My email has been bombarded with notices since Monday from most of the insurance companies and brokers I work with. Each one has announced they are issuing a binding moratorium due to Tropical Storm Cindy. I thought this provided a good time to understand what an insurance moratorium is and how it impacts individuals and businesses when they occur.
An insurance moratorium or binding prohibition simply means an insurance company, or companies, are placing a temporary halt on issuing new policies or raising limits on existing policies until they determine it can be lifted. Moratoriums don’t happen often, however, they are not an unusual incidence.
Moratoriums can be issued for a variety of reasons and can be caused by human events or nature. Examples of moratoriums issued for human related actions include the rioting in Baltimore or Ferguson, Missouri. Nature causes the most moratoriums, usually due to a potential natural disaster such as a hurricane, tornadoes, flooding, earthquakes, and wildfires. Most insurance moratoriums issued in Texas have been caused by hurricanes and tropical storms when they enter the Gulf, flooding, and wildfires.
Binding prohibitions are not issued on a statewide basis, but are focused on areas most likely to be impacted by a storm or civil commotion. For instance, the moratoriums most insurance companies have issued for Tropical Storm Cindy are relegated to a few counties along the Texas, Louisiana, and Alabama coast. Texas counties impacted include Orange, Brazoria, Harris, Galveston, Chambers, and Jefferson. Once the threat has passed, insurance companies remove the moratorium allowing new policies to be issued and limits to be adjusted as desired.
The reason insurance companies issue binding moratoriums is to avoid paying for immediate and highly probable claims. No company wants to write a policy on a business or home that has a strong likelihood of being destroyed by a hurricane or flooded. To do so would be financially irresponsible for the company and unfair to existing policyholders.
Insurance moratoriums may impact individuals, families and businesses. Most of the companies issuing moratoriums for Tropical Storm Cindy have done so on personal lines policies (home, car, and flood insurance), as well as commercial insurance policies (general liability and property).
Hopefully, you’ll not experience nor be negatively impacted by an insurance moratorium. One of the best ways to avoid that is taking some time to review your personal and business policies now. You’ll be able to confirm if you’re prepared and have enough coverage before the storm strikes. What do you think? Share your comments, questions, and experiences with me on our Facebook, Google +, and LinkedIn pages. I’d love to hear from you!