In recent years, businesses and investors have been purchasing thousands of rental properties, especially single-family homes. Starwood Waypoint – a company launched shortly after the housing crisis – is just one such example. According to CNBC, Starwood Waypoint bought thousands of homes to renovate and today rents over 30,000 homes across the United States.1,2
While not all businesses are close to this volume, the trend of businesses buying homes continues to rise.
Corporations are buying
“After the housing market crash, a lot of vacant homes were on market, making large investments financially attractive for corporations, investors and private equity groups,” said Bill Gatewood, Corporate Vice President and Director of Personal Insurance, Burns & Wilcox. “But the pay-off can be in jeopardy if the buyers are not careful about their exposure and the nuances of multi-home rental policies.”
This is not just a U.S. trend. “In the last 10 years, we have seen rental property investment in Canada steadily increase similar to the trend in the United States,” said Tia F. Becker, CIP, Manager of Personal Insurance, Burns & Wilcox Canada.
With the housing market drifting away from individuals buying homes to renting, North America is at an all-time high in terms of volume of renters.
As the housing market changes and more investors buy up properties, brokers have an immediate growth opportunity to educate themselves and clients on Rental Property insurance.
“In general, younger generations are much less interested in buying a home compared to past generations – giving businesses a strong reason to continue buying and renting,” said Gatewood. “This has presented some insurance challenges as writing large scheduled property policies can be difficult.”
Businesses are often asking Gatewood to write one policy to cover hundreds of properties. However, the market has had a desire to limit the number of homes per policy to 10 home locations.
“This places strain on brokers, especially if homes are located in different states,” said Gatewood. “These policies can be service heavy as clients can be buying and selling properties on a monthly basis and require constant monitoring of these exposure changes.”
Becker added, “Many brokers are experiencing increased call volumes on Rental Property insurance due to the increasing value of homes and the rise in these investments.”
Insurance protects the investment
Owners of rental properties may need additional coverage not typically included in a standard Homeowner’s policy and require the flexibility of the excess and surplus market.
By partnering with a wholesale broker or MGA, retail brokers can obtain broader coverage for their clients’ specific needs.
“To protect a client’s investment, brokers need to tailor the right Rental Property insurance policy,” said Becker.
Rental Property insurance covers:
- the dwelling itself
- detached private structures, such as fencing, a shed, or a detached garage
- premises liability
- lost rental income if a loss occurs
- contents owned by the investor, such as appliances
Becker added, “Rental Property insurance does not cover the occupant’s contents, but brokers can educate their clients to advise their tenants to purchase a renters insurance policy designed to help protect their personal belongings.”
Brokers can recommend products, such as Suite Protector, to protect their landlord clients. And, as part of the submission or renewal process, brokers should take the time to discuss the use of the dwelling.
The type of occupant matters
“Understanding the dwelling’s use, type of occupant, and rental terms are of the utmost importance when looking to place a client with a specialty wholesaler,” said Becker.
Rental properties can vary to include single-family homes, multi-family housing, student rentals, or use with Airbnb. Becker suggests that rentals near college campuses for student housing are more high risk, compared to a high-net-worth single-family home in a quiet suburb.
“High-net-worth rental homes are in high demand from executives moving from larger metropolitan areas, such as Toronto or Manhattan, to lead companies in other areas of North America,” said Becker. “Professional athletes also experience this when they are traded and do not want to buy a home in a new city.”
High-net-worth homes are very different to insure than student housing or smaller single-family homes. A few simple questions can help uncover these differences in rentals at the onset of a broker’s relationship with a client.
“When reviewing the length of rental terms, annual terms are seen as more stable by insurance carriers,” said Becker.
By partnering with a wholesale broker or MGA, retail brokers can obtain broader coverage for their clients’ specific needs.
“Short-term agreements, such as weekly cottage rentals, have seen an upsurge as the economy gains momentum,” states Gatewood. “As disposable income increases, the demand for vacation property also rises.”
Weekly cottage rentals can be much different than a yearly family rental. Depending on the distance a property owner or property management company is from a dwelling, inspections should happen on a regular basis to ensure the space is in good condition.
The trend to rent has been increasing for years. In fact, according to a recent Harvard study, U.S. home ownership has been falling for eight consecutive years, and now sits at a low point of 64.5 percent.3 As the housing market changes and more investors buy up properties, brokers have an immediate growth opportunity to educate themselves and clients on Rental Property insurance.
References:
- CNBC
- Starwood Waypoint
- Harvard University
