The newsLINK Group - Mandating Renters Insurance
Editorial Library Category: Multi-Family & Property Management Topics: Renters Insurance Title: Mandating Renters Insurance Author: newsLINK Staff Synopsis: One of the most important business decisions you will make in the property management business is the rent you charge. It consists of two parts: determining whether people can afford the rent and also whether they think it is a fair trade for what you are giving them. Editorial: Mandating Renters Insurance 4064 South Highland Drive, Millcreek, Utah 84124 │ thenewslinkgroup.com │ (v) 801.676.9722 │ (tf) 855.747.4003 │ (f) 801.742.5803 Editorial Library | © The newsLINK Group LLC 1 One of the most important business decisions you will make in the property management business is the rent you charge. It consists of two parts: determining whether people can afford the rent and also whether they think it is a fair trade for what you are giving them. Some property management companies are reluctant to mandate renters insurance for just that reason. They don’t want to increase the total cost of leasing. Setting the total cost too high, after all, can lower demand if people then decide to go buy a place to live instead of renting it. If too many people make the decision to buy instead of rent, pricing strength weakens right along with occupancy and revenue. Do the facts support this argument? Consider the following: During the last ten years, renting an apartment has definitely become a lifestyle choice, one that has been made by the 19 million people in the U.S. who currently live in one. During the next ten years, experts expect the market to grow by an additional four million new rental households. ORC International conducted an Insurance Information Institution poll in 2015. According to the poll, 95 percent of homeowners have homeowners insurance, but only 40 percent of renters had renters insurance. An increased number of renters results in increased revenue for the property management business, but it also means increased risk. Why is it that homeowners are opting for insurance to mitigate that risk and renters are not? Common fallacies include: A belief that property insurance policies cover household contents. Property insurance actually covers only the buildings and infrastructure, not a person’s possessions. Thinking that personal belongings are not worth much and are therefore not worth insuring. USAA estimates that the average renter actually owns possessions worth $20,000. Allstate puts the average higher, at $30,000. The belief that rental insurance is too expensive. It is certainly true that health insurance and car insurance are both expensive, but renters insurance is surprisingly affordable. The median annual cost of car insurance, according to a state-by-state comparison performed by Insure.com, is slightly more than $1,300. That puts monthly premiums at slightly more than $108 per month. Renters insurance, on the other hand, is approximately $12 a month or $144 a year, assuming someone buys a policy for $30,000 of property coverage and $100,000 of liability coverage. RealPage, Inc., a company that was founded in 1998 and that provides property management software solutions for markets within the rental housing industries, decided to find out. Richard Hughes, who is the head of Data Science and Senior Vice President of Strategic Revenue Systems, wrote a white paper for RealPage, Inc. in which he summarized the results of a study about the impact of renters insurance on revenue generation. The studying involved benchmarking multiple management companies that implemented mandatory renters insurance in 2008. Those conducting the study benchmarked the cumulative indexed revenue performance for these companies against their markets, submarkets, and zip codes. What they found was that mandatory renters insurance did not impede performance. Communities that mandated rental insurance beat the market index and the zip code index but not the submarket index. However, the difference between the communities and the indexes, regardless of the result, was not significant. If renters insurance is cheap enough that it doesn’t impact whether someone will continue to rent from you, what does that mean in terms of implementing a mandated insurance program?
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