Renter Insurance and Your Apartment Communities:
Does it Benefit the Owner?  Yes!
Should You Require Residents to Purchase it?  Not Sure!

Does Renter Insurance Benefit the Owner – Yes!
Owners clearly benefit from residents having renter insurance.  The extent of the benefit is a function of the type of the coverage provided by the renter policy, the number of residents covered and local state insurance regulations. 

Most renter insurance programs follow the same format and, usually provide coverage for:

1.  Personal property (protects the insured from financial loss of the things they owe);
2. Additional living expenses (covers added cost incurred in the event that something happens to the residence, e.g., reimburse for temporary housing); and
3. Liability (covers damage to third parties caused by the resident).

Renter policies cover losses due to fire, smoke, explosion, and sometimes water.  Loss of property is generally covered under burglary (with forced entry) and sometimes covered under theft (mysterious disappearance with or without forced entry).  Renter policies typically do not cover resident-caused damage such as holes in the wall, broken windows, etc.

Renter policies fall into three general formats:

1. Individual policies are underwritten and sold to individual residents.
2. Blanket coverage policies may be for either owner units (vacant) or resident units (occupied), ensuring that the owner has blanket coverage.
3. Group coverage policies focus on the multifamily industry: all residents are guaranteed coverage; no requirement for individual sale or underwriting efforts.  Group policies may pay the owner first when a resident causes damage.

With that as background, then how does a renter policy benefit the owner?  Benefits arise in three main areas: 

1. Reduced  cost of the owner’s deductible.  The deductible on an owner policy is much higher than the deductible on a renter policy, e.g. $25,000 vs. $1,000..  Out-of-pocket cost to the owner for unit repairs paid by a renter policy should be much less. 
2. Reduced cost of owner’s premium.  Logically, if the owner requires or has broad coverage by renter policies, the potential cost to the owner’s carrier could be significantly reduced, resulting in reduced owner premiums.
3. Additional source of funds to pay for repairs to renter units.  The owner benefits financially to the extent that a renter policy directly covers repair costs.  Also, if the damage requires relocation, the policy typically covers relocation costs.

But note, none of these benefits may apply if renter insurance is not in force over most or all of the units.  Implementing a renter insurance program as part of owner’s strategic risk management plan reduces exposure, decreases cost, and ultimately improves NOI by transferring financial responsibility of loss or damage from the owner to the resident, where it belongs. 
 
Should You Require Residents to Purchase Renter Insurance? Not Sure.

One survey indicates that a blanket program saves an owner as much as $22 per door.  Another survey reveals that owners that implement and enforce renter insurance requirements reduce financial costs related to renter-caused property damage by 79 percent.

Yet, required renter insurance is not the norm in the multifamily industry.  The major reason is that, in a competitive environment, owners are afraid of losing residents  to another community.

One key to successfully implementing mandatory renter insurance lies in the way owners explain it to residents. Most owners who have sold renter insurance successfully, have done so under a 'good neighbor' policy, where it's seen as protecting the resident from damages caused by other residents.  Residents are also more apt to see insurance as an asset when they realize that it allows them to be compensated for stolen items, the most common resident loss claimed.

According to a Joshua Tree report, owners that require renter insurance state it has not adversely affected their ability to rent units, even in competitive markets. One survey supports these findings, with 77 percent of owners with mandatory renter insurance practices reporting that implementation was "easy" or posed "manageable challenges."

The following list provides 11 important aspects of initiating a renter insurance plan at a community or across a portfolio:

1. To achieve the most comprehensive risk management solution, implement a full participation insurance plan at your community, requiring proof of insurance as a condition of residency.
2. Partner with a licensed renter insurance broker whose underwriter is rated an "A" (Excellent) or "A+" (Superior) by A.M. Best Company, an independent insurance rating and information source.
3. Specify a dollar amount with respect to the minimum liability covered.
4. Communicate to residents that they are free to obtain coverage from any carrier as long as the minimum liability threshold is met.
5. Request that the owner or manager is listed on the policy as an "additional interest" or "interested party" so they are notified in case of changes to the policy, including cancellation.
6. Ensure that the coverage limit specified is considered "reasonable" for the asset being rented--the property owner cannot pass on their financial responsibility to the resident.
7. Work with a provider capable of developing a customized solution that meets specific needs.
8. The program should be easy to implement without putting an additional burden on the property or the leasing staff. The insurance provider should manage all aspects of training, marketing and administration, as well as customer service and claims management.
9. Communicate the value of renter insurance to current and prospective residents. These products provide a safety net for residents when affected by disaster and provide them with a way to recover financial loss.
10. When possible, use a renter insurance solution that integrates into property management software platforms, or confirm the provider will alert the leasing staff when a resident's policy expires or is cancelled. This helps to ensure residents remain in compliance with the lease and the community's risk is minimized.
11. Update lease language to ensure the right of subrogation and the right of the owner to require renters' insurance.

Authored by John Greenberger, COO