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Insurance Company Pushes Mandates

leasing
February 2020

The apartment industry should be on the lookout for a new phrase: “Renters’ Choice.” While there are multiple inferences one could make from these words, the present push is to allow renters to choose between standard security deposits and utilizing newer, insurance-based options.  

The Council of the City of Cincinnati considered a proposed ordinance in committee on December 3 that would require property owners and operators to accept security deposit insurance as an alternative to a security deposit, at the option of the resident. During the Education, Innovation & Growth Committee hearing, stakeholders had a robust discussion about the proposed mandate, and most important, why one company, Rhino, would be the sole beneficiary. As conversations among stakeholders continue, the ordinance continues to be held in committee.

The Greater Cincinnati Northern Kentucky Apartment Association’s (GCNKAA) recommendation is to let the market figure this out for a year or two at minimum—as Rhino is only a two-year-old startup. The proposed mandate would give Rhino a monopoly in this space. The ordinance sets up the framework for insurance providers to qualify, yet the criteria seems to conform to one company’s product. Moreover, companies that provide similar alternatives, like surety bonds, may be disadvantaged by this legislation. 

Instead of allowing the market to accept and adjust to alternatives and disruptors, Cincinnati Council Member P.G. Sittenfeld, the bill’s author, wants to force change. He has met with various stakeholders and has accepted some industry feedback. However, he remains resolute that his proposal will speed up acceptance in the market by requiring vendor acceptance by large owners within 90 days and owners of one- to three-unit properties within 180 days.  

In Ohio, there are restrictions on who can even offer insurance products; it should not be surprising that there could be significant obstacles for these new disruptors. Mandating the wholesale acceptance or accommodation of these new products would force housing providers to abruptly and rapidly adopt a largely unproven technology with which they are unfamiliar.

The business model itself complicates matters. There are more than a few skeptical eyebrows being raised at the realization that when a resident pays the monthly “insurance fee,” it can actually exceed the cost of the security deposit over time. When the resident moves and there are damages paid out by the insurance vendor to the property, the resident may not understand that they are on the hook for every dollar of the damages. If the damages exceed the security deposit, the property manager is on their own to recover the surplus costs.

NAA members and affiliates should remain vigilant as this trend may come to a jurisdiction near you. The policy is being framed as a housing affordability solution to help the immediate needs of renters. In New York City, Rhino advocated for legislation that requires property owners to accept alternatives to traditional security deposits—either installment plans that can be paid over several months, or “affordable” insurance options. Rhino also suggests that renters should have the option to transfer a security deposit from one landlord to the next, “avoiding yet another large expense.”