Aon and QBE Partner to Launch a New US Insurance Product for Landlords

Aon Risk Solutions and QBE Insurance Group have partnered to offer a new insurance product in the United States that will reimburse landlords when tenants skip out on rent payments.

The companies rolled out the program for individual property owners in California, Colorado, Pennsylvania and Washington, D.C. on Nov. 1, but it should be available across the United States soon.

The insurance has been approved in 22 states and is awaiting approval in every other state except New York, Virginia and Maine, Kevin Morman, senior vice president of program, design and development for Aon Affinity in Hatboro, Pa., told Best's News Service.

Called Aon Rent Protect, the insurance for individual property owners replaces rental income for up to six months and assists landlords with legal expenses, including attorney fees that may be needed for eviction. Premiums start at $250 a year for each rental unit.

The company also uses a referral program among organizations that have contact with landlords as a way to get the word out about the insurance.

The coverage is offered to individual property owners through Aon Affinity, the product sales, marketing and distribution business of Aon (NYSE: AON).

Large property investment firms that buy the insurance can cap their total liability and ensure their rent default losses don't exceed a particular amount. This coverage is already available in all states and is being sold through Aon Risk Solutions, Aon's global risk management business.

Tenant rent default coverage has been sold in countries overseas for years -- Aon and QBE have sold it in Australia, the United Kingdom and New Zealand for the past 20 years -- but it's just now becoming available in the United States. Traditional property/casualty insurance covers lost rent when a fire or hurricane causes physical damage but doesn't kick in if a tenant defaults on rent.

That may be because the insurance market in the United States is relatively conservative, Morman said.

"At face value, it's seen as such a volatile risk," he said. Insurance in the main market is made up of actuarial data on everything from fires to burglaries and injuries. But there's no statistical data on rent default, he said.

Because Aon and QBE have experience with the insurance in other countries, they know the product works.

Another factor for launching the insurance was the economy, Morman said. A rising number of people have lost their homes and are in a position of having to rent. Landlords have to feel comfortable that they're not taking a bad risk, and this insurance helps that.

Aon calls the insurance a "game changer" because it can take months for a landlord to regain his or her property and find a new tenant when a renter stops paying -- all the while having to pay mortgage and other expenses for the property.

"I don't think the current economic environment has created a need for this product," he said. "But the economic environment has put up a shining light … that this is a very real issue today."

Current economic conditions have led the way to other opportunities for insurers. In 2010, Foremost Insurance Co. told Best's News Services that it was taking advantage of the rise in unoccupied homes by aggressively growing its business in vacant-home insurance. The company saw a 47% increase in the policies in 2009. American Integrity Insurance Co. saw the growing need for the insurance and began offering the policies in 2010 (Best's News Service, Sept. 7, 2010).

This year, insurers launched private unemployment insurance to supplement federally backed, state-run unemployment insurance programs. Available in 38 states, the insurance product is a venture of Assure Group of New York (which outsourced the project to Sterling and Sterling Insurance) and Great American Insurance Co. (Best's News Service, Sept. 20, 2011).

Members of QBE Insurance Group Ltd. have a Best's Financial Strength Rating of A (Excellent).

On the morning of Dec. 23, Aon's stock was trading at $46.83 a share, down 0.38% from the previous close.

(By Marie Suszynski)