Q&A with TheGuarantors’ Elsa Liao on the Company’s AI-Based Underwriting
TheGuarantors is a fintech company providing leading insurance and financial solutions to property owners, operators, and their residents. Founded in 2015, the company is working to improve accessibility and affordability for renters across the country, while giving operators the protection they want and need against default, vacancies, lease breaks, damages, holdovers, and more. TheGuarantors offers flexible coverage and a comprehensive product suite, and has covered over $2 billion in rent and deposits nationwide.
We spoke with Elsa Liao, Vice President of Risk Management at TheGuarantors, who has been instrumental in creating the company’s AI-based underwriting model that leverages more than 1,000 data points to predict renter default with 85% accuracy.
Q: What new elements does the use of AI bring to risk mitigation in multifamily housing? In particular, is it less time-consuming, more accurate, able to glean information that conventional screening might miss?
A: Operators typically rely on a limited data set to screen renters in their renter application process. They focus heavily on credit score, income, and, for some, eviction history. This approach has not changed in any significant way in decades.
The downside of this approach is that it provides a rather superficial view of the renter, and in addition, screening applicants by income and credit score is only 55 percent accurate at predicting default risk. We know definitively from our data that many of the factors that landlords heavily rely on to determine renter acceptability are not actually predictive of a renter’s likelihood to default on their rent.
To put another way, a renter who might not look so great on paper could actually prove to be an excellent resident who pays their rent on time. But without large data sets and an AI-based model, operators will continue to rely on their existing screening approaches to evaluate renter risk.
At TheGuarantors, we use an AI-based model–built with over a thousand data points–to achieve high levels of accuracy in determining a renter’s likelihood of default. From this, we are able to paint a 360-degree picture of the renter in a way that extends well beyond the results of a landlord’s typical screening.
Q: How does The Guarantors’ risk assessment model work in tandem with AI and how does this help landlords?
A: Income requirements eliminate a lot of applicants unnecessarily. TheGuarantors addresses that problem and while doing so, helps landlords broaden their applicant pools and improve their renter acceptance rates. We take on the risk of renter default for the owner / operator and protect their rent roll in doing so.
TheGuarantors’ AI-powered algorithm uses a number of diverse inputs in our model. For example, we use natural language processing to gather and assess data from social media and the internet. That can indicate renter satisfaction with their living experience and quality of life, which can influence renter performance.
There’s also a very human element to our business; we understand each renter is an individual and the nuances of their lives demand the development of sophisticated underwriting models. We also step in when our renter customers are late paying their rent to help get them back on track. Surprisingly, oftentimes when renters are delinquent it’s because they lack some understanding of their lease terms. Explaining their obligations in simple language, or in some cases assisting them to exit their unit while on good terms, helps save our operators significant time and headache. Most of the time when a renter is at risk, we are successful in avoiding a worst-case scenario of that renter defaulting on their lease.
Q: Can smaller landlords with comparatively limited resources benefit in the same ways as landlords from your AI capabilities?
A: We recently launched a portal for independent landlords and real estate investors so they can access our products for their prospective renters. Traditionally, we’ve partnered with the country’s largest institutional owners and operators – those with thousands or tens of thousands of units – but our new platform would allow those who own even a single rental income unit to use our Rent and Deposit Coverage for their renters.
Our post-move-in customer service is extremely valuable to the landlord because it takes so much work off their plate. That helps to reduce the property’s operating costs at the same time the management is widening its applicant approvals by accepting renters backed by our coverage.
Q: Can you provide a run-up to TheGuarantors’ deploy of AI in this setting and also offer a preview of where it might go next?
A: We manage our underwriting in house and have been developing our AI-based model since the inception of our company in 2015. We iterate on our risk model on an ongoing basis, continually refining it and introducing new data points to further improve its predictive capabilities. Our longstanding relationships with a number of A-rated insurance carrier partners is a testament to our risk management expertise.
Our core value proposition is to help multifamily housing owners and operators protect their income against losses due to default and damage. Through AI-powered solutions, we improve our understanding of resident behavior and preferences, identify potential issues before they become bigger problems, and reduce the likelihood of renter default.
Looking ahead, we are committed to leveraging AI and machine learning to continuously improve efficiency, reduce risk, and enhance our overall value proposition for owners and operators. We will continue to explore new and innovative ways to leverage data insights and technology to help our clients achieve their business goals and deliver a better living experience for their residents.