Property owners and managers should look to a captive insurance arrangement to take on resident-driven risk, according to Bobby Mayer, Director of Resident Programs, Global Real Estate Practice at Beecher Carlson.
Mayer suggested that using a captive can create a new revenue stream, reduce the cost of move-in for their residents, and protect assets from unfortunate events.
He noted that a captive can be used to cover a wide variety of exposures.
He explained: “From typical resident-caused damages, like kitchen fires and overflowed bathtubs/toilets, to mould remediation and bed-bug clean up costs. A limiting factor, as with other lines of insurance, is what does the loss history look like?”
Mayer suggested that for a landlord to take advantage of a captive they should consider three key factors. The first is what structure makes the most sense. He said: “A group captive may make more sense for a smaller owner/operator while single-parent or pure captives may be a better fit for larger landlords.”
He added: “The second, does the loss history support taking the risk on with a captive? And finally, can I achieve risk transfer and risk distribution?”
According to Mayer, captives also offer the manager or owner control over the underwriting process, allowing them to build coverages for issues that are specific to their residents, which may not be available in the traditional marketplace.
He noted: “In addition to typical exposures, risks can be forward looking, for example, resident data/identity protection, or address “black swan” events such as pandemics or terrorist attacks.”
The ongoing COVID-19 pandemic has meant that a lot of people have found themselves unable to afford rent. In the US, as a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, evictions were suspended on federally backed loans until 25 July 2020, with an extension being debated in the US Congress.
In addition to the federal efforts, a growing number of states and cities have pro-actively extended their moratoriums.
Mayer said: “From a landlord’s perspective, eviction is viewed as the option of last resort to remove an unruly or unreliable tenant. To that end, insurance can provide both the landlord and resident a way to prevent, or at least delay, the need for an eviction.”