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Like Investors, Agents Can Seize Opportunity in Rental Properties

The following article from American Modern’s Dave Celesti was featured on PropertyCasualty360. Dave Celesti is commercial underwriting supervisor at American ModernClick Here to view the original article.


The rental property market has changed, bringing new opportunities for insurance agents.

Over the past five years, the real estate market has created a glut of foreclosed properties, and investors have taken notice. Often purchasing large groups of properties, opportunistic investors have scooped up real estate with the hope of yielding strong returns from a growing market of renters.

But what’s less known is this trend presents an opportunity for insurance agents to open new revenue streams and educate their clients by selling unique coverages designed specifically for landlords that own 10 or more properties.

While some housing markets are showing signs of recovery, home prices in some regions are still having trouble returning to post recession levels. This trend has led to growth in the number of rentals and investor-owned properties. Individuals, partnerships, investor groups and institutions with capital are purchasing homes at highly discounted prices to rent as primary or vacation homes. In fact, according to the National Association of Realtors 2013 Investment and Vacation Home Buyers Survey, in 2012 vacation home sales rose 10 percent.

But as savvy investors and insurance professionals know, the rental market is constantly changing and has been particularly fluid over the past few years. As a result, according to our research almost 50 percent of larger carriers have scaled back their rental offerings. As rates continue to increase and underwriting guidelines and coverage terms have tightened, specialty insurers see a continued need to deliver options to address today’s changing real estate climate. As a result, these insurers have increased their rental property books to service this in-demand market.

To this end, carriers, especially these specialty players, are also responding to changing customer needs. But they are not the only ones that should be aware of the demand and opportunity within this market. Astute agents also have an opportunity to grow their books of rental business by better understanding the nuances of these policies and by extension, educating their clients on this growing need.

Need proof? Being entrenched in this space, American Modern has had a first -hand view of the development and expansion of this market. We’ve seen many investors buying up tens or even hundreds of investment properties. But once they do, they are left looking for protection for those investments, which can be left vacant for varying periods of time. This is where agents can help educate investors about products like American Modern’s 10+ program, a landlord dwelling offering that allows for one policy to cover 10 or more rental properties at one time.

The convenience of these types of policies for investors is easy to see. They offer time and cost savings for agents and the policyholder when compared to maintaining separate insurance policies for multiple rental dwellings. But as noted, often these investment properties are bought in such bulk that the owners can’t rent each dwelling, leaving some vacancies.

Additionally, unoccupied apartments and homes typically have a higher frequency of theft, vandalism and fire – a major concern for the investor. Again, the trained agent can be a valuable resource by educating clients with tips for minimizing vacant property losses. These tips can include:

1)    The value of hiring a property manager to oversee and maintain your property;

2)    Recommendations for safely securing windows and entry ways to protect the dwelling and prevent vandalism or squatters;

3)    Recommendations for preventing pipes from freezing and other types of water damage; and

4)    Ways to maintain your property to ensure potential intruders know that the property is monitored and has not been abandoned. 

Finding the Right Partners 

Admittedly, understanding the nuances of these types of protection can be challenging, but reaching this market isn’t. In fact, American Modern often recommends that agents partner with professional associations for property investors or landlords, like the National Real Estate Investors Association. Such alignments provide the education and network needed to better serve both existing and potential policyholders.  Further, agents can find prospective clients for single family or multi-family properties by forming partnerships with local real estate agents and their property investors.

But how do agents evaluate rental insurance carriers? One way is to look for those with consistent underwriting standards and guidelines for vacant properties on their policies. Some will allow you to keep the same policy but add on vacant property coverage with an endorsement, rather than issue a new policy if a property becomes vacant.

Based on our experience, current conditions and the decline in homeownership rates across America indicate the need for rental property insurance will continue to increase over the next few years. For agents willing to invest the time to educate themselves and their clients, the rental insurance market is a profitable growth opportunity.