I received an email from one of my commercial insurance companies on Tuesday. It informed all their independent agents of an immediate moratorium on writing new policies in Baltimore, Maryland after Monday night’s rioting.
The email stated their underwriting guides prohibit the binding (putting a policy in force) of any new business that included property or increasing limits on existing policies. While writing new business would have to wait until order was restored, policies renewing policies during this time would be honored and processed normally. Thankfully, it appears Baltimore is returning to normalcy.
An insurance moratorium or binding prohibition simply means an insurance company places a temporary halt on writing new business or raising limits on existing policies for a period of time. They occur infrequently, but they are not an unusual incidence.
Moratoriums are issued for a variety of reasons such as the rioting in Baltimore or Ferguson, Missouri. The most frequent binding prohibitions occur for impending natural disasters such as hurricanes, tornadoes, flooding, and wildfires. Most of the moratoriums I’ve seen for Texas have been related to hurricanes that have entered the Gulf or flooding such as the one that happened in San Antonio in 2013. Binding prohibitions related to a potential natural disaster are lifted at some point after the disaster has occurred or when the threat has passed.
Insurance companies issue binding moratoriums to avoid paying for immediate claims. No company wants to write a policy on a business or home that’s in the middle of a riot or in the way of a hurricane about to make landfall. Insurance companies will pay claims for all of these events when they occur, but it would be financially irresponsible to write new policies in an area that’s on fire or underwater.
The most common binding restriction is on flood policies. All flood policies have a 30 day waiting period after payment has been received before going into effect, unless it’s required for a home closing. The reason is to keep people who don’t have flood insurance from waiting to buy a policy when the floodwater is lapping at their door.
It’s impossible to avoid all insurance moratoriums, however, there are some lessons we can all learn from Baltimore or any number of natural disasters.
- Over 200 businesses sustained some level of damage during the riots. Most of these are minority and immigrant owned with about half having some type of commercial insurance in place. If you don’t have insurance, get it.
- If you have insurance, review your current policy to determine what is covered and whether or not you have enough coverage for contents, business property and inventory, liability, business interruption, etc.
- Keep an extra copy of your policy and your insurance agent’s contact information in a safe place where you can access it if needed.
- Talk with your agent about any optional or additional coverage you may need such as business interruption coverage, a flood policy, etc.
Hopefully, you’ll never experience what the businesses in Baltimore experienced, however, reviewing your personal and business policies now, will at least confirm whether or not you’re prepared. Share your comments, questions, and experiences with me on our Google +, Facebook, and LinkedIn pages. I’d love to hear from you!