By Emily Merrell
Have you ever googled “What renter’s insurance should I buy?” and felt overwhelmed on where to even begin? If you don’t have renter’s insurance, keep reading and get ready to purchase ASAP. After suffering a terrible apartment fire in 2019, I’ve been a huge advocate for those who don’t yet have coverage to get going and get insured- stat! When my friend Chris Lotz told me he was starting a new insurance company, I was all ears. He realized that normal rental insurance policies weren’t working and were gauging their customers. So, he created a company where they take a fixed fee, pay claims and return what’s left over to their membership. *Mind blown.* Read on to learn more how you can be a better advocate for yourself the next time you get new insurance.
SDS: There are so many options available for renters insurance, what makes Goodcover Insurance different?
CHRIS LOTZ: How Goodcover is different starts with why we started this company in the first place. Our mission is to make financial security fair, affordable and accessible to as many people as possible.
To do this we started at the root of the problem – how older insurance companies make money, which is by paying out less in claims than they collect in premiums. To keep more profits, they are incentivized to pay less in claims. Goodcover operates as a cooperative – we take a fixed fee, pay claims and return what’s left over back to our membership.
This fundamental distinction eliminates our conflict of interest and puts you and us on the same side – we don’t earn more because we denied or delayed a claim. We make money when members are happy and telling their friends about us. Good technology can make things cheap and quick, but getting this fundamental distinction right is transformative.
It allows us to offer a renters policy that is 50% less expensive than what others charge. It also allows us to have better coverage, even at that lower price, covering usually excluded things like cleaning up mold. That coverage scales easily to give all-risk coverage to your most valuable items (think engagement rings and computers).
While we’ve digitized the experience (you can join anytime in just a few minutes and adjust your coverage from anywhere instantly) we’ve also prioritized human support. As a membership based company, we think it’s important to answer any questions that might accompany a decision like this. We’ll even cancel your old policy for you (breaking up is hard to do!)
So while it’s true that we are less expensive, provide a better product and provide a supportive digital experience, all those stem from the core difference: our cooperative model.
SDS: After years in the boat insurance world, what drew you to renters insurance and starting something new?
CL: I love sailboats and I love insurance, so I had a great time in that world. But as time went on, I felt the need to apply what I was learning to something that would have a wider impact.
Eventually the time was right to make a move – I met my co-founder Dan, the insurance capital markets underwent some fundamental shifts that made a business like Goodcover possible and I was able to get the support of friends and family to help through the transition.
Dan and I landed on renters insurance as the starting point, a proof of concept for the digital cooperative we wanted to build for the whole of personal finance. It is a growing market, with adoption moving from 22% to 45% in a few short years. We saw a real gap between what was being offered and what was possible. It’s not as capital-heavy as home or life insurance, which made it more accessible as our first product. In all, it was a good starting point where we felt we could really add value for people.
SDS: What is the most common misunderstanding/mistake of the renters insurance world?
CL: People think that once they have a policy, they are stuck in an annual contract, like cable. Nothing is further from the truth. State law allows you to switch providers at any time. When you cancel your old insurance (or if we do the cancellation for you) you will get a prorated refund of anything you prepaid.
Most of our Members are switching from other providers and since we handle the cancellations, we see all kinds of things. The biggest apples-to-apples price difference we’ve clocked to date is 71%. Insurers use the fear of switching, time consuming fax/call only cancellation processes and disappointed sounding human agents to trap you.
Like with a bad relationship, you are not stuck with this.
There are many, many more misunderstandings – your policy is actually worldwide coverage for your stuff, no your roommates aren’t automatically covered – but this is by far the most common misunderstanding that gives insurers the most leverage over us all.
SDS: For someone getting insurance for their first apartment, what do you recommend they consider before signing up for insurance?
CL: 9 times out of 10 you should not buy what your landlord recommends.
It’s not that the policy is bad. Probably 4 out of 10 are truly substandard (and there are some very, very bad landlord-placed policies).
It’s that it is always the most expensive option. If your landlord is making a referral fee from your policy, that is just another mouth to feed. Most of these policies have one or two more intermediaries to go through, with more mouths to feed.
I’m all for feeding people, but not at the expense of overcharging a tenant who simply wants to make sure they have a policy their landlord will accept.
The truth is landlords will accept any renters insurance policy as long as:
- The Liability Limit meets the minimum in your lease (this is the biggest number on the policy, usually $100k or $300k).
- The policy names them as an “Additional Interest” (this means they get notified if you cancel or don’t pay the bill, since they want to know you are still covered).
- All the occupants of the place that the landlord wants are named on the policy.
Also remember that your policy does more than satisfy your landlord – it covers your stuff, your liability (including legal defense costs), if your bike/computer/jewelry gets stolen while you’re out and about, pays for a hotel while your place is repaired, etc.
So, get something that actually covers you, not just meets a landlord’s requirements. Don’t pay 2x or 3x what you should, there is no sense in that.
SDS: How have you seen insurance patterns change for the millennial generation versus their parents?
CL: When you look at the data, people under 40 are almost twice as likely to research, compare and purchase insurance online than people over 40. They don’t like working with middlemen, instead seeking a more direct relationship with the insurance provider they’re dealing with.
The effects of the financial crisis still linger too – younger people are considerably more concerned that their financial service providers are aligned with their interests instead of betting against them.
But despite this trend, there is a ton of inertia in insurance. Many younger people have been on their parents’ insurance for years, and when they need their own policy they just buy from their parent’s agent. Since older demographics still overwhelmingly use agents, insurers still invest heavily in those networks. The result is that 50% of people under 40 still use agents to buy policies.
But the average insurance agent is 59 and will retire within years. Moving out, getting married, buying homes, having kids – these are still the triggers for buying a policy and most of the people doing these things now millennials. The old agency model is breaking down – both on the demand and supply side – and most insurers are simply not prepared.
SDS: What is one thing you wish you had learned about insurance before starting Goodcover?
CL: When we first got started, we were super committed to using a company structure that turned out to be a regulatory non-starter.
We found out the hard way that starting cooperative insurance business is not done nowadays because it is all but impossible within the modern regulatory framework. Most of the cooperatives that exist today started in the 1920s – there were basically no regulations back then, and even then some operated illegally for years.
So, I wish I had a better understanding of what was approvable and what was not before we got started on the process. It would have saved us a lot of time and heartache with the government. It all worked out though – Goodcover is able to fulfill its mission in a fully compliant, sustainable way – but it took us a long time to figure out the exact mechanics with the regulators.
SDS: How can our readers find out more about Goodcover?
CL: Goodcover.com is a great place to start. If you want a bit more context about how we fit into the emerging insurance space, this TechCrunch article on us is a good one. If you want the gory details of how we managed to get a new insurance provider started at all, we laid it all out in our post on YC’s Hacker News. You can follow me at @chrisplotz.
As the #1 advocate for all things insurance, Emily and Six Degrees Society are partnering with Goodcover (a California based rental insurance company) for a panel on disaster preparedness. How can you navigate monthly insurance payments to save top dollar if the worst case scenario happens? What is a must-do for insurance? Join us in San Francisco on Tuesday April 7, you can find tickets here.