TENANT DEPOSIT INSURANCE PROGRAM – MULTIFAMILY
The AssureLease Insurance Program provides individual unit coverage of up to three months rent for property damage, loss of rents and eviction costs. The aggregate policy limit is equal to 5% more than the gross premiums paid.
There is no deductible.
Annual premiums are determined on a case-by-case basis through the utilization of our proprietary underwriting matrix in conjunction with the policyholder’s own historical loss experience. In order to develop an appropriate charge (rate) per unit, AssureLease needs to analyze historical data from the last two to three years, including: (1) Amount of damages deducted from cash deposits, (2) Amount of damages in excess of cash deposits and (3) Costs due to failure of tenant to pay rent.
As policyholder, the property owner remits payment to the insurance company, from the fees they charged and collected from the tenants. The premium is remitted to the insurance company less any qualified losses. This ensures that the property owner does not have to wait to be reimbursed by the insurance company.
The AssureLease Insurance Program is specifically designed to compensate the property owner for maintaining historical best practices. One hundred percent of unused premium dollars (net of fees and claims) are deposited into the owner’s captive. Typically, property owners will receive a 35% to 50% premium dividend at the end of each policy year. Should actual losses exceed historical levels, the percentage excess will be deducted from percentage premium dividend. In any case, AssureLease provides greater coverage than the current process of collecting security deposits.
The rental rate increases are very modest, generally 1-2% increase to monthly rent based on underwriting. Our research shows that most tenants would prefer to pay a small monthly increase to avoid having to pay an upfront large cash deposit. It is certainly a property owner marketing advantage to not require a security deposit. The AssureLease Insurance Program specifically allows owners the freedom to eliminate required deposits and still (1) Protect against tenant caused damages up to three times the monthly lease payment (2) Retain actual profitability and investment income from the underwriting of this coverage and (3) Increase or maintain occupancy levels by removing the barrier to entry for tenants by not having to pay a security deposit. AssureLease is a distinct benefit to both tenants and owners alike.
Under the AssureLease Program, the property owner would first pursue the tenant for any damage or loss of rent. If losses prove uncollectable, the property owner would offset claims against premium due on a monthly basis before premium is remitted to the insurance company. In other words, the property owner is reimbursed immediately at an amount equal to or at a multiple of the current month’s rent.
Our results have shown that losses on a composite portfolio basis are in-line with historical performance to when security deposits were held. Under the AssureLease Insurance Program, the tenants would still be contractually responsible for damages caused to the unit. Failure to pay would result in a tenant’s credit rating being negatively affected. As part of the AssureLease agreement, the property owner would agree to maintain current standard practices in pursuing the tenant for damages
It should also be noted, that in most jurisdictions the owner/property management company can still charge an upfront “non refundable” cleaning fee, which does not impact the application of coverage under the AssureLease Program.
Absolutely. No matter how small, almost every state, and some local municipalities, regulates the amount and disposition of lease deposits relative to multi family housing. Residential property owners/management companies are also vulnerable to tenantinitiated class action lawsuits for (1) Misfeasance, (2) Malfeasance and (3) Nonfeasance. The AssureLease Insurance Program eliminates this exposure by replacing the traditional cash deposit structure.
All property owners/management companies generally already have a rent roll software package in place through Yardi, AMSI, RentRoll, MRI, RentBureau or others with detailed statistical information regarding rental income per unit. Such systems can be easily expanded to include columns to track loss rates per unit, premiums per unit, returned premiums per unit, loss sustained per unit and subrogation recoveries per unit. In addition to the property owner’s internal tracking, AssureLease, the insurance company and the captive manager all provide detailed reporting on a monthly/quarterly/annual basis.
As part of most negotiations for properties that are sold, security deposits are a negotiating point. In line with current sales transactions, the sale of properties utilizing AssureLease should be viewed the same as units that are sold without security deposits.
On a monthly basis, each insured will pay insurance premiums to their insurance broker who will remit payment to StarStone Insurance Company. StarStone will then cede to the protected cell captive the net reinsurance premium. This net premium represents funds to reimburse excess losses and dividends to the property owner.
Premiums paid by the property owner to the insurance company are considered an insurance expense. Captive dividends released to the property owner can have significant tax advantages. There are various structures that can be discussed with the chosen captive manager.
Property Owners are strongly urged to consult with their legal and tax consultants the accounting requirements associated with this transaction.
There are currently no known competitors to the AssureLease Insurance Program, and our insurance product has a business process patent pending. Rates are established actuarially with coverage provided by StarStone Insurance Company, who is an AM Best Rated “A-” (Excellent) nationally recognized insurance carrier. Utilization of coverage through an independent insurance entity greatly reduces any perceived conflict of interest.
Five reasons it is better to insure vs. self-insure: