Property management companies navigate a complex world of regulations. Indeed, ensuring legal compliance goes far beyond collecting rent and handling repairs.
For instance, the tenant screening process involves legal obligations and occupancy considerations outlined in fair housing laws, along with background checks to ensure resident safety. Habitability standards and safety regulations, dictated by local landlord-tenant laws, may require meticulous property maintenance – or real estate rental properties may require improvements to meet tenant rights and safety standards as outlined in the Americans with Disabilities Act (ADA).
In addition, the key areas of security deposits, lease agreements, and eviction procedures all have legal requirements that must be stringently followed to avoid legal issues. Audits can arrive unexpectedly, and failing to comply can result in hefty fines or loss of licensure.
However, one of the most intricate areas of regulatory compliance involves insurance, particularly when it comes to insurance for residents. We delve deeper into this specific challenge in the following sections.
A note on language: At Second Nature, we prefer the term “residents” rather than “tenants.” That’s because focusing on the people in every interaction helps us create better business strategies in the long run. After all, property management is all about focusing on what residents and investors – human beings – want and need! But throughout this article, you’ll see us use both terms interchangeably due to the technical nature of various compliance issues.
Related: Notice to Vacate Tenant Free Template
What Makes PM Compliance with Insurance So Complex?
The biggest hurdle property managers face with insurance compliance requirements is the jurisdictional complexity. Federal laws provide a framework, but individual states and even municipalities can have their own regulations regarding insurance for tenants. Understanding these variations is crucial.
Property managers must stay up-to-date on the specific laws governing their area to ensure they are not only compliant but also considering the best interests of both the property owner and the tenant.
Insurance Compliance FAQs
A recent discussion between Second Nature’s very own Andrew Smallwood (Chief Customer Officer) and Rob MacKethan (VP of Risk, and the Designated Responsible Licensed Producer for Second Nature’s licensed producer subsidiary, Second Nature Insurance Services, LLC, NPN No. 20224621) highlighted frequently asked questions and issues raised over the course of a number of industry discussions.
Rob has been in the insurance space for about 35 years, and worked with multiple startups in the industry prior to coming to Second Nature, where he leads the team in creating value for customers using insurance tools.
Below is a summary of FAQs and responses from their conversation.
What aspects of property management should PMs be aware of when offering a solution for a tenant to meet the PMs’ liability insurance requirement?
The key thing to remember is that insurance is a highly regulated industry, especially at the state level. If you operate in multiple states, you need to make sure you comply with local regulations in each one.
In the end, regulators are there to protect consumers from being misled and to ensure insurance companies will pay out claims when needed.
Can property managers require residents to get a specific renters insurance policy?
No, but, in the majority of states, they may include a requirement in the lease agreement that requires residents to carry an insurance policy that provides for tenant liability coverage that meets a minimum coverage level.
Regulators don’t want residents to be forced to purchase a specific policy. They want them to have the option to shop around and meet lease requirements with a policy of their choice.
Can property managers add an administrative fee on top of the premium, or reduce the premium themselves?
Regulations related to PMs' involvement in premiums and fees vary by state; however, such involvement is typically limited to establishing the tenant liability coverage limits. Some states prohibit any changes to the premium, while others may allow reasonable administrative fees within certain limits.
The safest approach for a PM is to not change the premium at all.
Is it important to avoid inducements like discounts on rent in exchange for purchasing insurance?
Absolutely. Offering incentives related to the purchase of insurance can be seen as anti-competitive or a form of rebating, both of which should not be offered by unlicensed PMs. PMs must be careful to avoid acting in a manner that may cause the PM to be considered by regulators as performing certain acts without proper licensing. Unlicensed PMs should avoid any act that may cause them to appear as though they are selling, soliciting, or negotiating insurance.
What should property managers be aware of when creating marketing content about renters insurance programs?
This is a crucial point. Selling, soliciting, and negotiating insurance are activities that require an insurance license. Property managers should avoid creating their own marketing materials about insurance coverage, deductibles, pricing, or comparisons to other policies. They should partner with a licensed insurance company or broker and reference them in their materials.
Brochures and website content are best reviewed by legal counsel to ensure regulatory compliance.
How can property managers ensure residents meet and maintain liability insurance requirements throughout the term of their lease?
Partnering with a licensed company that provides policy status tracking and record keeping is key. This will help ensure residents comply with the lease requirement and that the property manager, or their vendor, is notified of any lapses in coverage and can action them appropriately.
What should property managers keep in mind if residents pay insurance premiums through the property management software along with their rent?
It's critical that those payments be passed through to the insurance carrier or broker promptly upon collection. Withholding or retaining premiums can have serious consequences due to non-compliance with regulations.
How Second Nature Helps with Your Resident’s Insurance Coverage
At Second Nature, we know how valuable your investor clients’ assets are – and how much risk you take on as a property manager. While compliance with insurance regulations can sometimes feel like a zero-sum game, we aim to make every opportunity a win for everyone involved. In the end, successful property management not only fosters smooth operations, but better outcomes for all stakeholders.
That’s where the renters insurance program offered by Second Nature’s licensed insurance subsidiary, Second Nature Insurance Services, comes in. Second Nature Insurance Services offers a master policy with convenient enrollment, and a customizable HO4 policy option if residents want to tailor a policy to their needs, both of which will meet your tenant liability insurance requirement. Or they can get their own policy and show they’ve met the requirements on their own. PMs get a fully managed renters insurance program that helps ensure compliance and that you, your investor, and your residents can rest easy knowing you’re protected from key areas of risk.
With our fully managed renters insurance program, we’ve seen our partner PMs go from:
- 41% of residents covered → 100% of residents covered
- Self-managed portal administration → Fully managed for you
- Leasing team tracking certifications → 100% certificate management
- Higher premiums → lower premiums
- Complex implementation and vendor management → 1 RBP, 1 Invoice
Every property manager knows insurance matters, but that doesn’t make it any less of a headache. Learn more about how our Resident Benefits Package just makes life simpler.
* Renters Insurance Program is provided by Second Nature Insurance Services, LLC (NPN 20224621)
October 10, 2024
