In our continuing series “LRO Academy,” designed for retail insurance brokers and agents looking to increase their understanding of – and grow their business by offering – Lessor’s Risk Only (LRO) insurance, we’re taking a close look in this post at a prospective client’s existing landlord/tenant leases and agreements as they typically offer initial insight into how a property handles their role in risk mitigation.
The existing lease agreement between landlords and tenants is an important consideration in determining whether or not a client poses an acceptable level of risk. The majority of commercial leases require tenants purchase a minimum level of liability and property insurance coverage. Similarly, most residential leases require tenants purchase renter’s insurance to protect their personal property.
LRO Insurance Risk Evaluation: Getting the Picture
As part of the LRO insurance risk evaluation, carriers will generally ask for specific documentation and additional information, including the current, existing lease agreement between the property owner and the tenant, and information about the tenant’s own existing business and property insurance coverage.
A landlord not requiring the tenant to purchase such insurance coverages, or a tenant who has failed to meet his/her contractual obligations, can often be an early indication a property manager is not acting proactively, and/or sufficiently, to mitigate risks.
Tenants will generally need to provide current certificates of insurance in coverage limits equal to or greater than those carried by the landlord. Landlords should be additional named insureds on tenants’ insurance policies.
Yet another consideration is whether the lease includes “hold harmless” provisions designed to protect the landlord from liability risk – even if a loss results from a landlord’s own negligence. These types of provisions, when enforced, would limit or eliminate the insurance carrier’s obligations under the Lessor’s Risk policy, possibly reducing the landlord’s insurance cost in the long run due to the fact lower-to-no losses can result in lower premiums.
As a professional insurance agent/broker, just this first step in evaluating current tenant leases and agreements allows you to gain important insight into how a landlord approaches risk. It also puts you in a unique position to suggest, recommend and assist a landlord in making necessary changes and upgrades to protect their property asset, and to demonstrate your value as a knowledgeable, trusted source, and ideally an integral voice within their inner circle of financial advisors.
Novita Insurance Solutions helps you help your clients and increase your book of business. Need additional information regarding LRO insurance or assistance with a specific client or coverage? Contact us and we’ll get to work for you.