Optimizing Lease Compliance in 2020

Property owners and C-suite staff responsible for running large single- and multifamily portfolios of scale are often faced with competing objectives. It can be difficult to know where to focus your efforts first, but through careful planning, selection of the right technology, and the right systems and processes in place, risk transfer can be easily accomplished while increasing incremental revenue, and improving resident experience.

Lease compliance and risk transfer can be optimized by honing in four key areas: software, systems, processes, and communication. We will review best practices for each of these four areas to help you successfully mitigate risk and optimize compliance across your portfolio.

Read on to learn how to audit your lease compliance processes, learn about industry-standard risk transfer strategies, and satisfy state requirements while meeting business goals. In 2020 its time to improve your risk transfer strategies while transferring risk to the appropriate party – your tenant’s renters insurance provider.

Graphic showing the word "lease compliance" in an oblong oval, with dotted lines underneath it pointing to circles that have the words software, systems, processes, and communication in them

Software

In recent years, technology has been widely used in property management – from analyzing risk to forecasting sales, down to predictive maintenance on in-unit appliances. Now, property owners are turning to technology to enforce lease compliance with renters insurance requirements, to help transfer their risk and secure lower rates on premiums and deductibles.

Insurance documents can vary widely based on state requirements. In 1945, the McCarran- Ferguson Act was passed, which required insurance regulation to be processed at the state, not federal, level. Tracking and managing massive quantities of disparate resident data is complicated, especially combined with the day-to-day tedium of determining compliance and coverage. Adding divergent requirements from different states makes a complicated process even more complex and time-consuming for portfolios of scale.

On average, it takes a leasing agent 15 minutes per resident to process a certificate of insurance. Take a 10,000 unit portfolio with a 92% occupancy rate, for example. Processing the initial compliance documents for the entire portfolio would take leasing staff about 5,060 hours, or  633 working days. But tracking lease compliance is an ongoing job. Policy cancellations and changes mean more insurance documents need to be processed to keep units in accordance with the terms of the lease. Imagine giving your leasing staff back  633 days – they could focus more on outreach, filling vacant units, and providing better customer experiences for existing residents.

Image showing a flat design grey building, surrounded by the words 633 days in large letters on the left; on the right it says 10,000 units, 92% occupancy rate, and 5,060 hours

The  property management industry has been slow to adapt to some technological advances, but automated compliance technology, such as those facilitating lease signing, maintenance requests, and rent payments are all commonplace in the industry today. Yardi, MRI, and RealPage all offer compliance software programs, which are great at getting residents in the door and paying rent. Automated compliance technology platforms remove the time-consuming administrative tasks associated with documenting and collecting resident information. 

Artificial intelligence and machine learning software determine lease compliance, but more quickly and with more accuracy than a leasing agent. AI systems review information across the internet and determine compliance almost instantaneously. An AI system is able to search for keywords, terms, and changes in policy status. Machine learning is an application of artificial intelligence that allows systems the ability to learn from data, identify patterns, and make decisions with minimal human intervention. Property management is afflicted with many inefficiencies, but risk transfer should not be one of them. 

Does your property management software provide insurance certificate tracking?

Some property insurance companies offer lower premiums to owners who can prove their residents have insurance coverage. The problem is proving this – you might tell your underwriter that you require renters to maintain insurance and they agree upon lease signing. But renters can cancel their insurance policy at any time after providing proof of coverage. How do you ensure this doesn’t happen or remain notified if it does?

Your underwriter may ask you the same question, and if you don’t have a method for tracking this behavior, you could be denied coverage. Software that shows compliant and non-compliant units guarantees to your underwriter that you are doing everything possible to
mitigate risk and transfer it off of your balance sheet.

Artificial intelligence is no longer just fodder for sci-fi lore – compliance tracking software is the future of resident risk management. AI is actively helping property owners and managers optimize lease compliance by simplifying time-consuming tasks and effectively tracking and transferring risk.

Image showing certificates of insurance dropping into a funnel attached to a machine that determines if the certificate is compliant or not. The compliant certificates get turned out onto a conveyor belt with a green check above them, and the noncompliant ones get turned out onto the conveyor belt with a red x above them.

Systems

You do not rise to the level of your goals. You fall to the level of your systems

James Clear

Your residents’ ongoing behavior dramatically impacts your portfolio’s risk. Yet existing risk-assessment systems rarely influence behavior in a way that makes lasting change. This is because behavior changes are not systematically enforced at scale.

 Your lease agreement may require many behaviors designed to mitigate risk, but how are these behaviors being implemented? In order to effectively influence behavior in the desired direction, property owners should define clear goals and systemize a process that supports the objective. 

Common objectives for resident risk management include having more residents in a captive, ensuring more residents maintain insurance through either a third-party or preferred provider, or directing residents into a tenant legal liability program. 

The following chart depicts how to align your objectives with systems to guarantee your desired outcome:

 
Chart depicting what systems should be in place depending on what goals a client has - renters insured with third-party or preferred provider insurance, or a tenant legal liability program.

Multifamily operators who choose to enforce an exemption fee are creating a system to successfully guide residents’ behavior towards compliance. The most effective behavior changes happen at the $12.50 to $15 compliance fee range – this price range is not so large as to be financially punitive, yet small enough to get residents to purchase insurance, often for a lower rate than the cost of the fee. 

Processes

By implementing an accountability system, you can drive your tenants’ behavior to either favor the exemption fee or favor buying an insurance policy. The exemption fee translates to passive revenue for your property that can be used however you see fit. Some properties would rather have this revenue than have their tenants buy renters insurance, and others would rather have insured tenants – how to direct this behavior depends on the property owner’s overall goal. 

Insurance policy document management is a lengthy and time-consuming process for both property managers and leasing agents. Documents can arrive through a variety of channels – in person, in the mail, or digitally. They can come from your residents, or their carriers, or from insurance agents. Someone needs to pick up the mail, scan it into the property management system, and process and monitor changes. Predictive charges need to be populated before charges actually post to residents’ accounts. 

Managing lease compliance is a complex process. Being aware of the insurance compliance life cycle phases that a resident journeys through helps to ensure timely certificate review while controlling new and renewal certificate processes. 

 
Circular chart showing the insurance compliance life cycle of a resident with 3 paths - universal, expected, and reality.

Teaching leasing agents to process and monitor the ongoing status of documents is a full-time job. Leasing agents will never have enough time to process insurance documents at scale correctly, while still monitoring ongoing changes. A centralized processing team, combined with the power of AI software, makes it easy to quickly catch mistakes and reduce errors. By centralizing the data from both tenants and insurance companies, system requirements can be administered for the lowest possible costs by using a centralized workforce. Manual processes become automated, which improves productivity and simplifies lease compliance.

Communication

Efficient communication is one of the struggles faced by large single- and multifamily portfolios, but technology helps firms to centralize control and ensure cohesive messaging. Zoom and Skype have existed in the workplace since the early 2000s, but are now being used more than ever while businesses uphold social distancing guidelines. Property management software has also shown promise in the property management space for allowing residents to pay rent, fill out maintenance requests, or even for initial tenant screening. Communication tools can help ensure cohesive messaging across all channels, whether communicating with leasing staff, residents, or carriers.

Communication tools commonly used in the property management space include email automation technology and chatbots. Both channels are able to provide residents information without the need to interact with a leasing agent and offer a way for residents to self-service some of the more common issues they face. But perhaps more important than the tool you choose to communicate through is establishing your why. Why are you contacting residents, and at what frequency?

Consumers have become so accustomed to targeted advertising that it feels jarring to receive any communication that has not been expressly opted-into. Residents expect communication to be timely, precise, and in accordance with their needs. To be effective, your communication content and frequency needs to be correctly targeted to your audience. You need to determine what triggers are appropriate for initiating conversation, and what aren’t. This means sending the appropriate message at the right time to help increase compliance and improve resident satisfaction.

For example, let’s say you have a resident who has a pending cancellation notice on their insurance policy, and you’ve received notice of this change via mail. This would be an appropriate event to contact the resident about to help keep their account current, saving them potential fees and headaches down the road.   

In addition to establishing appropriately targeted communication, a clear chain of command should be established regarding messaging. This describes how organizations structure their reporting relationships. For firms who want to tightly control communication, a top-down approach is the ideal method for disseminating information. 

Clear communication helps to foster trust and transparency. COVID-19 and other significant events in recent history have created an immediate need for more robust communication technologies. With businesses moving operations online, and the new era of the virtual leasing office, clear communication is more important than it has ever been before. 

Conclusion

Technology can be expensive to implement the initial startup cost, but the opportunity for long term savings far outweighs the initial cost. By defining your lease compliance goals, you can then easily select the technology that supports your needs. By centralizing control, and creating processes and systems with a top-down approach, it’s much more likely that the vision for your portfolio becomes a reality. 

Premiums and deductibles become significantly increased for portfolios that cannot prove their risk transfer. And portfolios that have efficient risk transfer strategies in place, but no enforcement are useless. Optimizing your residents’ compliance with the terms of the lease does not have to be difficult, and can seriously help boost your bottom line.