraud is to tenants. Some seem to think that paying a $5 insurance premium has better odds of paying out a $2,000 claim than winning the lottery. Fraud takes many forms. Some of the types of fraud we regularly encounter are where property never put into storage is claimed stolen, where a real burglary takes place and the customer pads his loss report with items that were not in the unit, or where customer's property is damaged before it's put in storage. This last is a common problem with property damaged by flood.
How do you fight fraud?
The advantage belongs to the customer. We have to prove that the loss didn't occur as claimed, or that it wasn't covered by our policy. Sometimes we get beaten and pay because we can't disprove the loss. For the most part, however, people filing fraudulent claims trip themselves up. We've been handling claims for a long time and our adjusters are experienced in spotting things that aren't right. Overall, we're able to do a pretty good job weeding out the fraud.
What do you see for the future of tenant insurance?
First, as long as self-storage operators are considered landlords--one of the basic principles of the storage business--there will be a need for optional tenant-insurance programs. Second, as more storage companies become computerized, managers become more familiar with computers and software continues to become more user-friendly, we will see more storage companies offering pay-with-rent insurance. Third, insurance offerings will continue to improve. We were the first to offer 100 percent burglary coverage. Deans & Homer added it last year and MiniCo just added it to their TenantOne program. We've offered earthquake coverage from the beginning. Deans & Homer now includes earthquake coverage in their CSI+. We're always looking at other improvements we can make to give the insured tenant more value and help the storage operator achieve higher percentages of insured customers.
Do you foresee more competition in this area?
That's a hard one for me to answer. Success always brings competition. We started offering stored-property insurance eight years ago because there was a need. Customers weren't buying insurance; the mail-order programs weren't working. We brought mass-marketed, point-of-sale concepts we've used in other industries to the self-storage business. That helped facility owners give their customers better service, get more protection for themselves and make more money.
On the other hand, tenant-insurance premiums are small, there is an unbelievable amount of fraud, every state has different insurance regulations, and collecting thousands of $5 payments every month can be expensive. I believe we were fortunate to be in the right place at the right time. We had extensive group-insurance experience, an underwriter who understood our business, substantial other business, and we could afford the time it takes to build our program. All these things may be difficult for another company to duplicate.
Do you plan on expanding your programs?
We are successful because we focus on specific coverages and needs. That allows us to become the experts in those programs. Although we help some of our clients with their commercial-property coverage, that's not our area of expertise. We will not be expanding our business-property-insurance offerings. Our next venture will be in the multi-family housing field. We have been working in the apartment industry for the past year, developing a new approach to renters' insurance--again, a mass-marketed, point-of-sale program.
How do you plan to grow your business?
The same way we got to where we are now: hard work, attention to customer needs and a strong sales effort. One fact of business life is that you have to grow. If a company doesn't grow, it will begin to stagnate and customers will take their business elsewhere. We've just finished laying out some of the most ambitious marketing plans we've ever made. Everyone in our company understands that we are a sales and marketing organization more than we are an insurance agency. We will continue to grow by plowing our earnings back into the development of our business. That will help us give our clients better service, help attract new clients and payoff with continued growth.
