Understanding Landlord Insurance

Presenter:

What's up everybody and welcome back to another episode of Loop It, in the DoorLoop podcast, where we pick the brains of experts in property management, real estate and investing tech. We cover it, marketing that too. So whether you want actionable tips or the insider scoop from top performers in their industries, this is one show you won't want to miss. Be sure to subscribe so you won't miss out on any future episode.

Muhammed:

Hi everyone and welcome back to another episode of the Loop it In podcast. Today I'm joined by Barak Levanon. Now Barak is the VP of growth for Honeycomb Insurance, which is also a tech-forward focused on retail properties. Barak, why don't you tell us a little bit more about yourself?

Barak:

I'm first of all, thanks for having me. I'm excited to be here. So I run growth efforts for Honeycomb in Barak Tech Forward M G A, which is basically a carrier, and then we focus on rental properties and con association. So imagine any residential rental property could be a single family rental town, duplex trip, so forth, or even an apartment building. Or if you own an apartment, sorry condo and you need in an hoa, you need car association insurance. You might not know that, but your HOA president probably doesn't. So we specialize in these types of insurance. They are commercial land of insurance. We've been on for almost two years now and what we're trying to do is really to reinvent all this insurance, this bank priced and being sold. But there's tons of companies out there selling insurance. You probably know a handful of them, but we've set out on a mission to change the way people buy insurance and to make it easier fasting and eventually cheaper.

Muhammed:

That sounds amazing. But first I'd like to know a little bit more about what's the old way of doing things. You said you guys want to start reinventing how things are priced, how people get their insurance. So what was the old method and why wasn't it working?

Barak:

So imagine you are a real estate investor and you set out to buy an investment property. You buy a single family home and you take a mortgage and now you need to buy insurance for that benefit property. I unlike a typical homeowner's policy, you need a different policy, which most people don't know, most investors don't know you need a landlord policy and in order to do that, what you need to find an agent, you can't just go online in most company and buy insurance for your rental property. So you need to find an agent and then you need to email him or help or get on the phone and that agent will ask you tons of different questions that for some of them you do not have the answer a lot of technical questions regarding the publicity you just dial, which is bad. And from that moment on, it'll probably take two weeks until you get a quote.

No, that's pretty crazy when you think about auto insurance. Two weeks. Yeah. Cause when you think about auto insurance or home insurance, that's pretty easy. You go online if sharing some details and you get a quote, but if you own a home and you rent it out, you don't live in it, it's going to take you two weeks. One because the process is very manual, it is very non-techy and it's been around like that for Thursday 14. So an agent will go to an insurance county out and an application, sometimes it's going to be a paper application. A lot of times it's going to be old school email or just software report and then an underwriting on the other hand, we'll get that application. It's going to take paid photo five to seven to 10 days to review property, sometimes ask for additional information and you might get an answer again within 10 days, maybe 14 days after you stop the process.

So it's running time consuming, it's still, there's a lot of back and forth between you, the agent, the carrier, and at Honeycomb, this is exactly what we've set up to solve. So what we do in a nutshell is we created this platform when you put your address rental, the property that you just invested in, and within five minutes we can get you an online buying, the bulk quote and the way that we do additive by deploying some very smart tech that pulls a lot of third party data on your property, combine some area image imagery of your property, it cannot just provide you with a fast quo that can also what we called I size pricing your quote by segmenting and managing it in a better way. Right. Maybe I can give you a little example. Yeah, that would be amazing. Yeah, because it sounds like super sophisticated, but no,

Muhammed:

Honestly it does sound pretty simple from what you said so far. But an example, what helped for sure.

Barak:

Yeah, so we found out when we started, we found out that you can have two adjacent properties with fairly getting very decent prices from insurance companies. Well because the way that they price insurance is very simplified. So let's say your wolf type is different or whatever, it can really jump or increase your opinions. Well we do of course, for instance is we can tell right away if your wolf is in inadequate position or not. And based on that, provide you with the high deductibles and the high price to yourself. So by doing that, by leveraging all this small tech, we can provide you nudges with a quick, quick quote but with the right price that will be a good fit for your property.

Muhammed:

Amazing. I mean it sounds like such a no-brainer to start doing things this way. Has anyone tried to do this before or is anyone else is doing it or are you guys the first?

Barak:

So I think we're the first that really took a tech approach. You'll see other companies who are more acting as agencies while trying to come in and say, Hey, you need landlord insurance. We're going to help you and provide you with quotes from other carriers. What we do is we underwrite our own policy and by doing so, we're able to provide you with a better point than most of the Canada that are out there.

Muhammed:

And now I believe you're in a number of states already in the us, is that right?

Barak:

Yes, correct. So within are the Midwest and West are mostly the biggest states are California, Texas, Illinois, Ohio, and Arizona and some others. And we're expanding in the east. We've just opened doors in Massachusetts few days ago and New Jersey couple of weeks ago. But is to be almost, I would say nationwide by the end of the year cover and 80% of the market.

Muhammed:

Amazing. Very ambitious goal. Yeah, I'm sure with the model that you have, you can definitely achieve it. Let's see. So could you tell us a little bit more about the AI model and the computer vision that you're using? I think that's very fascinating. Just updating this industry that's been around for a very long time with a more techy approach. It would be good to know how it works.

Barak:

And so first of all, that's not my domain, but I I'm want to disclose it

Muhammed:

Would probably go over my head anyways. Yeah,

Barak:

Glad they're shaking. But think of the process of obtaining insurance. So if you're an underwriter working in an insurance company, you're doing the same in type of boat for almost two 15 years. You are getting a quote and then you open up Google Maps and you try to look at the property from different angles. And that picture that you you're looking at is not updated. It's five years ago and the oath that you're looking at might be very different than what it is today. And then you're trying to read some reviews on the properties and finding sometimes to get images, sometimes to get pictures from the agent who submitted the quote, which is also very time consuming. It's imagine agency throughout the US are going to the decide to the property to take pictures and then to attach them and send them with the quote.

That's crazy, right on 2023. But that's it. I, I'll go. And then you need to make a decision whether or not you want cover without coverage for that property. Yes. So what we do is really take this process in bringing into 20 20, 20 23. We use visual image imagery on a number of sources. We sell party data and altogether we have this algorithm. But at the end of the day, it's not just saying, Hey, it's a good risk bad list, but also take all that gray part and try to find the right color at the right price for a given property. And that's something which is super innovative, super unique. And we have yet to see any carrier, especially the traditional carriers that have been around for decades or years, hundreds of years trying to do. So. Moreover, I would say that we see a lot of carriers and a lot of customers complaining that carriers are walking out on specific stage because that's a niche market. Being a niche market, selling a niche product, a lot of the county now tend to just walk away saying, Hey, we don't want to do habitation and animal residential property will just focus on all more areas and auto. And that's one of the reasons we felt this must, there must be a better way to do that.

Muhammed:

Agreed. I'd also like to talk, just take a step back and talk about the market as a whole. I think you did mention that in some cases people might not be as educated as they should be on the different types of insurance that they might need, like HOA compared to Absolutely. Condo, a homeowner or something like that. So do you think there's a lack of education

Barak:

Around

Muhammed:

Insurance? Yeah,

Barak:

A hundred percent. So when I started almost there ago, my background is mostly with marketing. I used to walk product, the consumer company, different verticals. So when I started and I did what everyone else would've done and search online, unhandled insurance, property insurance, I didn't get a lot of data. A lot of the data that I saw back then was mixed misleading or just in general, very short in terms of con, and this is basically what we see from an educational standpoint, awareness standpoint. So a lot of homeowners buy a secondary home, move out from the permiting home and keep the homeowners coverage between, it's just a home, they need coverage, but typically they no longer that the coverage is not right for them. So landlord insurance is not like a homeowner open show, it's not the right fit, it's not the right price and so forth. You'd be amazed by the amount of people who switched over to, and I'm guessing other companies as well, having homeowner's insurance for property for years different. They have the wrong coverage and if go, God forbid, they need to file the claim, the insurance company would come in and say, Hey, you have a homeowner's insurance, you are leaving that home. So we can't accept that claim. So the huge misconception is that on rental properties, they're

Muhammed:

For insurance. That's not even going to work for them

Barak:

At all. It's not going to even work for them. Number one that that's like problem number one that we see again and again. Problem number two is that people just think of insurance as just an even necessity that needs to be paid. And there's no good options out there. They're working with the same carrier, the same agent for years and they, I've heard that again and again and again. You can't save on insurance. You just need to, I had a customer saying once, I just thank Chuck every year, I don't care. I just know I need that. I don't want to think

Muhammed:

About it too much. No,

Barak:

I don't. I don't want to think about it. And I mean they're right. But having said that, the insurance spark, if we think from an investment standpoint and improving, no, all of these Netflix is the big part, sometimes 20, 30% of expenses every year. And when you go on bigger pockets and know all these sides, you get so much information. You're basically bombarded with information around data analysis and short term rentals and the bell and creative financing and so forth. But you don't hear anything about insurance. Why, Hey, it is boring, I believe. But most people, most investors, and I'm talking about heavy vessel with dozens of properties, they gone know anything about insurance, right? Because they've, they've been accustomed to the start of method where they just renew every year. Some of them come to comb when they get a nonrenewal letter for no, what reason? Some of it because carriers are walking out from different states, but basically there's a big shortage of knowledge and amongs investors and property managers when it comes to property insurance for rental property.

Muhammed:

So what do you think the reason is that people aren't shopping around? Is it just because they know that it's going to be another lengthy process, it's going to take a lot of time and it it's just not worth it for them in the beginning.

Barak:

So yes, you are right, because if you, the other al 20 years and yeah, you've tried one agent, maybe two, and you say, okay, I know how it's like what's the carriers that are there? They're not familiar with honeycomb and new carriers are trying to stop the market and one. And so they just continue with renewing the same products after. On the bright side, we do see a wave of new investors, especially the one, are you familiar with the fire movement? Yeah,

Muhammed:

Financial independence, retirement.

Barak:

Exactly. So there's a new wave of investors who likes to do things on their own. They shop around for properties on their own. They read a lot, they watch and listen to your podcast as well. And they don't just go and say, okay, I need insurance. I don't care. Let me have, I just need an agent. So they do shop around and they do sign honeycomb and sometimes other provide,

Muhammed:

Right? You're right. And I think that's just a habit that people need to get more and more into. And you see that a lot in the insurance and advertising and the marketing that they're doing for many different companies shop around, there are better deals out there. You can save money, but it's just, I think people not thinking that it's worth the time and the effort to start looking around.

Barak:

Absolutely. And they don't know. Well

Muhammed:

They don't know. Yeah. And then I'd also like to talk a little bit more about the different types of insurance because there are different sides to it. The landlord side, there's the liability side. So maybe you could tell us a little bit more about that.

Barak:

Yeah, so basically if you, you'd like a basic landlord policy, it's based off of two components. One is the property, which is basically how much is basically providing coverage, polio property against different types and damages, wind hanging fire and so forth. That property, I mean I can go into length about that, but that's like basically the gist of having your property being covered. The important thing to notice here is that unlike homeowners policy, it's going to cover the warning, the structure itself, what's called calls out an insurance. It's not going to cover personal property, which is probably not the ENT of the department or appliances or so forth. So in most cases you'll see renter buying renter's insurance to cover personal property and then the landlord by landlord insurance and both together provide the coverage that a landlord with need. The most important metric within this part is the replacement cost of building limit, which is very confusing for landlord. And that's basically the amount insurance will pay you to rebuild your home in.

And the reason I'm saying that, or that's the biggest component of drive premium for on this type of insurance. Now why that's so confusing because let's imagine that Muhammad invested in and bought the product hundred 50 K. Yeah, the market puts down, you took the opportunity and bought a film for hundred 50 K, but now within then among other factors, it will take 300 K to rebuild that property from bottom up. And that's kind of create this thing to think about it. I just paid 150 K for the land and for the drawing, but now I need to covenant provide coverage for 300. There's a lot of hidden costs, there's a lot of vet costs and a lot of landlords are having a house understanding that. That being said, most companies will ensure you at replacement costs, the building GA calculation and not John market value and property really bad shape.

So that is the fair part, which is I would say 80% of your insurance premium. The other part is the, and very similar to other types of insurance, if you have a friend coming over slip and fall and then sue you as a landlord, you need coverage, you take care of that. And that would be the general building section, which is built in within the 26. So basically when you buy landlord insurance, you buy property coverage and then you buy while building and coverage together that provides the protection that you need as an landlord all your problem.

Muhammed:

So how is the landlord, or sorry, the liability side, how is that calculated and what's usually the limit on that? Does it depend on the property or the use case?

Barak:

So that's a good question. I don't think here's all of thumb for that. So some companies put 300 K on as, it's kind of like the standard. We went out and put $1 million, which we think in the right amount for coverage. A lot of the time they save. Are you umbrella insurance? Umbrella insurance, yeah. So part of the time what people do is they buy landlord insurance and they put an umbrella coverage on top of that to provide more coverage for liability. So what we've done is we took that policy and instead of putting permit pay 1 million, a lot of the times it saves our customers the travel and money getting an on top of that.

Muhammed:

Amazing. I mean it does sound like you're a good alternative

Barak:

And there's no right and wrong there. I mean you go and learn and look for different discussion around liability. The best answer that you will get, we mentioned specialist is not as high as you can. So some will say 1 million, some will say 2 million, 3 million, 4 million. It's only based on your tolerance for, but yeah, at that's how we,

Muhammed:

All right. That sounds good. I'd also like to talk about maybe some of the other challenges that are there on the market.

Barak:

Yeah, absolutely. So I think the biggest challenge with landlords, mostly the ones that own single family rentals is really that building limit that I mentioned before. And that's the amount of coverage that the insurance company will pay in case of the right. And if you go back to the example before you, how much just bought a home for 150 K. Now we as an insurance company ask you to buy coverage for 300 K and yeah, most landlords will say, no way I'm going to ripping me off or asking me to buy coverage then I don't need, in the case of a total loss, I'll just sell it and exchange return for hundred 50 K. But that's really the case. That's only the case. And the biggest challenge that we see with landlords asking for what we call market value or what's called market value is they just don't understand the importance of insurance.

And they might think, hey, that's not going to happen to me. But again, in the case, total loss, they sell land for 150 K mo cases and they're probably going to pay tax for doing so again, move back loop to the lack of knowledge because the differences in buying a seven K coverage in 150 k coverages are not huge when you think of the investment that you put in to buy that talent property. Now on a broad perspective, I think one of the challenge that we stay with landlord is that some of them do not see the investment that they put as a business. So I just have another home that I need to, it's a mindset. Yeah, it's a mindset. So if you own 50 single family 12, that's a business. But if you own one or two, is this something that you put your money into it but you don't think about it as a business?

And I think you've probably talked about this on previous episodes from a property management standpoint and what it means to be a public management Amazon, really nice episode. I'm an investor talking about short-term rentals and how being a shortterm rental investor is, it's kind of like being a hotel owner versus a real estate owner. And it's a different business. It's a different business and you need to change your mindset. And that's exactly it boil down to that mindset of I own a property, I own a business and I need insurance for without investment. Or that business isn't like, it's not just a home that I bought and I'm trying to save on insurance, it's a business, it's an investment I put in, you know, probably took a mortgage, 30 mortgage for that and you need to protect your investment. And I think that's the biggest mindset that landlord need to change. And we see that over and over again with M D I insurance pay.

Muhammed:

Wow. Yeah, I mean there are so many nuances. Obviously with buying insurance, it sounds simple enough, but once you start getting into it, there's a lot of factors that you need to look at. So where can someone go to really get educated more on this topic? Everyone has a different case,

Barak:

So very, very simpler than you think. So I think that bond landlord insurance is easy as bank homeowner insurance and even simpler, we do not ask many question the homeowners carrier Kenyas. They not all doubt. So we really try to make things, see both and gather a lot of information again from third-party data and other sources and really ask the questions that we need from a coverage standpoint that more so on the coverage side, we do tend to provide the provide coverage, bespoke coverage for property. Having said that, we developed, I think there are more than a hundred pieces of content on our site regarding landlord insurance and the current association insurance. Anything from simple deductibles to women health deductibles to slips and falls, liability claims and what have you. The hundred content all down every to visit and be more educated that I know it can be very technical, especially if you go to this special side. But we've tried to do a very good job in really simplifying this, give this terms to make everyone understand help.

Muhammed:

I love that. I mean because obviously the solutions are out there, it's just about people knowing where to look, what they need and how to sort through all the information. So I love that you put that all out there and just made it simple to understand. All right, so I remember before we came on here, you were telling me about this story of this investor that you were working with and he had many properties, but maybe they weren't so well covered insurance wise. I'd love to hear more about that story.

Barak:

So obviously we're not, without getting into specific of our location top off, that's again, and this about to the idea of educating our investors and having them more knowledgeable about insurance. So we had an investor coming in, he's been only more than 40 property, roughly in the same location with the same agent. And his policy was just talk, but from a conflict standpoint and you didn't put the effort then I'm talking about thousands of tens, thousands of dollars to it. So without going into specific technical thing, even if you own 10 or 15 property, you need to understand the coverage that you need for each property and bundle them together those different ways for insurance companies to create different levels of coverage. And then most people, were not in the insurance space, gun don't understand that. So in this specifically investor comes in with 40 properties is basically paying coverage, a lot of money here to only get covered or 50% of them property 50%. And that's also not an easy conversation to have with an investor. Great. Because again, it's not the nice thing that you can say, but I think again, it goes back to the importance of being properly insurance or what we call the insurance to value and

Muhammed:

Insurance to value

Barak:

Insurance to value. And again, I do not know, I think 10% of that investor with estate knowledge that drove into become an on off foreign properties. But on the end we would invest some of his time understanding insurance more deeply. I think that would a saving money and providing with a better solution for covering is investment.

Muhammed:

Wow. So did he ever have to take out any insurance or make a claim while he was underinsured?

Barak:

So I mean, when I got the ep it wasn't our policy. Obviously we weren't selling these stuff policy. But again, the, as human beings, we tend to think that it will never happen to us. We're never going be file claim. Right? But it happens more than you think. And what it does, you want to make sure that you're getting the right coverage. And a lot of people tend to think there's the right coverage, but then when they file a claim with property claims on auto and better types of classes of insurance, things get more complicated. You're not get going to be paid within 48 hours. The process, it's going to take a couple of months, you need to speak to an adjuster, adjust, an engineer will come and visit your property, and then they're going to open your policy and you need to make sure that what's going on in Dell, otherwise you're going to have a lot of issues and might even pay out of pocket of what damages telecom to your end properties,

Muhammed:

Which is, it's devastating when you've been paying for your policy. Absolutely. Which you thought was right for you for years. Yeah,

Barak:

Yeah. Absolutely Devastating. Absolutely devastating. And again, most people even being not with property insurance thing, it'll never happen to me. So I can say on my, you don't have to buy, by the way, you don't have to buy landlord insurance. There's not a law or anything that requires you to buy landlord insurance, but if you're earning a mortgage, yes, you will need landlord insurance. And most cases that if you own a property, you better buy insurance without, it's not a lot of money compared to didn't get. Yeah. Can you put in

Muhammed:

And the potential downside

Barak:

Absolutely.

Muhammed:

If something goes wrong. Yeah,

Barak:

Absolutely.

Muhammed:

Wow. All right. I've pretty much covered everything that I want to ask you, but now I want to give you the floor and see if there's anything else you'd like to mention about the service that you guys provide or education around insurance within the market today. So go for it.

Barak:

So without being through sales, I will say that rental property, go and check out. Go and check off Honeycomb. It's a pretty easy text, less than five minutes. If it's not the right cooperative for us, it's out of our capital. You'll know within five minutes. You don't have to wait, you don't have to find an agent, you just quote it and on and check out our right regardless to that, go and understand the coverage that you need. Understanding what Building Limits stands for. Yeah, I think that that would be probably the most important metric that I would focus on if I were to get coverage for an investment property of mine. And most importantly, shop around. There are more options that you tend to think on in most areas. So if you live in a coastal area, yes, you might get tons of options, but if you live in a city, yes, you will get multiple options creep depending on your business.

Muhammed:

Wow, I love that. Yeah. I, and the more educated you are, the more informed you are about your decision, the easier it'll be. Absolutely. And the more options move on that you have

Barak:

For sure. And it's a lot of money. A lot of money. At the end of the day, people tend to have a look at, it's a lot of money that you can say. Yeah.

Muhammed:

Wow. All right. I think that's everything. It's been a pleasure speaking with you, Barak. I really enjoyed it. I feel like I learned a lot. There's a lot of misconceptions that I walked in here that I already had, and you really cleared many things up. And if I want to brush up on any more knowledge around this topic around landlord insurance or insurance in general, I'll be sure to check out Honeycomb. But with all that said, thank you for being on the podcast. Thanks for having me.

Barak:

Was the playing though,

Muhammed:

Amazing. All right, guys, that wraps up today's episode. Thank you very much for watching. If you're interested in checking out any of other episodes, and just check the link in the description and we'll see you next time. Thank you.

Presenter:

Thanks for listening all the way to the end. Don't forget to give us a good rating on whatever platform you're tuning in from, and we'll be back soon with another new episode. We hope to see you there. And until next time, this has been input in.

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