Stow it!
MiniCo helps agents capitalize on the growing self-storage business
By Elisabeth Boone, CPCU
From a few boxes of memorabilia to a lifetime’s worth of possessions, Americans increasingly are making use of self-storage facilities. Running the gamut from large national chains to local mom and pop businesses, these facilities face a range of exposures that require specialized underwriting and risk management expertise. What’s more, self-storage customers themselves need appropriate, affordably priced protection for their possessions.
Standing ready to meet those needs is MiniCo Insurance, a division of MiniCo, Inc., which since 1974 has offered specialty coverage for self-storage businesses nationwide as well as policies for tenants’ property. Acknowledged as a leader in this market, MiniCo’s program is underwritten by Safeco Insurance, which carries an A rating from A.M. Best. The company also supports the self-storage industry with publications, educational materials, and a variety of programs and services, as well as involvement in industry trade associations.
Based in Phoenix, MiniCo, Inc., was founded by Hardy Good, chairman and chief executive officer, and two business associates. Today, MiniCo insures some 10,000 of the approximately 50,000 primary self-storage facilities in the United States.
To learn how MiniCo meets the insurance and risk management needs of self-storage facilities, Rough Notes spoke with Mike Schofield, president of MiniCo Insurance. With a 25-year insurance career focused primarily on property/casualty, Schofield spent 12 years managing an insurance program for supermarkets. He joined MiniCo in 2000 as director of the insurance division and in 2005 was named president.
“From the time I came on board until 2005, we had a great opportunity to build volume, thanks to the hard market and the fact that the self-storage industry experienced significant growth during that period,” Schofield says. That growth continues, he observes, although the hard market has given way to the current soft cycle.
According to the Self Storage Association, Schofield says, the number of self-storage facilities in the United States increased by 20,335 between 2000 and the end of 2007. As of year-end 2007 there were 51,500 primary self-storage facilities in the United States, plus 8,434 small business “secondary” mini-storage facilities. Primary self-storage facility gross revenues for 2007 were approximately $20.1 billion, and the total market capitalization of the entire U.S. self-storage industry is in excess of $220 billion.
“The large self-storage operators represent about 15% of the self-storage market,” Schofield says. “About 85% of the market is mom and pop operations.” A large majority of self-storage operations, he notes, are in California, Florida, and Texas, driven by population growth in those states.
Looking at exposures
What are the key exposures facing self-storage facilities, and how does MiniCo’s program address them?
“The primary exposure is fire,” Schofield responds, “and the three major causes of fire are electrical, lightning and some instances of arson.” In many cases, Schofield observes, self-storage businesses are multi-million-dollar facilities, so fire losses can be significant.
“The second largest exposure is wind and hail,” Schofield says. “The years 2004 and 2005 generated a substantial volume of hurricane-related losses, and over the last few years we’ve also seen significant tornado activity throughout the country.”
Asked to describe MiniCo’s approach to underwriting self-storage facilities, Schofield says, “From an underwriting standpoint, it’s primarily a property-driven exposure. We look at the same factors any other property underwriter would consider: location, type of construction, quality of security and fire protection, management experience, and loss history. A key concern is the age of the building; the older the building, the more information we want from the agent about upgrades.
“In terms of location,” Schofield continues, “coastal exposures create more challenges than inland exposures.” Location also plays a role in what Schofield describes as traditional vs. conversion construction. “In regions like the Northeast, because of land costs and the shortage of viable locations, we’re seeing more operators converting existing buildings into self-storage facilities,” he explains. In many cases, he notes, the converted buildings are multi-story structures that require underwriting attention. “We work with a firm that inspects converted facilities and provides us a report focused on sprinkler systems, plumbing, electrical upgrades and roof data,” he says.
Another important underwriting consideration, Schofield points out, is total insured value. “We offer high limits, and very seldom do we have to go to a facultative resource. Some 99% of the accounts we insure are within our limits.”
MiniCo underwriters also want to know whether or not the owner of a self-storage facility retains keys to individual storage units, Schofield says. “If the owner does retain the keys, that may limit the coverages we provide because access to those units increases the exposure from our perspective,” he explains. “We counsel owners not to keep the keys. In a traditional self-storage operation, there’s no care, custody, and control exposure, and an owner who retains keys may be assuming that exposure without intending to do so.”
The owners of self-storage facilities have limited liability for damage to the contents of individual units, Schofield says. “Commonly, the lease agreement between the tenant and the self-storage operator limits to $5,000 the value of goods the tenant can place in the unit,” he explains. “It’s up to the tenant to advise the owner that he wants to store more than $5,000 worth of goods, and that would require an addendum to the lease agreement.” Courts, Schofield adds, have generally upheld the $5,000 liability limit for owners.
Beyond careful underwriting and physical inspections, MiniCo takes risk management and loss control to the next level. “Our publications division is totally focused on the self-storage industry,” Schofield says. “Through that division, we try to educate the owners of self-storage facilities about the various exposures that exist and offer solutions to the exposures we identify. Our publications are geared toward helping owners manage their business effectively and take a proactive approach to loss prevention and control.” Bottom line, Schofield comments, “We believe that the better educated the owner, the better risk he is in terms of our insurance program.”
Coverage highlights
Through its partnership with Safeco, MiniCo offers the owners of self-storage facilities a broad array of property and liability coverages, including a number of specialty coverages.
Business property insurance covers buildings and structures, including fences, building glass, signs, lawns, walkways and roadways, and buildings in the course of construction. Also covered is business personal property, including computer equipment, both on premises and in transit. Business income covers actual loss incurred up to 15 months. Coverage includes extra expense, and extended business income coverage can be arranged up to 180 days. Optional coverages are equipment breakdown and earthquake except in California and Alaska.
MiniCo’s program also provides coverage for employees’ personal property; valuable papers and records; accounts receivable; fine arts; additional media and data; recharging of fire protection systems; and identity recovery, a new coverage that provides case management service and extra expense coverage if certain requirements are met. Crime protection covers money on and off premises, employee dishonesty, and forgery.
On the liability side, the MiniCo program covers business liability with limits of $1 million/$2million or $2 million/$4million. Coverage includes personal and advertising injury; hired and non-owned auto liability; medical expense ($10,000 limit); and umbrella. Optional coverages are employment practices liability and employee resident manager’s personal liability. A liability policy only is also now available.
Specialty coverages included in the MiniCo program are customer’s goods legal liability with limits from $25,000 to $1 million; sale and disposal liability with limits from $10,000 to $1 million; and optional limited pollutant removal. Limits for pollutant removal coverage are $25,000/$100,000 or $50,000/$200,000; for facilities with more than 1,000 units, limits are $100,000/$200,000 or $200,000/$400,000.
Coverage is written on a replacement cost basis with no coinsurance clause. The insured has five deductible options: $1,000, $2,500, $5,000, $10,000, and $25,000.
MiniCo recently contracted with ICAT to offer wind and all other perils for properties located in high risk coastal areas.
Tenants coverage
Self-storage tenants are responsible for obtaining insurance for the goods they store, but many people are not aware of this requirement despite the fact that it is stated in the lease agreement.
As a convenience for tenants and to enhance the relationship between tenants and owners, MiniCo offers two options for tenant coverage of stored goods, both of which are underwritten by Safeco. Both options offer flexible limits and cover losses that result from burglary, lightning, windstorm, hail, water damage, fire, smoke, earthquake, building collapse, explosion, vandalism, and riot. Both plans carry a $100 deductible except in Texas, where it is $250. Coverage is written on an actual cash value basis and covers property only.
With TenantOne Direct, the owner gives the tenant an application during the leasing process and explains that obtaining insurance for stored goods is the tenant’s responsibility. Customers can purchase coverage by phone, by mail, or online via TenantOne.com. Coverage limits range from $2,000 to $40,000.
Under MiniCo’s Pay-With-Rent tenant insurance program, at the time of signing a lease, the new tenant is offered the opportunity to have his or her premium billed with his or her monthly storage rent. The top limit available under this program is $25,000.
“We offer tenant coverage on a direct basis because the premiums are low and the model wouldn’t generate any significant revenue for the independent agent,” Schofield explains. Nonetheless, he adds, the agent gains credibility with the self-storage facility owners by offering MiniCo’s two tenant insurance programs as a value added product. A key selling point, he notes, is that if a facility’s tenants have coverage in place, they are less likely to file a claim against the facility’s commercial insurance.
A win for agents
MiniCo distributes its commercial program for the owners of self-storage facilities through independent agents. “We work with about 2,200 agents nationwide,” Schofield says, “and we’re looking for agents who have a relationship with a self-storage owner, whether it’s through church, Rotary, Lions Club, or other civic organizations. Because we write a large number of mom and pop facilities, we have a lot of one-agent, one-facility relationships,” he says. At the same time, he notes, “The face of the self-storage industry is changing as a result of merger and acquisition activity that is creating larger facilities, so we also work with a number of large shops that have significant books of self-storage business with us.”
To help agents gain entrée to accounts, MiniCo offers a lead program for agents who are looking for opportunities to write business in specific geographic areas. These agents will be included in MiniCo’s online agent locator program that matches self-storage owners with local independent agents. A bi-monthly e-newsletter, Key Agent, provides information on coverages, risk management tips, and self-storage industry trends.
As early Baby Boomers begin to retire and downsize, and as people of all ages continue to move into Sun Belt states like Arizona, California, Florida, and Texas, the self-storage industry is expected to experience ongoing healthy growth. MiniCo Insurance stands ready to help independent agents who want to profit from this trend. *
For more information:
MiniCo Insurance
Web site: www.minicoinsurance.com