By Peter Johnston

An overall risk management strategy is something that all self-storage operators should design and implement in order to protect their self-storage businesses. Along with commercial insurance and general liability coverage, one of the most important components of this strategy is tenant insurance. Offering this unique type of insurance coverage to every tenant at the time of lease as an additional product or service is a critical way to control and ultimately minimize the risk and liability potential of the storage owner in the event a tenant were to suffer a loss.

The bottom line is that tenants who have suffered damage or loss to their stored belongings want to be made whole again. They may first attempt to seek compensation from you, the self-storage operator. They may also threaten a lawsuit or retain legal counsel to assist them in the pursuit of restitution.

If a lawsuit goes to court and you lose the case, you risk having to pay a hefty judgment in addition to your legal fees and those of the tenant. Moreover, legal proceedings require a lot of time. Not only could you be facing a large monetary setback, but also you could lose income as a result of having to spend a large number of hours away from your business.

Some operators choose to avoid paying these legal fees and court costs by paying the tenant out of their own pockets. This is treacherous as it may set a legal precedent for future claims from tenants. These financial pitfalls may be avoided by offering a low-cost tenant insurance policy to every customer at the point of lease.

When purchased by a tenant, the tenant insurance policy can act as a safety barrier between the storage operator and the insured customer. If an insured tenant suffers a loss, you can encourage him or her to call the insurance provider and file a claim. If a tenant does not have insurance on his or her stored items and suffers a loss, there is always the chance that the tenant will retain an attorney to seek compensation for said loss.

A successfully implemented tenant insurance program includes the following actions:

Train Your Employees.
Each employee should be taught the correct methods and basic information pertaining to offering tenant insurance to new customers.

Offer Tenant Insurance to Every Customer at the Point of Lease.
Without fail, each customer should be offered the tenant insurance policy. This should be a corporate mandate that is required of all employees when they lease a new unit.

Ensure the Insurance Addendum Form is Signed and Filed.
The tenant responsibility addendum form is common to most tenant insurance programs. This form requires tenants to acknowledge that they have been informed that they need to provide their own insurance and that the storage operator does not provide coverage for tenants’ stored belongings. In the event that a lawsuit is brought against the storage operator, this signed addendum also provides legal proof that insurance was made available, which significantly reduces the storage operator’s legal liability for a customer’s stolen, damaged or destroyed belongings.

Integrate the Insurance Premium Into the Monthly Rental Charges.
Using a readily available pay-with-rent tenant insurance program, the insurance premium can be added into the monthly rental charge. Pay-with-rent programs add convenience for customers while providing a reliable method of tracking insurance payments for facility managers and operators.

Require Insurance Coverage.
Some storage operators, both large and small, have begun to require that tenants either purchase insurance coverage at the point of lease or show proof of other coverage as a prerequisite to moving into their storage units. A common practice in the multi-family housing industry, where apartment, condo or home renters are required to purchase renter’s insurance prior to moving into the residence, requiring insurance is gaining strength in the self-storage industry as well.

Providing tenant insurance to your customers requires a small amount of effort on the part of you and your managers, and it provides a genuine service for your tenants who can take advantage of the low-cost, short-term coverage. Your self-storage business will benefit from the decreased exposure to potential liability. With so much to gain, it’s easy to see why every self-storage business should make tenant insurance a cornerstone of an overall risk management strategy.

Peter Johnston is the Customer Storage Insurance Manager for Phoenix-based MiniCo, Inc. MiniCo provides industry-leading specialty programs for self-storage businesses including property and casualty insurance and tenant insurance programs. For more information please visit www.minico.com or call 800-528-1056.