Within the retail industry, protection plans are not new. It’s likely that a sales associate or online shopping cart has prompted you to purchase a protection plan for anything from a television to a carpet scrubber. These protection plans, which vary in price and coverage length, depending on the item and the insurer, go above and beyond limited manufacturers’ warranties by covering mechanical and electrical failures and other common malfunctions that may occur from normal wear and tear. Protection plans offer budget-conscious consumers peace of mind that their pricey purchases will be replaced or repaired—without having to pay a deductible—if issues arise during the term of the plan.
Similarly, protection plans within the self-storage industry cover a tenant’s stored belongings from damages sustained by natural disasters or the owner’s negligence. According to Chris Betteridge, national sales director for Deans & Homer, they serve as a “contractual agreement between the store and the tenant” who pays the monthly fee for the protection plan. “The operator takes on the risk, but may purchase insurance coverage to transfer some or all of the risk to an insurer.”
Although operators and/or managers may handle a portion of the damage claim process, the perks of protection plans, such as additional revenue, the ability to help tenants with losses, and protection from commercial lawsuits, can outweigh the responsibilities when a program is properly implemented.
Coverages and conditions of protection plans vary, since operators have the flexibility to set the pricing, options, and limits, but there are several strategies that can be employed to ensure the success of any protection plan.
Per Betteridge, a prosperous protection plan program “starts with manager buy-in.” In other words, if a property manager doesn’t care nor understand the value of the protection plan, he/she “won’t be good at selling” it to tenants.
Take this hypothetical scenario into consideration: A nearby wildfire that firefighters are struggling to contain reaches a 300-unit self-storage facility. It destroys nearly half of the building before being extinguished. Items stored in the uncharred units have been damaged by smoke and/or water. All the tenants are understandably distraught about their losses, airing their grievances to the property manager. Without a protection plan in place, the manager will be having difficult conversations with numerous tenants, rationalizing that the facility is not liable and won’t compensate them for their losses.
“It’s hard to tell tenants they can’t do anything for their loss,” says Betteridge, who reminds owners that negative reviews that result from disasters can be detrimental to a business’ reputation. “Managers who have dealt with tenant losses will better understand the value of their protection plan, as it relates to reputation management.”
Data from the National Association of Insurance Commissioners reveals that 85 percent of homeowners have home insurance policies, so managers could direct tenants to file claims through their personal policies, but Betteridge mentions that many of those policies do not cover items stored outside of the home. Moreover, the homeowner policies that do cover items in storage may have hefty deductibles.
“A protection plan has no deductible,” he says, adding that tenant insurance also requires the insured to pay a deductible in most instances.
Once managers are on board with providing protection plans to tenants, Betteridge says the next logical step is to educate them about the specifics of the plan(s). Unlike insurance policies, owners and managers are not required to obtain any kind of licenses to sell protection plans, but reputable insurance agencies that offer self-storage protection plans provide sales training. For instance, Deans & Homer’s webinar training covers the benefits of protection plans, the differences between protection plans and insurance policies, how to sell protection plans, and more. Training will enable owners and managers to better discuss with their tenants what a protection plan is and how it works—something they cannot do when suggesting tenant insurance, unless they have a license to do so, which could frustrate tenants who have questions and want answers without having to contact an insurance agent.
As for selling protection plans, Betteridge’s advice is straightforward: “Don’t ask ‘Do you want to purchase a protection plan?’ Don’t give them the option to say no.” Rather, owners and managers should simply ask what level of coverage they want for their belongings. “Assume every new tenant will buy it, don’t make it a big deal,” he says.
For tenants who have homeowners insurance but are unsure as to whether it covers items in storage, Betteridge suggests that operators and managers encourage tenants to add a protection plan to their unit, so they know they are covered. “If they are happy with their insurance policy, it can be taken off,” he says. “It’s easier to lower their bill than to increase it later.”
While some companies utilize an auto-enroll feature for their protection plans, Betteridge says those that do not automatically enroll every new tenant should be averaging at least 65 percent enrollment. If your enrollment rate is below that average, “you could be doing better.”
To increase your numbers, Betteridge recommends conducting annual or quarterly audits of the tenants who opted out of a protection plan. During the audit, search for expired homeowner insurance policies that need to be updated and send notices to tenants without coverage to encourage them to enroll. Be sure to list all the coverage levels you offer and their corresponding fees, as well as details about the protection plan’s benefits, covered causes, and straightforward claims process. You should also invite them to call the facility’s office with any questions they may have about the protection plan.
Finally, don’t forget to add an addendum to your rental agreement that explains what the protection plan covers, the causes that aren’t covered, and any sublimits that do not offer full protection, such as damage from flooding and rodent/pest infestations. Betteridge mentions that there are some variances among protection plan vendors, but whatever is covered or excluded should be clearly stated within the addendum and reviewed with tenants when they sign the rental agreement.
Perks Of Protection
Besides being able to help affected customers when an event happens, which Betteridge cites as the No. 1 reason owners offer protection plans, there are several other advantages of protection plans over tenant insurance.
“Most operators retain much higher percentages of the fee that they are charging [for protection plans],” he says, adding that protection plans are customizable. Operators can choose their rates, level of involvement, and rules, and even brand the protection plan to coincide with the company. “They can do what works for them.”
Even the claims process is at their discretion. Typically, the property manager fills out the incident report and then the owner submits the claim for the vendor to handle. The claims are then processed and paid within a few days—a quick process that keeps everyone happy.
“The vendor can pay all claims on behalf of the operator, or they can share the risk by paying some claims out of pocket and having higher margins, says Betteridge. “If you want zero involvement, there are third-party claims handling companies who can be used.”
When speaking to tenants about protection plans, Betteridge stresses the importance of avoiding insurance-related jargon. Because many self-storage owners and managers are not licensed insurance agents and are not permitted to discuss insurance policies with customers, here are a few conditions to follow:
Don’t call it insurance. Protection plans are not insurance policies and must not be referred to as such.
Don’t call the monthly fees for protection plans premiums. Premium is an insurance term and shouldn’t be used when discussing protection plans.
Don’t attempt to decipher a customer’s homeowners insurance policy. Instead of trying to determine whether their policy covers items in storage, refer customers to their licensed insurance agent.
Erica Shatzer is the editor of Mini-Storage Messenger, Self-Storage Now!, Self-Storage Canada, and MSM’s annual Self-Storage Almanac.