No money for rent deposits: How cash-strapped tenants’ insurance companies fill the coffers

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Landlords need a guarantee to get the money they deserve in the event of unpaid rent, unpaid utility bills or infrastructure damage. For this, they require a deposit of up to three months’ rent at the beginning of the tenancy.

In the past, tenants deposited this money almost entirely into a blocked account at a bank. But in recent years, rental deposit insurance has become increasingly popular, according to figures from financial market regulator Finma.

Rental deposit insurance is increasing

Industry leader Swisscaution, a subsidiary of Mobiliar since 2016, has increased its rental deposit insurance premium volume from 35.5 million francs to 57 million francs in the last decade. Firstcaution’s growth is even more impressive: in 2013, the French-speaking Swiss company collected 3.5 million francs thanks to rental deposit bonuses, and in 2022 this figure rises to 19.4 million francs.

The total premium volume of surety insurance has increased by 80 percent since 2013, from 112 million francs to 201 million francs. This includes construction warranty insurance and other deposit insurance.

The boom in rental deposit insurance is surprising. After all, such contracts are much more expensive for tenants than a traditional rent deposit at the bank.

Differences

With a deposit account, tenants get all their money back at the end of the rental period. You won’t lose a penny, and in the best case scenario, you’ll even get interest.

For rental deposit insurance, an annual premium must be paid depending on the deposit amount. With a deposit amount of 5,000 francs, this works out to between 200 and 300 francs per year, depending on the provider.

This money goes regardless of whether financial claims arise after the tenancy ends. If the landlord claims compensation for damage to the apartment, the insurance company will cover this payment but demand the amount back from the tenant.

Always open a savings account if possible

“In the most expensive case, insurance consumes more than half of the rental deposit over ten years,” says Dirk Renkert, financial expert at comparison portal Comparis. If you have enough money, it would be better to open a savings account.

Pascal Pfister, Managing Director of Debt Advice Switzerland, sees it the same way. He doesn’t want to demonize tenancy deposit insurance in general, though: “As many people cannot afford a cash deposit, deposit insurance is the only way they can sign a lease.”

Inflation is once again hitting the financially disadvantaged

Rising rents and general inflation have reduced the liquidity of those particularly affected, according to Pfister: “As is often the case, those who are already on a tight budget are at a disadvantage.” Since they could not get a cash deposit, they had to pay annual insurance costs. “Therefore, after taking out the rental deposit insurance, we recommend that you save some cash deposit, if possible, so that you can cancel the deposit insurance again.”

However, inflation and high rents are not the only responsible for the increase in deposit insurance. Benjamin Manz, managing director of comparison service Moneyland, also sees insurance companies and landlords as driving forces: “Landlords often contract with a rental deposit provider and then push that offer.”

Less effort for homeowners

Landlords have the following incentives for this: On the one hand, if they have rental deposit insurance, they tend to do less administrative work. They also receive financial compensation from insurance companies if they help obtain rental deposit insurance.

The Home Owners Association (HEV) does not want to comment on this matter. However, manager Markus Meier emphasizes that taking out deposit insurance instead of a rental deposit account is “at the tenant’s request”.

Almost everyone recommends rental deposit insurance

Meanwhile, a spokesperson for Mobiliar and Swisscaution confirmed there are “collaboration agreements between property management companies and insurance companies.” But these will play a “minor role”: “The major growth is primarily driven by increased demand from tenants.”

It’s a similar situation at Helvetia: “In our assessment, commissions are not the norm for most providers and are not a priority for continued growth,” a spokesperson said.

The fact is that large real estate companies and administrations actively promote rental deposit insurance.

HEV also makes the “cash deposit alternative” attractive: “The guarantee (…) costs you as a tenant only a cheap insurance premium and has the advantage of being able to dispose of your money freely,” says hev-schweiz. Ch. The fact that rental deposit insurance is much more expensive than the security deposit is not mentioned anywhere. Instead there is a link to the website of contract partner Zurich Insurance.

Rental deposit is the cheapest option

SBB and Post, which are among the largest landlords in the country with their real estate portfolio, also advertise deposit insurance. SBB, in collaboration with Axa and a smaller provider, is advertising “Get your rental deposit insurance online now”. The postal service has acted even more aggressively: “Do not block three months’ rent in a bank account,” the state-owned company says, to make Swisscaution’s offer acceptable. The yellow giant promises “favorable conditions” especially for young people under the age of 26.

Here too it is kept a secret: By far the cheapest option will be the rental deposit.

Source :Blick