Renters Insurance is a Must When Finances are Tight

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By: Larry Feld, Regional Manager Risk Management & Renters Insurance Services

Apartment owners and managers are faced with many difficult decisions in today’s economy. With occupancy and rents under pressure, concessions commonplace, and budgets cut, how do owners decide which marketing efforts or cost initiatives will help increase overall profitability? One option that shouldn’t be overlooked during budget-tight times is the implementation of a renters insurance program.

Many owners evaluate market conditions and decide that when the economy is struggling it is not a good time to mandate renters insurance – when just the opposite is true. When the market is experiencing financial pressure, a property’s risk profile actually increases. With traffic down, many properties soften their resident screening criteria. If a resident should cause damage to a property, he or she is less likely to pay for damages due to limited financial resources. Additionally, as properties look for ways to attract more residents, they may eliminate or reduce security deposits. This leaves the property less prepared to cover expenses for damages. Resident-caused water and fire damage does not change with the economy – occurrences continue and eventually the owner will have to pay for the damages of these unforeseen events.

Another risk factor to consider is that consumers are preparing more meals at home due to the economy – 55% more-- according to The Food Marketing Institute’s 2009 study on Grocery Shopping. Furthermore, cooking is the leading cause of home fires as reported by the National Fire Protection Association. And since most cooking fires are caused by residents themselves, these statistics mean only one thing – increased risk for apartment communities.

Therefore, during penny-pinching times, it is even more critical that operators mandate renters insurance coverage to benefit both the resident and the property. The recent Apartment Cost of Risk Survey (ACORS) conducted by the National Multi Housing Council indicates 44% of apartment communities now require renters insurance – up from 23% in 2008.

Although the initial assumption may be that a mandatory program may turn away potential residents, the reality is quite different. Mandating renters insurance shows that the property cares about the resident and wants them to be covered in case of an incident. These properties are ensuring residents do not face unplanned financial hardships by requiring all residents to be covered under an insurance policy. This gives properties and residents peace of mind that they are covered.

While residents benefit from renters insurance, properties reduce their financial exposure by transferring risk. Key to this risk transfer is implementing a program which helps drive resident participation by providing support every step of the way – from the first visit to the property through move-out. Additionally, the program needs to actually pay claims. If residents purchase renters insurance that does not cover common damage events, communities will not achieve true risk transfer. When researching renters insurance, properties should look for programs that offer:

• Coverage for resident-caused water damage such as overflowing bathtubs or sinks. This important coverage is not standard in most renters insurance policies.
•  Optional contents coverage for both burglary and theft occurrences. Many policies only cover burglary occurrences and in a tough economy thefts can increase.
•  Resident liability coverage available as a cost-effective option for residents that may not own many possessions and do not want contents coverage.
•  Post-occupancy claims provide the property with the ability to submit claims for damage after a resident moves out and is usually available for 30 days after the resident vacates the unit.
•  Quick and easy enrollment with flexible payment options so residents can determine what is most suitable to their financial situation.
•  A comprehensive implementation, support and claims process that requires minimal involvement from the property staff, which is often short-handed when budgets are tight.

When properties and residents are struggling to manage expenses, the multifamily owner is faced with increased risk of resident-caused damage. A proven renters insurance program provides a solution by reducing the risk of financial hardship for both the property and the resident. In order to achieve true risk transfer, the program should position you to get residents covered, keep them covered, and get valid claims paid. These components will provide peace of mind for property owners and your residents should they experience an unexpected event.

Please refer to the text of the actual insurance policy for the specifics of the coverage. This article contains various examples and the reader should refer to the actual policy for details of coverage. In the event of inconsistencies between this article and the terms of the policy, the terms of the policy shall prevail.