Insurance helps landlords recover financially from certain insured events (like fire, storm and flood), but it does not prevent those events from happening in the first place.
That is where risk management comes in.
A simple way to think about it is:
- Risk management identifies potential problems and helps prevent them from happening or reduce the likelihood and impact if they do occur.
- Insurance helps protect people financially by covering the financial impact when those problems happen.
Understanding the difference between risk management and insurance can help property managers have more informed conversations with landlords. Ultimately, the best outcomes for landlords (and property managers) come when both work together.
What is risk management?
Risk management is about identifying potential issues and taking steps to reduce the likelihood or impact of a loss. For landlords and property managers, that might include:
- Conducting regular property inspections.
- Addressing maintenance issues promptly.
- Cleaning gutters and maintaining drainage.
- Trimming overhanging trees.
- Ensuring safety features are working correctly.
- Keeping good records and documentation.
These actions will not eliminate risk entirely, but they can help reduce the chance of a problem occurring or becoming more serious.
What is insurance?
Insurance is there to help when things do not go to plan. A landlord insurance policy cannot stop a storm from damaging a roof, but it can help cover the financial impact of certain events when they occur.
Why do they work together?
Neither risk management or insurance is enough on its own. One focuses on prevention, while the other provides protection.
For example:
- Regular maintenance may reduce the risk of water damage, but it cannot stop every burst pipe.
- Property inspections may identify concerns early, but they cannot prevent every tenant-related issue.
- Insurance can provide financial protection after an insured event, but it cannot prevent that event from happening in the first place.
The role of property managers
Property managers play an important role in helping landlords manage risk. Through inspections, maintenance recommendations, documentation and proactive communication, they can help identify and address issues before they become bigger problems. And when an insured event does occur, those same records and reports can help support the claims process.
Looking beyond the property
The same principles apply to property management businesses themselves. Whether it is cyber risk, professional indemnity exposures, management liability or business interruption, reducing risk and having insurance are both important parts of protecting a business.
To sum it up
Risk management and insurance are not competing strategies. They are two parts of the same approach. Risk management helps reduce the likelihood and severity of a loss. Insurance helps protect against the financial consequences when a loss occurs.
For landlords, property managers and businesses alike, the strongest protection comes when both work together.
Want to learn more? Our EBM RentCover Relationship Managers work with property management agencies to help build understanding of both insurance and risk management, and how the two work together to better protect investment properties. Partner with EBM RentCover today.