How to Conduct an Insurance Audit for Your Rental Business
Managing multiple short-term rental properties requires some skills in mental juggling. Along with screening, booking, maintenance, and handling frequent guest turnover, maintaining the right level of property insurance is a key part of a manager’s duties.
Short-term rental property insurance veers sharply from basic property insurance. That’s why short-term rental property managers are well served by having an annual insurance audit on their premises.
An insurance audit is a strategy-driven review of current coverage and limits. The goal is to find potential coverage gaps or shortcomings that could result in legal liability issues.
Property managers are on the frontline of the insurance audit process. They are often tasked with selecting the appropriate coverage, staying updated on terms, verifying compliance, protecting property assets, and ensuring renter safety and comfort.
In this post, Safely ushers rental property managers through the insurance audit process and explains how they can use it to maintain adequate coverage for the units they manage.
What Is an Insurance Audit?
An insurance audit is a close examination of a policy to ensure it sufficiently protects your rental property from risks and liability. It’s a vital step in shielding both the property and the business from financial damage. Here are the typical steps on how to conduct an insurance audit.
Data Collection
The auditor gathers information about the rental property’s operations. This includes the number of units managed, their location, property values, turnover and occupancy rates, and claims history. The auditor will also request to see the current insurance policy with all endorsements and declarations pages.
Risk Assessment
With data in hand, the auditor looks for potential risks in the property manager’s business operations. Factors the auditor examines may include property types, occupancy rates, renter profiles, and geographic location.
They will also look at the property manager’s risk management process, screening protocol, maintenance routines, and emergency response procedures.
Policy Evaluation
The auditor makes a close examination of current policies to see if they adequately cover the risks that have been determined. Auditors review coverage limits, deductibles, exclusions, and conditions to align them with the rental property manager’s needs. The audit also includes verification of compliance with current regulatory standards.
Coverage Gaps and Redundancies
The audit process should uncover possible gaps in coverage that expose the property manager to potential losses. The auditor will also identify coverage overlaps that may be making premiums more expensive than they need to be. They’ll recommend ways to remedy gaps and redundancies.
Premium Evaluation
Finally, the auditor will analyze the property manager’s insurance premiums to make sure they correspond with the coverages provided. The auditor will compare the premium to industry standards and benchmarks to find cost savings that won’t dilute protection.
The final report should document the premium evaluation and all the previous steps of the audit process.
Benefits of an Insurance Audit
The notion of any kind of “audit” brings up fear and anxiety in most managers. However, a property management insurance audit doesn’t have to be a cause for nervousness. The point of it is to protect the rental property manager’s interests and financial solvency as they pertain to insurance.
An insurance audit can also be used to document the rental property manager’s efforts in risk management. It can crystallize the manager’s due diligence and processes, and this can come in handy if legal issues or disputes arise.
The audit is also good for business. With regularly scheduled audits, property managers can increase their positive reputations for maintaining and managing risk. In turn, this can attract new renters or potential investors.
How to Prepare for an Insurance Audit
The biggest part of learning how to conduct an insurance audit is knowing how to prepare for one. The rental property manager must gather all relevant documentation, including the current policy, rental agreements, maintenance history, and past claims or incidents.
Prepare to be upfront with the auditor about the properties you manage. Be completely familiar with all of the intricate details of your properties: their types, locations, and typical renter profiles. This allows the auditor to suggest coverage updates or additions commensurate with your properties’ needs.
The audit itself should be scheduled conveniently for all parties to ensure enough time for the complete process. By doing so, and by following the other recommendations for preparation, all parties can approach the audit with confidence and purpose.
After the Audit
The insurance audit is not a one-time event. It’s the origin point for making ongoing changes and adjustments to your rental property’s insurance coverage. It also gives the rental property manager a framework for periodic reports to property owners and other interested parties.
It’s important to make continued, consistent monitoring of your insurance a regular habit. Newly defined risks can emerge anytime, and policies must be updated to reflect them. Even though the audit itself is scheduled annually, rental property managers would be well served by scheduling their own monthly (or even weekly) checkups to address issues before they become problems.
After the audit, think about leveraging technology to manage and streamline your rental property’s operations. The right software can help you track details on coverage gaps and easily monitor and report your findings. Technology can also speed up the process and improve access to important details.
When you make room for insurance audits in your annual schedule, you’re being proactive about conducting your property management responsibilities. Understanding all the parts of an insurance audit and following up on recommendations reinforces your company’s foundation. This is always good for business and reputation.
Safely: Providing Trusted Insurance for Short-Term Rental Property Managers
Hopefully, this discussion of how to conduct an insurance audit has informed you about its benefits and rewards. When it comes time to choose a property insurance carrier, Safely offers a wide range of insurance coverage specifically tailored to short-term and vacation rental properties. We also help with guest screening and travel insurance for guests.
To find out more, get in touch with our sales staff through our online contact form.
