STOW IT!

Rough Notes,  May 2008  by Boone, Elisabeth

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MiniCo helps agents capitalize on the growing self-storage business

From a few boxes of memorabilia to a lifetime's worth of possessions, Americans increasingly are making use of self-storage facilities. Running the gamut from large national chains to local mom and pop businesses, these facilities face a range of exposures that require specialized underwriting and risk management expertise. What's more, self-storage customers themselves need appropriate, affordably priced protection for their possessions.

Standing ready to meet those needs is MiniCo Insurance, a division of MiniCo, Inc., which since 1974 has offered specialty coverage for self-storage businesses nationwide as well as policies for tenants' property. Acknowledged as a leader in this market, MiniCo's program is underwritten by Safeco Insurance, which carries an A rating from A.M. Best. The company also supports the selfstorage industry with publications, educational materials, and a variety of programs and services, as well as involvement in industry trade associations.

Based in Phoenix, MiniCo, Inc., was founded by Hardy Good, chairman and chief executive officer, and two business associates. Today, MiniCo insures some 10,000 of the approximately 50,000 primary self-storage facilities in the United States.

To learn how MiniCo meets the insurance and risk management needs of self-storage facilities, Rough Notes spoke with Mike Schofield, president of MiniCo Insurance. With a 25-year insurance career focused primarily on property/casualty, Schofield spent 12 years managing an insurance program for supermarkets. He joined MiniCo in 2000 as director of the insurance division and in 2005 was named president.

"From the time I came on board until 2005, we had a great opportunity to build volume, thanks to the hard market and the fact that the self-storage industry experienced significant growth during that period," Schofield says. That growth continues, he observes, although the hard market has given way to the current soft cycle.

According to the Self Storage Association, Schofield says, the number of self-storage facilities in the United States increased by 20,335 between 2000 and the end of 2007. As of year-end 2007 there were 51,500 primary self-storage facilities in the United States, plus 8,434 small business "secondary" mini-storage facilities. Primary self-storage facility gross revenues for 2007 were approximately $20.1 billion, and the total market capitalization of the entire U.S. self-storage industry is in excess of $220 billion.

"The large self-storage operators represent about 15% of the self-storage market," Schofield says. "About 85% of the market is mom and pop operations." A large majority of self-storage operations, he notes, are in California, Florida, and Texas, driven by population growth in those states.

Looking at exposures

What are the key exposures facing self-storage facilities, and how does MiniCo's program address them?

"The primary exposure is fire," Schofield responds, "and the three major causes of fire are electrical, lightning and some instances of arson." In many cases, Schofield observes, self-storage businesses are multi-million-dollar facilities, so fire losses can be significant.

The second largest exposure is wind and hail," Schofield says. "The years 2004 and 2005 generated a substantial volume of hurricane-related losses, and over the last few years we've also seen significant tornado activity throughout the country."

Asked to describe MiniCo's approach to underwriting self-storage facilities, Schofield says, "From an underwriting standpoint, it's primarily a property-driven exposure. We look at the same factors any other property underwriter would consider: location, type of construction, quality of security and fire protection, management experience, and loss history. A key concern is the age of the building; the older the building, the more information we want from the agent about upgrades.

"In terms of location," Schofield continues, "coastal exposures create more challenges than inland exposures." Location also plays a role in what Schofield describes as traditional vs. conversion construction. "In regions like the Northeast, because of land costs and the shortage of viable locations, we're seeing more operators converting existing buildings into selfstorage faculties," he explains. In many cases, he notes, the converted buildings are multi-story structures that require underwriting attention. "We work with a firm that inspects converted facilities and provides us a report focused on sprinkler systems, plumbing, electrical upgrades and roof data," he says.

Another important underwriting consideration, Schofield points out, is total insured value. "We offer high limits, and very seldom do we have to go to a facultative resource. Some 99% of the accounts we insure are within our limits."

MiniCo underwriters also want to know whether or not the owner of a self-storage facility retains keys to individual storage units, Schofield says. "If the owner does retain the keys, that may limit the coverages we provide because access to those units increases the exposure from our perspective," he explains. "We counsel owners not to keep the keys. In a traditional self-storage operation, there's no care, custody, and control exposure, and an owner who retains keys may be assuming that exposure without intending to do so."