Article

Tenant Legal Liability (TLL) in captive insurance arrangements is an innovative risk management solution that's gaining traction among large multi-family property owners and managers. This approach offers a unique way to protect assets, generate revenue, and simplify insurance requirements for both landlords and tenants.

How TLL Captive Insurance Works

TLL captive insurance allows property owners to self-insure their units through a captive insurance company. Here's how it typically operates:

• Tenants pay a monthly fee (varies on property type/location) as part of their rent
• Property owner charges a marketing fee that is paid to the properties/owner
• This fee provides a $100,000 limit with a low to no deductible
• The property owner uses these fees to pay premiums into the captive program
• The captive covers damages caused by tenants, such as fire, smoke, water damage, and more

Benefits for Property Owners

• Additional Revenue Stream: Owners with low-risk properties can potentially earn significant profits. Depending on the size of the portfolio and locations, the owner can look to retain a significant amount of premium(75%+) back into their captive along with large profits retained as a marketing fee
• Risk Transfer: The captive provides more comprehensive coverage than traditional security deposits
• Simplified Administration: The program administrator and software manager handles policy tracking, training, and customer service

Benefits for Tenants

• Cost-Effective: Often cheaper than traditional renter's insurance
• Broader Coverage: Typically offers more protection than standard renter's policies
• Convenience: Eliminates the need to shop for separate insurance

Considerations

While TLL captive insurance offers numerous advantages, it's not suitable for every property owner:

• Scale Requirement: Generally, a minimum of 2,000 rental units is needed for the program to be cost-effective, however, lower unit counts of 500+ can also benefit
• Risk Profile: Best suited for properties with historically low claims
• Regulatory Compliance: Captives must adhere to specific regulations, which can be complex, however, with a qualified and competent captive manager and other service providers this compliance is easily taken care of.

Conclusion

TLL captive insurance represents a sophisticated approach to risk management in the real estate sector. For large property owners with low-risk profiles, it offers the potential to transform a necessary expense into a profit center while providing tenants with comprehensive, affordable coverage. As the real estate industry continues to evolve, placing TLL in captive insurance arrangements is likely to play an increasingly important role in protecting assets and optimizing financial performance. C.I. has a turn-key TLL program for owners and property managers, reach out today to learn how you can create an additional profit center for your large multifamily organizations.