By Keith McConnell
Many self-storage operators are planning ahead for 2014 in terms of sales, marketing, facility improvements and other initiatives. Another critical part of your annual planningone thats often overlookedshould be your insurance coverage.
The following industry trends highlight the need for certain coverages. Your ability to stay informed about potential exposures and establish necessary insurance and risk-management strategies may help you protect your valuable investment from costly losses down the road.
Trend: Increasing Losses From Weather-Related Events
Over the past few years, insurance companies have seen a dramatic rise in the number and value of claims paid to repair damage caused by weather-related events such as hail and wind. In areas prone to these types of catastrophic events, some self-storage owners may have experienced a sharp increase in premiums; others may have been declined coverage at renewal time.
Recognizing this trend, some insurance companies now offer endorsements designed as a mutually beneficial compromise for the insured and carrier. A cosmetic loss-limitation endorsement offers business owners a premium credit for facilities in specific locations. The endorsement limits coverage for cosmetic hail damage to a metal roof. Hail damage to roll-up doors, siding, downspouts and gutters is not reduced on some policies. In addition, hail damage to the roof resulting in the failure of the metal roof covering to perform its intended function of keeping out the elements is not affected by this endorsement.
Another consideration is an actual-cash-value endorsement for your roof, which establishes a depreciating value. It provides coverage for roofing while limiting the insurance companys potential liability based on the age and condition of the insured structure.
Finally, all self-storage operators need to understand the critical role business-income coverage plays in the ability of a business to survive a catastrophic loss. Also known as business-interruption coverage, it protects your operations income in the event of a loss requiring reconstruction. The coverage provides regular business income and extra expenses incurred for a set time period, with additional time following reconstruction while spaces are being rented. Typical policies offer 12 to 15 months of coverage, while some offer options for 18 to 24 months.
Trend: Requiring Tenants to Provide Evidence of Insurance Coverage
Once considered a non-essential service by many self-storage professionals, tenant insurance is becoming a topic of true interest. Requiring tenants to provide evidence of insurance coverage at the time of lease has become a growing trend.
From a risk-management perspective, implementing a tenant-insurance program at a self-storage facility is a plus. It reduces the owners liability exposure in the event of tenant loss. Some programs include coverages that protect the facility in addition to tenants stored belongings.
While tenant insurance may be considered a must-have coverage, its important to carefully evaluate available programs. Look for an insurance product underwritten by a carrier with an A.M. Best A rating or higher and pay attention to the policy details. If youre going to offer a program, its vital to understand whats covered, what's excluded, and how tenants claims will be addressed, including whether the policy functions as the primary insurance in the event of a loss.
Its also wise to review your rental agreement with your attorney. Rather than asking tenants to provide a copy of an insurance-declarations page for a policy they may cancel without notifying you, consider modifying your agreement to include language that requires tenants to assert that insurance is in force to cover the items stored.
Trend: Customers Seeking Higher Amounts for Damaged Items and Wrongful-Lien Sales
There are two specialized insurance coverages every self-storage facility should obtain: customer goods legal liability coverage and sale and disposal liability coverage. In the past few years, judgments in these types of cases have increased, with self-storage operations facing increasingly costly verdicts. These two coverages with appropriate limits are an excellent first line of defense in the event of a claim or lawsuit.
Customer goods legal liability provides coverage against loss or damage to customers personal property for which the self-storage business may be legally liable. Sale and disposal liability coverage protects the operation against liability claims by customers for loss to their stored property due to its sale, removal or disposal as a result of a lien sale or other covered cause of loss.
One factor influencing these high-dollar verdicts is the issue of value limits in the rental agreement. Its important to review your rental agreement with your attorney to ensure it clearly defines the maximum dollar limit of goods that may be stored in the space to be rented. The value stated may limit a claim judgment in some jurisdictions. In addition, this value limit needs to be communicated to the customer during the leasing process to help protect the business from claims that the tenant was unaware of the contract limitations.
Trend: Unusual Claims Leading to Costly Losses
Have you heard the one about the guy who kept pet snakes in a self-storage unit? One winter night, he turned on some heat lamps to keep them warm and soon discovered his actions had caused a fire that destroyed the building and killed his pets. If you own a self-storage business, this type of loss can happen to you. (And, yes, that is a true story.)
Besides the odd, and possibly hazardous, assortment of items tenants may choose to store at your facility, the ongoing challenges of the economy have resulted in an increase in claims involving people and animals living in self-storage spaces. In these types of situations, the potential for costly claims and lawsuits dramatically increases.
Start by scheduling a coverage review with your insurance agent. In particular, make sure your policy includes adequate limits for property and liability coverage. You also may wish to consider an umbrella policy, which provides additional protection over and above the primary liability section of your commercial insurance coverage in the event of a disastrous claim against you. Its also a good idea to apply basic risk-management strategies to limit exposure to these types of situations such as multiple daily site inspections, making timely repairs to walkways and stairs, and installing additional lighting and security cameras.
Industry trends rise and fall, but protecting your business with the appropriate insurance coverage is an ongoing process. Schedule an annual coverage review with your insurance agent. Hell be able to analyze your current coverage and make recommendations for changes to your policy that can protect your self-storage business from costly exposures, claims and lawsuits.
Keith McConnell is vice president of business development for Phoenix-based MiniCo Insurance Agency LLC. The company provides specialty-insurance programs for self-storage businesses in Canada and the United States. For more information, call 800.528.1056; visit www.minico.com.
