GENERAL NEWS

DEPOSIT GUARANTEE

July 12, 2020

Sushant Chavan
Sushant Chavan
https://unsplash.com/@danez1

Deposit Insurance

Real Estate industry often quips about how the deposit insurance product is outdated and requires a fresh perspective. Though the concept has long existed, it hasn’t seen a mass adoption that it should for a product that creates more liquidity for its users.

The deposit insurance for residential users is currently offered by three different types of players in the German market;

There are fundamental challenges in the adoption of this product, both from the tenants as well as the landlord side. Here are some of them which are hampering the uptake of the product.

  1. Claims process: Claiming the deposit insurance in case of an issue is a massively bureaucratic and cumbersome process for the landlord. They are not in favor of taking up the hassle of dealing with the providers.
  2. Rent control: The deposit amount is regulated to be a maximum of 3 months of the rent, an amount that seems fairly possible to save up, for most of the tenants. Hence many don’t feel the need for such a product.
  3. Tenant Credibility: The need for liquidity is seen as a sign of low savings or bad financial habits. Landlords suspect tenants opting for security deposit insurance with either of these two issues. Hence they are reluctant to take on such tenants.
  4. Incentives: There are no added benefits for the tenants as well as the landlords for opting for this insurance. Making the product lackluster

This doesn’t however mean that there is no scope for innovation in this space. Deposit insurance products have emerged strongly in US and UK due to the severe job losses over the past few months. Apart from their core feature, they are also bundling other benefits for landlords such as tenant screening and verification, as well as making the application process smoother.

Do you think there are ways to innovate or are you convinced that there is not much that can happen within the deposit insurance space? Do tweet your response to us at Beyondbuildings or write to us on opinion@beyondbuildings.io 

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