Renters Is Not a Foothold into Homeowners Insurance

Renters insurance is not a good wedge product into homeowners. Homeowners and renters are completely different products with completely different risk profiles and the upsell opportunity from renters to homeowners is small.  

Renters Pricing & Underwriting Doesn’t Translate to Homeowners

There are less similarities between renters and homeowners insurance than you might think. For starters, there’s a lot more to consider when covering an entire home plus its contents. To underwrite a home, you have to evaluate all the physical characteristics of the home, including roof, construction, age, geography, and square footage. Renters insurance only covers the policyholder’s personal belongings and liability, not the physical structure. Because the risk profile is so different, the pricing, underwriting, tech, and user experience developed for renters does not automatically translate to homeowners.

Renters Claims Process Doesn’t Translate

The lack of complexity in renters insurance means claims are simpler, too. Figuring out how much it costs to replace a policyholder’s stolen bicycle isn’t difficult, which is why a renters-focused business can process some of its claims entirely with a bot. Homeowners claims, by contrast, usually involve physical damage to the home that needs to be rebuilt and repaired, which requires a different kind of technology.  

For example, the same bot that can send an electronic payment for a stolen bike isn’t necessarily capable of analyzing hail damage to a roof, dispatching a crew to ensure water doesn’t enter the home, figuring out the cost of repairing that roof, negotiating with a roofer to have the roof rebuilt, and auditing the repair afterward.  

Renters Insurance Has High Customer Churn

The most common argument I hear for starting with renters insurance is that you can sell policies to 20-something renters and convert them when they turn into 30-something homeowners. That seems logical on its face but the numbers don’t support the plan. 

Just take Lemonade Insurance’s S-1 filing as an example. Much of it claims the company’s future growth depends on graduating its current renters insurance policyholders to higher-price customers (i.e., homeowners and condo policyholders). But as it stands, less than 1 percent of their renters' customers upgrade in a given year, while 38 percent churn (spreadsheet attached here that shows my math). As a result, the likelihood of a renters insurance customer who signs up today persisting as a customer long enough to upgrade to a homeowners policy is low.   

Customer churn is the very nature of renters insurance. The average renter stays in a multifamily building for 27.5 months, or just over two years. Compare that to the 10 years that the average homeowner stays in their home. The mere fact that renters are more likely to move makes a certain amount of churn inevitable.

Plus, tenants seldom have to buy renters insurance, unlike homeowners who are required by mortgage lenders to carry coverage. This both narrows the pool of potential customers and increases the likelihood that you’ll lose a policyholder every time a client moves to a new apartment. Even if a building’s management makes renters coverage mandatory, they are typically not as diligent in enforcing that requirement on an ongoing basis as are mortgage companies. And once a renter becomes a homeowner, it is not a given that they will keep the same insurance company they had as a renter.

Long story short? Homeowners is the key to winning personal lines, and renters is not a shortcut to building a meaningful homeowners company.