Reaching renters: Can security deposit insurtechs solve high up-front costs?
As rent costs in the U.S. soared over the past several years to an average of $1400 this year, insurance products geared toward helping renters secure housing proliferated, especially in the startup community.
Security deposit insurance products that help renters pay move-in costs are among these options. The insurtech Jetty launched with one in 2017; other companies rolling them out include TheGuarantors, Leap, Rhino, SureDeposit, and LeaseLock.
A security deposit insurance policyholder pays a monthly rate for coverage through the term of their residential lease, instead of having to come up with a larger sum (such as one month’s rent) up front for a security deposit. Many of the startups quote rates starting as low as $5 a month and typically ranging up to $30 or $40 a month, depending on the amount of security deposit that would otherwise be required. An average monthly rent in the US is now about $1,400.
As the costs to get into a rental grew, recently passed “Renter’s Choice” laws in cities like Atlanta and Cincinnati require landlords to offer new affordable security deposit options, starting a nationwide trend in many locations even without specific regulations. These laws opened up new playing fields for these companies.
Tenant policyholders have aired complaints that security deposit insurance offerings were misrepresented, surprising tenants when the providers later pursued renters for exaggerated damages claimed by landlords – who were already compensated by the startup. The security deposit insurance policy often functions more like a surety bond than traditional forms of insurance–actually guaranteeing to the landlords that damages will be covered. The nature of this product is generally legal; the only actionable issue with these products is if the landlord actively misrepresents them to tenants, in which case that would be a “deceptive trade practice.”
Some of the startups offering security deposit insurance market their services directly to tenants. Some also market to landlords and some market only to landlords, not tenants. TheGuarantors serves both landlords and tenants. Julien Bonneville, CEO of the company, said the company operates like an MGA (managing general agent) or broker and uses carriers to underwrite their project.
TheGuarantors is built on what Bonneville called “technology blocks,” that use risk analytics to accurately assess the risk posed by a potential renter who would use the insurance. That also figures into the price the renter is charged. TheGuarantors’ technology uses AI to predict the loss ratio a renter is likely to cause, so the company can keep that low enough to convince insurers to underwrite the policies.
TheGuarantors security deposit insurance policies typically require 10 monthly payments and add to an overall expense of between 12 to 20% of one month’s rent, according to Bonneville. He added that the policies are then valid for the entire time the renter rents the apartment, whether for only one year or 10 years.
Rhino built its product based around a scalable online portal connecting owners and renters that made it possible to scale enough to eventually reach 6 million homes, according to a spokesperson for the company. Rhino engaged several large US apartment property owners including UDR, Invesco, Peak Living, Towne Properties, Monarch, and Brookfield, as partners in its network to offer security deposit insurance.
Regarding consumer complaints, the Rhino spokesperson said, “Rhino’s offering is designed with transparency at the forefront and we take seriously our customer education efforts. Our home page and FAQs are designed to ensure that our customers understand the product they are purchasing, how it works and what is (and is not) covered. We are incredibly proud of our exemplary Trustpilot rating (4.8 stars) and believe that it demonstrates our commitment to our customers.”
An FAQ section at the bottom of Rhino’s homepage states that its policies are lease guaranties, and renters are still responsible for damage or unpaid rent. TheGuarantors and Jetty, on their websites, market their offerings to both landlords and renters. Jetty also offers standard renters insurance that renters can buy to insure their own belongings. Leap adds a rent guaranty service, through which the company will co-sign for a renter with insufficient credit.
As with Rhino, Leap and TheGuarantors’ websites attempt to provide straightforward explanations of what security deposit insurance actually does. SureDeposit is backed by Assurant, a traditional insurer, and states up front that it is a surety bond, rather than describing its product as insurance. LeaseLock and Obligo’s sites are directed more toward property managers or landlords, rather than renters, highlighting what their services do to protect landlord interests.
In a Greensboro, N.C. mayoral debate, candidate Justin Outling suggested “rental security deposit insurance” to replace deposits, according to WGHP, a local TV station. That shows that with barriers to renting remaining high, and despite consumer concerns and a moderating housing market, these kinds of insurance products are likely here to stay.
