Insurance Moratoriums for Hurricanes and Other Disasters

Natural disasters, such as hurricanes, wildfires, and earthquakes, have the potential to destroy communities, cause extensive damage and financially burden families, businesses, and individuals. Insurance companies play a critical role in helping everyone recover from the damages and losses caused by these events. However, during times of increased risk, like an approaching hurricane, insurance companies will often issue an “Insurance Moratorium.”

A “Moratorium” is simply an authorized period of delay in the performance of their business operations. It’s a waiting period set by the insurance carriers that suspends policy writing activity.

The Basics of Insurance Moratoriums

An insurance moratorium, sometimes referred to as a “binding restriction”, is a temporary period during which insurance companies limit or restrict the issuance of new insurance policies or adjustments to existing ones in a designated region or area of the country. This practice is commonly used in areas prone to specific types of disasters, such as hurricanes.

The goal of an insurance moratorium is to protect the financial stability (reduce the losses from excess payouts) of insurance companies during times when the risk of large-scale claims is highly elevated.

Why are Insurance Moratoriums Implemented?

Insurance companies operate on the mathematical and statistical principles of risk assessment. When a region is facing an imminent threat of a hurricane, the risk of damage and claims increases substantially. Insurance companies may become financially burdened if they continue to issue policies or make changes to existing policies during these events.

By implementing a moratorium, insurers maintain their capacity to handle claims effectively and remain financially solvent. A moratorium is a measured approach that helps insurers fulfill their commitments to existing policyholders while avoiding the risk of overextending their resources with new or adjusted policies.

How Insurance Moratoriums Affect home Buyers and Sellers

For home buyers seeking a new policy for a new purchase, or homeowners who wish to upgrade their coverage, the restrictions can be frustrating. Policyholders and new policy seekers may not be able to get the protection they need, right when they need it the most. It’s crucial for you to plan ahead and understand the potential for insurance moratoriums in hurricane-prone areas.

Insurance moratoriums will delay and may cancel closings that are in progress. Delays in closing can affect a borrower’s ability to secure a mortgage. Lenders will not underwrite a loan if you cannot get homeowners insurance.

Navigating the Moratorium Period

Here are tips for getting through the insurance moratorium period:

Plan Ahead: Recognize that the Myrtle Beach area is subject to tropical storms and hurricanes from June through November every year. Plan to obtain or upgrade your insurance coverage well in advance to avoid being caught in a moratorium.
Review Your Policy: If you’re an existing policyholder, the value of your Myrtle Beach area home has gone up significantly in the past few years. Your existing policy may not provide enough coverage to replace your home. Review your insurance policy well in advance of a hurricane season. Ensure that your coverage meets your needs. You will not be able to make changes during a moratorium.
Understand Emergency Procedures: Familiarize yourself with emergency procedures and government resources available in the event of a disaster. These can help bridge the gap when insurance coverage is temporarily restricted. State and local governments as well as FEMA will often provide financial grants and other assistance in the aftermath of a hurricane to aid recovery.
Consider Bundling Policies: We’ve all heard that bundling saves. Review your coverage with your insurance carrier or an independent insurance broker. Some companies offer bundled policies that cover multiple types of disasters and types of assets. These policies may provide better coverage and flexibility, even during a moratorium.
Stay Informed: Stay updated on the weather and potential hurricane risks in your area. Being informed allows you to make proactive decisions regarding your insurance coverage.
Communication: If you have a closing in progress when a moratorium is issued, stay in constant communication with your Realtor, your closing attorney, your insurance carrier and your lender. These professionals will have plans and procedures to deal with these situations. Communication is critical during this time. Effective communication can minimize delays and prevent cancellation of your closing or mortgage, and help you move in to your new home as soon as possible.

Moratoriums are an essential tool used by insurers for disaster preparedness. While a moratorium may be a challenge for you, it helps maintain the stability and the abilities of the insurance companies when their risk exposure is increased. By understanding the concept of insurance moratoriums and planning ahead, you can manage these situations effectively and ensure that you are adequately covered when a hurricane hits.

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