7 Coverages for Self-Storage Operators that Need to be on Everyone’s Radar—Including Two “Must Haves”

 In recent years, one of the hottest U.S. growth industries has been self-storage, with thousands of new locations springing up all across the country.  Naturally, each of these facilities needs the right insurance coverage to ensure that business and customer contents are secure.

There are a number of available insurance options that can help self-storage facility owners mitigate risk. However, many retail agents might not even be aware of some industry-specific coverages. In this post, we’ll take a closer look at seven key coverages to help protect self-storage operators, large and small.

What Does “Self-Storage” Encompass?

Self-storage is shorthand for “self-service storage,” also known as “mini storage.”  This massive $39.5 billion self-storage industry encompasses those businesses in which storage space (such as rooms, lockers, containers, and/or outdoor space), also known as “storage units” is rented to tenants, usually on a short-term basis, typically month-to-month.  Self-storage tenants can include both businesses and individuals.

That being said, here’s what self-storage doesn’t include: any business or operation which assumes care, custody or control of property placed within the storage space. This includes, but is not limited to:

  • Traditional warehouse operations
  • Cold storage
  • Operations providing acceptance, delivery, servicing, repair or staging of the stored property

Sustained Growth and Opportunity

It’s no secret that the self-storage industry has exploded in recent years.  According to Neighbor, the leading peer-to-peer storage operator in the United States, spending on new self-storage facility construction totaled nearly $5 billion in the U.S. in 2018.  This represents a 27% increase over the previous year, 344% growth over the previous decade, and a 444% increase over the past 20 years.

While precise numbers are hard to pin down, experts estimate the total number of U.S. self-storage facilities are somewhere between 50,000 and 60,000. To put this number in perspective, today there are more self-storage facilities in operation in the U.S. than McDonald’s (14,000), Dunkin’ Donuts (8,400), Pizza Hut (7,500), Wendy’s (6,500) and Starbucks (15,000) locations—combined.  

Protecting Against the Unexpected

There are a host of insurance coverages specifically designed to safeguard self-storage operators against loss.  However, beyond these standard coverages, there are a number of additional options that many agents are unaware of, and should be presented to insureds given their specific requirements.

According to Scott Leshner, All Risks’ Self-Storage Program Underwriter, “Two industry-specific coverages that are vital to self-storage are customer goods legal liability and sale and disposal liability.  Many retail agents who don’t specialize in self-storage have no idea what these two cover or don’t make them a point of emphasis.”

Starting with the two mentioned above, here’s a list of seven key coverages that retail agents should keep in mind for self-storage insureds:

1. Customer Goods Legal Liability

While most self-storage operators imagine they’re protected from any exposure relating to the customer goods stored in their facility, this isn’t always true.  Litigation is an ever-present threat.  Imagine this scenario: a few telltale drops of water on the floor indicate that self-storage building roof repairs are needed.  But a few days before they are scheduled to be done, a storm tears through the area, causing roof damage and extensive water damage to customer goods.  In this scenario, it can be argued that owner negligence left the business exposed, and the resulting legal costs and financial impact can be substantial.

Customer goods legal liability coverage can help limit this risk.  Leshner says, “We’ve noticed that a lot of smaller regional carriers offer BOP policies with limited property and GL coverages that don’t offer the correct coverage specific to self-storage.  A lot of operators and retail agents don’t even know about this important add-on, and our program can offer up to $1,000,000 for this type of coverage.”

2. Sale and Disposal Liability
A good way to think about sale and disposal liability coverage is that it’s essentially errors and omissions coverage for self-storage operators.  It provides protection against claims of improperly taking, selling, using or destroying the goods of another party (i.e., “conversion”), most often involving the sale of the contents of a delinquent tenant’s unit.

Leshner explains, “Sometimes people simply make mistakes.  If you auction off several units for non-payment by accident due to a clerical error—and we’re talking on average between $5,000 to $10,000 worth of goods in a typical unit—that’s a lot of money that needs to come out of pocket.”

3. Business Interruption 
Disasters such as fires, tornadoes and hurricanes can strike businesses at any time, and self-storage facilities are as susceptible as any business.  Business Interruption insurance can cover lost revenue and other expenses (relocation, wages, taxes, etc.) while the business can rebuild and get back on its feet.

Leshner says, “This is a big differentiator for All Risks’ program, in that we offer a very broad form that is actual loss sustained.  Most of the competition in the market caps the period of restoration at 12 months, where our form will pay out until the claim is closed.”

4. Wind/Hail Insurance
As highlighted in a recent All Risks article about hail (“The Evolving Threat of Hail Damage for Dealers: Skyrocketing Costs and Shifting Geography”), recent years have seen storms intensifying across the U.S.  Wind and hail coverage can provide insureds with peace of mind and protection against these weather threats.  “We can write wind and hail all across the U.S ., which is a big plus for the retail agents we work with, as most competitors are limited on which states they can write wind/hail,” says Leshner.

5. Cyber Liability Insurance 
Think only large financial institutions and companies are at risk from cyber theft?  Recent data says think again, according to a study by identity intelligence firm 4iQ.  Their findings state that in 2018, cyber attacks on small- and mid-sized businesses skyrocketed almost 425%, as compared to 2017 totals.

With client data and credit card payment information potentially at risk, self-storage owners can be an easy target for digital thieves.  They often don’t dedicate the time and resources necessary to safeguard their business against data breaches, network intrusions and other hacks.

6. Employee Theft
Here’s a surprising statistic: it’s estimated that one-third of all business bankruptcies are a direct result of employee theft.  For self-storage operators, this can range from simple merchandise theft, to complex fraud schemes, to securing access to rented storage units and actually stealing customer property!

Employee theft coverage can serve as valuable protection against loss from theft, burglary, embezzlement and other fraud, and can be customized according to the size and specific needs of the self-storage operator.

7. Umbrella/Excess Liability
For self-storage operators, umbrella/excess liability provides a much greater degree of security.  With the escalating cost of medical bills, attorney fees and other associated expenses with GL claims, the higher limits of umbrella/excess coverage delivers exceptional protection above the standard $1,000,000/$2,000,000 limits that insureds receive on a primary BOP or package policy.

Leshner explains, “If a tenant were to become severely injured on premises, having this extra coverage in case of any litigation that may arise from accusations of negligence would be critical.”  He adds, “We have a $6M/7M limit on GL—$6M occurrence with a $7M aggregate—which is a big advantage for us, as others have to go with separate excess policies to match our limits.”

For any specific questions on self-storage insurance, please contact Scott Leshner (sleshner@allrisks.com) or Austin McGlory (amcglory@allrisks.com) via email or call 877-751-1831.

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All Risks’ Self-Storage Facility Insurance Program specialists provide a turnkey solution for all storage-related exposures, specifically targeting traditional self-storage facilities, boat/RV storage operators and converted buildings.  Contact us today to learn more about our self-storage facility insurance program options!

Legal Disclaimer: Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.