Here's Why 31% of Tenants Remain Uninsured
When surveyed, C-Suite staff and Risk Managers say tenant-caused claims are still impacting their loss runs and the profitability of the overall portfolio. The number one cause is uninsured residents.
So, how is this possible, if renters liability insurance is required by the lease? It’s important to understand why this is happening to know how to combat this lease noncompliance.
Read on for our analysis of the human behaviors contributing to the 31% of uninsured renters, why this happens even when renters insurance is mandated in the lease, and how to solve for this problem to bring your portfolio up to 100% compliance.
19.5% Policy Cancellation
A sample of 100,000 policies tracked by LeaseTrack in the first half of 2018 found that 19.5% of residents had canceled their insurance policy within the first 180 days of issuance.
Policy cancellations occur as a result of non-payment of premium, policy expirations, and intentional cancellations. Non-payment of premium is the most frequent cause of policy cancellation, resulting in policies canceling after the first installment is due. Non-payment occurs when a resident unable to afford to pay for the insurance, a resident sees their insurance policy as a nuisance or unnecessary expense, or they simply forgot.
The decision to intentionally cancel a policy constitutes a moral hazard. Moral hazard occurs when one party in a transaction has the opportunity to assume additional risks that negatively affect the other party. In this case, a resident’s decision to cancel their policy exposing the landlord to assume more risk.
8.5% Bad Data | Administrative Challenge
8.5% of all policy data entered by leasing agents are found to be faulty due to bad data, whether intentional or not. Bad data includes invalid carrier information, incorrect policy effective and expiration dates, and inaccurate policy numbers.
3% Fraud | Moral Hazard
3% of all documents submitted as renters insurance policies are fraudulent. Fillable PDFs, quotes, and applications are all frequently misused as proofs of insurance. When residents intentionally commit this kind of fraud, this is known as a moral hazard.
Many leasing agents and property managers do not have the necessary insurance training to recognize a fraudulent certiﬁcate of insurance. Approval of a fraudulent certiﬁcate can wind up being very costly in the event of a loss, and can impact a portfolio for five years or more.
Far too frequently, renters policies have been incorrectly documented or canceled immediately after move-in. The key to mitigating resident risk is to have a thorough understanding of what is happening at the tenant level.
The next step in mitigating risk is determining how to steer residents towards full compliance. Establishing processes around fee management and lease compliance tracking is a best practice to help you achieve full compliance.
Structuring a fee program for tenants who chose not to purchase insurance provides an incentive to help drive clients towards full compliance, and offers an additional approach to help fund losses caused by uninsured tenants.
We have seen compliance fee revenue reach into the millions and give owners the chance to have better clarity and control when it comes to paying for losses that fall under the deductible of their commercial insurance programs.
How long does it take to get a portfolio up to full compliance? And what are the steps needed to get there?
The path to full compliance does not happen overnight. But with an understanding of why policies cancel, a dedicated insurance team, and an interested third-party who is notiﬁed of policy changes or cancellations, the path to full compliance becomes clear.
Best Practices for Tracking Lease Compliance
- Immediate follow-up on non-payments and cancellations
- Communication with the insurance company
- Direct integration into your software
- Advising residents so they feel cared for
When 31% of all tenants are on their way to becoming uninsured, it’s logical to conclude that at some point, an uninsured tenant may cause a total loss. Signiﬁcant property damage can lead to claims affecting a portfolio’s loss runs for up to ﬁve years. Paying a 20% to 40% insurance premium penalty in a low-margin business is extremely hard to recover from.
The best plan of action is to implement a program that works in concert with your existing software to bring your portfolio up to full compliance with 100% transparency.