Peter Lohmann's Mailing List - Issue #72

Exclusive Interview with Brad Larsen (RentWerx)

I sat down with Brad Larsen yesterday to talk about the recent settlement RentWerx reached with the Texas Department of Insurance (TDI) regarding their:

• Eviction Assurance program

• Damage Assurance program

• Animal Protection program

• Rent Protection program

• Billing design of their Resident’s Benefit Package

The short version is — Brad made the decision to pay a $195,000 fine (plus legal fees) and settle, rather than continue to fight and risk losing even more.

If you’re not familiar with the program listed above, they have gained popularity in recent years as a way to increase profitability for property managers while providing valuable programs and services for residents and property owners. These programs may be opt-in or opt-out, they may be required or partially required, they may be offered with certain packages or price levels, and they may be self-administered or offered through a 3rd party.

The Legal Fight Begins

I wanted to know more about the background and details, since this has the potential to impact not only my own business, but our industry broadly. Are the programs listed above risky to offer as a 3rd party property manager?

The first thing to understand is that insurance is heavily regulated, and this regulation is state-by-state. I’m going to be discussing what I learned in my research and interview with Brad, with Texas (and RentWerx specifically) as the backdrop.

Brad wrote to me: “According to the TDI, collecting ANY premiums from a tenant – and then paying that out to an insurance vendor – is the practice of advertising & administering an insurance product.  Although these carriers and brokers will disagree – the end user – the PMC [property management company] – is left facing the firing squad of their state insurance commission.”

TDI found that RentWerx was offering insurance products without the appropriate licenses and other items required by TDI to offer insurance in Texas.

Brad was battling TDI for years and working to bring his programs into compliance, but in the end it seems nothing would satisfy them except cancellation of all resident and owner policies, and the complete removal of those products from all of Rentwerx’s offerings. It seems to me that TDI was bound and determined to prevent RentWerx from offering any type of insurance product to the public, no matter how compliant they eventually were.

My first question to Brad was around the resident benefit package, as we offer a similar package to our residents here in Ohio. I had always understood that it was OK to include a renter’s insurance master policy within the package, so long as you made that portion optional and reduced the cost of the package by the amount of the insurance premium. Brad let me know that he was well aware of that, and had been running his program that way for years, but TDI was not satisfied. Brad told me “They don’t want you collecting any premium even if there is no markup.” Brad is now simply requiring renter’s to add his company’s name to their (the resident’s own) policy and checking for this at move-in.

It’s important to note here that RentWerx did not intentionally, knowingly, or recklessly violate Texas insurance code (TDI agreed with this). Additionally, Brad has sponsored my podcast and we have appeared on each other’s podcasts.

Brad offered the following:

Second Nature

I decided to ring Second Nature and get some input from them for this article. (Note: My management company is a current customer of Second Nature, and they have sponsored my podcast and previous issues of this newsletter.)

Although Second Nature has never done business with RentWerx, they offer a master renter’s insurance product that my own company uses, and I consider them to be well-versed in the relevant rules and details. Yesterday I spoke with Andrew Smallwood, their Chief Customer Officer. He provided the following comments:

Andrew clarified that it’s critically important for property management companies to do the following if they decide to offer a renter’s insurance master policy as part of any type of resident package:

• The policy must be optional for the resident.

• If the resident decides to opt-out, the property management company must NOT enroll them in the master policy, and must reduce the cost of the resident benefits package by EXACTLY the actual premium cost (that said, in most states, admin fees are not expressly permitted).

• It’s best practice for property management companies to pass along marketing collateral provided by the actual insurance producer (ie, don’t write about your insurance program in your own words either on your website or elsewhere).

• Relay all questions or claims from residents directly to the licensed insurance group.

I want to add the following commentary regarding the renter’s insurance issue specifically. These are my own words and conclusions and should not be taken as legal advice.

1. Here is the relevant language from TDI’s order to RentWerx:

   It is ordered that RentWerx, LLC, must immediately cease and desist from:

   2. offering, advertising, selling to, or collecting any consideration from tenants for the insurance portion of the Residents Package or any other benefit or coverage considered and found to be insurance under the Texas Insurance Code or the terms of this order;

2. As to whether it is possible to legally offer a renter’s insurance program as a property manager in the state of Texas: although this order is clear on what TDI is asking RentWerx to do (stop offering it), it’s my opinion that this is specific to RentWerx and should not be interpreted as “the law of the land” or applying more broadly than to RentWerx, in this specific case. That is to say, the ruling of an administrative body in a settlement is not the same as a state code (law). I think this is an important distinction, although to be fair, I think Brad may disagree with this characterization. I would be happy to hear from anyone who is practicing professionally in this area.

I’m friendly (and have done business) with both Brad and the folks at Second Nature, and did my absolute best to report this information factually and without bias. Please assume that any incorrect information is my own misunderstanding.

Takeaways for Property Managers

Setting aside renter’s insurance, here are a few of my own takeaways:

• Industry trade groups and vendors providing these insurance products should consider supporting individual property management companies facing unfair regulatory practices, to prevent future cases from setting a precedent. There is no “perfect victim”; we need to battle back aggressive regulatory overreach anywhere it pops up. This is a potential threat to our industry.

• If you self-administer, self-insure, and charge a monthly or annual fee for any type of package, program, product, offering, protection or service, you need to be aware of the insurance laws in your state as you may well be in violation and at risk of regulatory action. Simply using different words (instead of “insurance” or “premium”) does not protect you in the least.

• If you do plan to offer any of these types of services to your clients or residents, work with vendors who specialize in that area and have the appropriate licensing. Do not ever allow coverage to lapse and work with the vendor to get all of the details exactly correct. Salespeople selling the products may not understand the fine-grained distinctions that could mean the difference between being in compliance and out of compliance. Assume you are on your own.

• The line between “programs” and true insurance products is grey. For example, nobody seems to contest the idea that an eviction guarantee (where the PM place a new tenant for free in case of an eviction of a tenant they placed) is not insurance. But how is that different from a pet protection program, for example? There seem to be details that matter here but they aren’t totally clear to me. I would love if an insurance expert could produce some written guidance specific to our industry!

Brad’s Outlook From Here

As for Brad, he appears to be taking all of this in stride and is optimistic about 2024. He told me Rentwerx added 375 units this year, and despite the large and sudden changes imposed on them by the TDI, they only lost about 5% of their client base.

Brad even explained that doing away with their 3-tier service offering and moving all clients to one standard management fee will result in an overall increase to their revenue.

I also asked Brad about the sudden cancellation of the 2024 Property Management Mastermind Conference (PMMCon), an annual conference he has put on for quite some time. Brad explained that he was concerned about war & terrorist activity in 2024, plus it being an election year, felt concerned about the viability of the conference next year.

Special thanks to Brad Larsen, Andrew Smallwood, and Kelli Segretto for contributing their time and insights to this article.

Industry News and Events

• PM Pathbuilders launch party today. Kristen Lopez and her business partner Kandise Varvil are doing some really cool things around consulting on LeadSimple buildouts, among other things.

• ProfitCoach announced a new operational dashboard connected to LeadSimple data. They are looking for 10 beta users.

• The NARPM Capitol Summit (Feb 13-15th) is open for registration.

• My takeaways from the RentScale and LeadSimple conferences got pushed out to make room for today’s long article - stay tuned.

• PM Systems Conference - January! I’m speaking. This is a great alternative if you didn’t snag a ticket to the LeadSimple conference. Use code “Peterrocks” for $100 off. Less than 30 tickets remaining.

Closing Thoughts

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That’s all for this week! Have a great weekend. -Peter

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