If you’re new to the world of resident risk management, you really need to understand these three brutal truths regarding renters insurance, or you might have to learn them the hard way.
#1: 30% of policies cancel for nonpayment.
Without a certificate management program in place, many renters cancel their policies without property owner’s knowledge.
Why does this matter?
Insurance cancellations can cause some major issues for property owners. After a loss, nothing is more costly than finding out a policy was canceled, and there is no coverage for the property.
When policies and leases do not match, residents wind up engaging with your leasing staff to resolve the issue. This can be a time-consuming, escalating situation that increases costs and minimizes the effectiveness of your leasing agents to actually lease more apartments.
The Effective Coverage solution:
All residents are required to list the property as an additional interest on their policy. This interested party will show your property name with the Effective Coverage service center address. This means that if a resident’s policy were to cancel, lapse, or non-renew for any reason, notification is sent to the Effective Coverage service center in New York. By consolidating this work through our service center, you increase accuracy and minimize your leasing agents workload.
#2: Negligence has to be proven or confessed.
If there isn’t a clear cause of loss, negligence must be proven or admitted to.
If a resident is smoking a cigarette outside, flicks it into a flowerbed, and causes a fire, they must admit negligence in order for their liability insurance to respond. If they claim they don’t know what happened, liability coverage cannot respond, since negligence must be proven or confessed.
Why does this matter?
When a resident’s liability coverage does not respond, the property owner has to pay their deductible to rebuild the property, resulting in higher costs.
The Effective Coverage solution:
The Effective Coverage Resident Loss Fund puts the power and profits back in your control. Residents whose insurance does not meet the specifications of your lease terms will automatically be charged a fee. This charge, typically in the amount of $10, may be used at your discretion to mitigate the expense associated with resident negligence.
The Insurance Exemption charge does not provide the resident with insurance and is not a damage deposit. It is an alternative method to fund for uninsured losses.
Our clients utilize the Resident Loss Fund in different ways. It can be used for financing captives, purchasing master policies, or covering losses in a traditional way. Effective Coverage works with your company to structure the best program for your business needs.
Our clients have built captives and amassed loss funds that have retained millions. The creation of this loss fund is the most efficient platform to mitigate the expense of tenant negligence.
#3: Care, Custody, and Control exclusions have a big impact.
This is an exclusion found in many liability insurance policies that removes indemnification for the insured when a property is under the care, custody, or control of the insured. Standard wording is as follows:
SECTION II – EXCLUSIONS
3. “Property damage” to property rented to, occupied or used by or in the care of the “insured.” This exclusion does not apply to “property damage” caused by fire, smoke or explosion.
Why does this matter?
This means that if an insured were responsible for causing water damage to the unit that they occupy, the renters insurance policy would not respond.
If the damage were to continue to neighboring units then yes, the renters insurance policy would cover that damage and indemnify the damaged party. However, while that damage is inside the rented premises, the policy will not respond.
Another example is a broken window. If an insured was carrying a heavy object and tripped and accidentally broke the window of their apartment, the policy would not respond to pay for the property damage.
The Effective Coverage solution
There are two solutions to this problem:
First, by utilizing Renters Liability Pro from Effective Coverage, clients are able to deploy against their loss fund as they see fit. Our program maximizes flexibility and the ability to effectively manage the risk of tenant negligence.
Second, Effective Coverage works with carriers to expand coverage. An example of available wording may be found below:
SECTION II – EXCLUSIONS
3. “Property damage” to property rented to, occupied or used by or in the care of the “insured”. This exclusion does not apply to “property damage” caused by fire, smoke, explosion, or water damage.
You will notice that in this version of the exclusion, the coverage grant is expanded to include water damage. This means that the first claims example identified above with the water damage would now be covered. Unfortunately, the second example of the broken window would still not be a covered loss.
Want to learn more about how you can get your property set up with our core programs?
Just call 800.892.4308 and select option 3, or send us an email at Team@EffectiveCoverage.com.
Eric Narcisco is founder and CEO of Effective Coverage, the digital authority in homeowners and renters insurance.