Every time someone rents a space to live, they become part of an asset. The cash flow that they provide is put on the books of someone’s accounting records, offset by the costs associated with their tenancy. This is a simple equation that makes accountants glow with confidence. But this is not the entire equation, unfortunately. There is a factor in an asset’s future cash flow that can’t be perfectly forecasted, risk. Buildings exist in the real world, not on a ledger, and this real-world comes with an endless amount of risks, from equipment, tenants, and anyone or anything that comes into contact with the property at any time.
We have built a financial system to account for this risk, of course. We use indemnification, a process of determining the chance of something bad happening, multiplying it by the costs of the average mishap and then dividing it out over the life of an agreed-upon term. Having these relatively inexpensive insurance policies is an easy way for both renter and buildings to protect themselves from the unknown future costs of risk. Seems so simple, right. Well, I was shocked to learn that only an estimated 37% of renters have rental insurance. This means that billions and billions of dollars in assets in the US alone are not protected from the day to day activities of renters.
This isn’t for lack of trying. “I would guess that around eighty percent of all buildings require a renters insurance policy,” said Dave Carner, Senior Vice President of residential solutions at property management and accounting software provider MRI. His company has just made the curious acquisition of a rental insurer called Multifamily Insurance Providers. Curious, if you don’t know what Dave and his team do, that while renters are required to get policies when they sign the lease, many of them don’t keep the policy much longer after that. It could be from a changed credit card number or just someone trying to save some money on an “unneeded” expense. Whatever the reason renters often run afoul of the rental insurance clause in their lease and landlords have no way to easily audit for compliance.
“Blanket policies exists,” Dave explained to me, “but they generally don’t cover the renter’s stuff so there is always a lot of complaining when a claim gets made and they find out that they don’t get anything for their premium.” There is another solution, one that MRI based their acquisition on. It is to name the property as an “interested party” on the policy. This way if anything changes with the policy the interested party will be informed as well.
The problem with this, and thus the reason that MRI sees renters insurance as a great add-on to their software suite, is the sheer volume of communication each policy creates. “Dealing with policy documents is way too hard for most management teams who are already overworked. If you have hundreds of units then it can be a full-time job in itself,” Dave said. By having their property management software provider also account for tenants’ risk by way of an insurance policy, landlords can have the benefit of knowing when their tenants are covered without being buried in their policy documents.
It isn’t just MRI that has this service. Yardi and RealPage also have insurance offerings. But MRI is looking to be the first to offer insurance as a seamless experience for both the renter and the landlord by adding it to their MRI Living residential solutions suite. Insurance has always been a way to engineer an accounting solution for the unknowns of risk. So it shouldn’t be too surprising that accounting service providers are eager to offer it as part of their integrated solution. After all, few trust insurers but almost everyone trusts their property management software.