How Asset Managers Can Turn Risk Management Into Revenue

Property ownership groups with the right scale and property management partnerships have a meaningful opportunity to turn resident-paid programs into a source of enterprise-level revenue.

Resident-paid programs that support compliance – like a property damage liability waiver – can be a meaningful source of revenue, improving a property’s operating margin and NOI. That improved performance at the asset level is a win for property management companies, and for the ownership groups who hire them.

Many asset managers and investment management firms enjoy that extra revenue (and reduced risk exposure) passively. Ensuring residents follow their lease requirements is seen as a job for property management. And the right renters insurance compliance platform can handle that on their behalf, automating 100% compliance and pairing it with a property damage liability waiver program that protects the property.

However, some ownership groups have the scale and the appetite to drive a higher yield by taking a more active approach to resident compliance programs.

Asset managers should take notice of how the NOI increase driven by resident programs can directly affect a property’s capitalization rate, and its valuation. Quantifying that incremental value and maximizing it through successful program rollout gives asset managers another tool to deliver the growth their investors are counting on them for. The better that asset managers understand the revenue impacts of these programs, the more they can be involved in an active approach to roll them out portfolio-wide: from structuring pet policies and fees to providing valuable programs that can improve residents’ financial health like rent reporting.  

They can also drive more NOI by monetizing property damage risk through a captive insurance strategy. This approach isn’t for every portfolio, but with the right scale and infrastructure, it can potentially add up to significant, recurring income for property investors that adds incremental value on top of rent revenue. And even in a market environment facing slow to nonexistent rent growth, this strategy continues to deliver reliable returns, allowing asset managers to build trust and loyalty with investors.  

Understanding the Captive Insurance Model

A captive is an insurance company owned by the same organization that benefits from its existence. This ‘self-insured’ approach can be an appealing alternative to purchasing insurance, especially for enterprise-scale organizations. This strategy allows organizations to customize their coverage to specific risks, and creates the opportunity to earn underwriting profit. However, operating a licensed insurance company also brings administrative complexity and solvency risk: captives must follow all regulations of the domicile where they’re licensed and the parent company bears direct financial responsibility for covered losses. This takes real diligence and resources to set up and manage over time.

Putting This Strategy into Practice: How Harrison Street Turned Risk Management into a Revenue Strategy

Harrison Street is a Chicago-based investment management firm with $109B in assets under management. We spoke with Vice President Matt Page to learn how he and his colleagues transformed their property damage liability waiver program into a significant source of portfolio-level income.

Much of their success is due to their sophisticated approach to risk management: Harrison Street created a captive insurance entity, allowing them the flexibility to tailor coverage to their specific risks, and the opportunity to receive potential underwriting surplus.

For Harrison Street, the journey towards a captive began in 2017 with a major acquisition of 20,000 new units. They ran a compliance audit to confirm the newly acquired properties were protected from risk and found significant gaps in renters insurance compliance.

To address this, they first brought on a vendor for Tenant Legal Liability (TLL) insurance, a type of insurance policy which protects the property in case of renter-caused damage due to negligence. With this policy as a backstop, they introduced a property damage liability waiver program for residents – enrolled residents have their liability for certain property damage waived for a monthly fee.  

As part of this transition, the Harrison Street insurance team identified an opportunity to do more than manage risk across their portfolio: they could drive real enterprise value by monetizing their program with captive insurance. Given the impressive size of their portfolio, including a large number of student housing properties, Harrison Street decided to set up a captive.

Solving for Scale and Complexity

But simply introducing a captive for TLL coverage into the mix wasn’t enough to deliver 100% renters insurance compliance. Their operational complexity made this a challenge: Harrison Street works with more than 25 property management companies spread across a 100,000+ bed portfolio, with continuous change as they acquire and sell assets.  

Additionally, the partner they originally chose to administer their captive program came up short – resulting in reconciliation errors, extra manual work for onsite staff, and limited visibility into resident compliance. They needed to make a change.  

To ensure adequate protection across their portfolio, Harrison Street partnered with Foxen to achieve 100% compliance through 24/7, 365 renters insurance monitoring, automated waiver enrollment, and deep support for their diverse group of property management partners.  

The Impact on NOI and Enterprise Value

This strategy has positively impacted NOI – both at the property level and the portfolio as a whole. By absorbing the per-incident cost of resident-caused damage while introducing new ancillary revenue from underwriting that risk, the program improves NOI by reducing cost and increasing operating income.  

To capture the impact this has made for Harrison Street, Matt tracks a KPI called enterprise value: property income multiplied by the capitalization rate.  

In combination with Foxen’s Rentistry solution, Matt estimates that this approach has generated tens of millions of dollars in enterprise value for Harrison Street.

For every 1,000 occupied beds or units, this translates to an estimated bump of $550k-$750k in additional enterprise value.

These numbers make it clear: resident compliance is so much more than just an operational to-do on the property management side of the table – it’s also an opportunity for asset managers to drive meaningful improvements in their portfolio’s financial performance and deliver additional value to their investors.  

Find out how Harrison Street partnered with Foxen to achieve 100% renters insurance compliance and grow their NOI, generating tens of millions of dollars in enterprise value - read their story here.  

To hear directly from Matt about how his team monetized their waiver program and found success with a captive, don’t miss Foxen’s panel at Blueprint Las Vegas! On September 23^rd, Matt is taking the stage along with Foxen CEO Kevin Jacobson for a session you won’t want to miss: “From Compliance to Competitive Advantage: How to Turn Resident Programs into Real NOI.” Check out the full agenda and learn more here.