Resident Liability Captives Make Insurance Pay Off for ‘Good Risks’

3 min read

This can shift profits back to the owner and secure additional revenue with low claims risk, according to James Stuart of Hub International.

James “Chip” Stuart

The rising cost of insurance premiums and deductibles has taken its toll on landlords and property owners. From more frequent and severe CAT events in the last few years to a reshuffling of real estate assets in this extended pandemic period, many multi-family building owners are looking for ways to reduce costs. Insurance always bubbles to the top of the list.

When your property is a low-risk, and yet you find yourself shelling out hundreds of thousands of dollars in premium every year because of other high-risks in your risk pool, many building owners and operators ask themselves: Isn’t there a better way. Fortunately, there is.

Multi-family property owners in good standing can now consider a tenant liability captive for their coverage. In such an arrangement, property owners can self-insure through a captive liability against building damage — and find themselves with a significant new revenue stream in the process. Another bonus.

How it works

A tenant liability captive is essentially a replacement of the tenant’s need to procure their own liability damage insurance to the building.

Here’s how it works: Renters pay an additional $12 to $14 in rent each month in exchange for a $100,000 deductible-free waiver of liability. This allows them to move in immediately without producing a COI and satisfies the insurance requirement of the lease without having to chase down certificates.

When a property has low claims, the residential property owner stands to retain revenues from the captive that go unused in paying claims that calendar year: Landlords with 10,000 units stand to earn an average profit of $825,600 per year.

Of course, the other major benefit of a tenant liability captive insurance is the ability to transfer risk. Compared to a renter security deposit, which doesn’t cover much in case of a claim, the captive covers the owner with a large insurance policy.

The captive also means property owners don’t need to chase after tenants to check that their COIs are up to date, as the tenant liability captive insurance manager does that for them, as well as training, onboarding and customer service.

Is it for you?

The answer is: it may not be. While a tenant liability captive insurance can be an excellent option, it’s not for every building owner.

The key to a cost-effective captive policy is the ability to spread risk, which requires a large residential complex or portfolio of properties. For example, a 10-unit building with each renter paying $100 a year only yields $1,000 for a captive. Even with 200 units, the captive would generate only $20,000, which is not adequate enough to call insurance coverage.

Tenant liability captive insurance makes sense for owners or managers with 2,000 rental units or more. These units do not have to be in a single building or complex. In fact, tenants from multiple properties with a single owner or management company can be insured in a single captive.

Tenant liability captive insurance does not make sense for owners of low income or Section 8 housing, or those with a history of high tenant liability damage claims.

Even with a portfolio of many properties with an excellent claims history, owners might be wary of captives and the possibility of many claims hitting at one time. However, reinsurance can minimize the financial risk of multiple claims. Once the captive refills, the owner can cancel the reinsurance.

For owners interested in enrolling in a tenant liability captive insurance program, consider the following details:

Timeline: 45 days to implementation

Cost: $12 to $14 per month for residents

Fees: No start-up fees

If all goes well, the building owner can cash in the captive at year-end, essentially converting their tenant’s insurance into profit. And that is the ultimate goal.


James “Chip” Stuart is the corporate chief sales officer & practice leader for global insurance brokerage Hub International’s real estate specialty in North America.

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