What is a moratorium in insurance?

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When natural disasters such as wildfires and hurricanes loom on the horizon, an active home insurance policy can provide peace of mind. However, homeowners with insufficient coverage might be out of luck until the threat of loss has passed. To mitigate the risk of catastrophic claims, insurance companies can implement a moratorium on issuing new policies or modifying current policies’ coverage and deductibles in the days leading up to a natural disaster. Bankrate explains what to know about home insurance moratoriums so you don’t get caught in the proverbial rain.

What is a moratorium?

An insurance moratorium is a strategy used to freeze certain insurance transactions for specific lines of business. This can occur in both homeowners insurance and auto insurance. State insurance departments can also issue moratoriums to financially protect policyholders from having their policies canceled following an event with widespread damage.

What is a moratorium in home insurance?

A homeowners moratorium occurs when insurance companies temporarily stop issuing and modifying home insurance policies due to an impending natural disaster. Insurance companies can independently enact and lift this type of moratorium to align with their risk assessment. For example, many property insurance carriers issue an insurance moratorium on new policies in Florida just before major hurricanes.

The primary purpose of a moratorium is to ensure that the insurance company can pay out potential losses for existing policies at their current policy limits. For this reason, most insurance experts recommend you review your homeowners policy once a year to make sure that its coverage types and limits still meet your financial needs. Understanding what your homeowners policy covers and how much your deductible is may save you time and stress in the event of a natural disaster.

What is a moratorium in auto insurance?

Auto insurance companies can also issue moratoriums. Auto insurance falls under property and casualty insurance, just like homeowners insurance. While home insurance moratorium periods may be more common, some moratoriums are in effect for all property and casualty policies or select lines of business.

Insurance regulators may also impose a moratorium on insurance companies, rather than policyholders. For example, the California Department of Insurance imposed a rate increase moratorium for over two years on auto insurers during the pandemic. If you are unsure if your auto insurance policy is included in a moratorium, contact your insurance agent or the company directly.

How long do moratoriums last?

The duration of a moratorium in insurance can differ based on the specific incident and the policies of the insurance provider. Moratoriums are typically implemented 24 to 48 hours prior to an anticipated event like a hurricane and remain in effect until the danger is over, which might be several days post-event. A moratorium could even persist after an event such as an earthquake due to the threat of subsequent aftershocks. The precise length of a moratorium is determined by the insurance company’s evaluation of the risk and the repercussions of the calamity.

The government decides the timeframe of state-initiated moratoriums. Typically, government officials and the state’s insurance commissioner work together and consider the number of people impacted by the disaster, how much emergency assistance is available, if communication systems are active and other factors.

When do insurance companies issue moratoriums?

Each company imposes its own moratorium period, so you may not know one is in place until you apply for insurance through a specific carrier or request a coverage change. Moratoriums are typically implemented in the days leading up to a natural disaster, as most insurance companies are aware that emergency declarations may cause people without insurance or improper coverage limits to suddenly scramble for insurance.

Can flood insurance be put under a moratorium?

Flood insurance is not included in a standard homeowners insurance policy, but it may be offered by your carrier as a standalone policy. Flood insurance through private insurance companies may be subject to a moratorium, but flood insurance purchased through the National Flood Insurance Program (NFIP) is not. However, this federal program has its own caveat. NFIP coverage typically has a 30-day waiting period from the date of policy initiation before coverage begins. There are some exceptions to the waiting period for flood insurance coverage though, such as closing on a home purchase.

Can earthquake insurance be put under a moratorium?

The California Earthquake Authority (CEA) does not impose earthquake insurance moratoriums. If your homeowners insurance is with one of its participating insurers, you’ll still be able to get an earthquake policy following an earthquake. However, a CEA policy will not provide coverage for aftershocks related to a seismic event that began before the effective date of an earthquake insurance policy.

Additionally, keep in mind that CEA-participating insurance companies may still implement their own moratoriums for property insurance. Without an existing residential insurance policy from one of these carriers, you may not be able to purchase earthquake insurance from the CEA during and after a seismic event.

Outside of California, private carriers who offer earthquake insurance may implement a moratorium following an earthquake. These moratoriums are designed to address the potential for aftershocks.

How to protect your home during a moratorium

If you could not obtain insurance before a moratorium or find that you don’t have enough coverage, a licensed insurance broker may be a beneficial resource. They may be aware of companies that are still accepting new policies and could help with researching your options.

Additionally, there are steps you may be able to take to prepare your home and protect your belongings when facing a risk like a natural disaster:

• Take inventory of your possessions: Most insurance experts recommend conducting a home inventory, especially before a natural disaster. This may include large items like furniture and appliances, but you might also consider documenting things like clothing, toys, electronics and books. Consider taking photos of your belongings and save any receipts. This may be helpful during the claims process. If you do not have home coverage in place, an inventory may be helpful when seeking federal aid following a disaster.
• Inspect outdoors: Secure outdoor furniture and loose items like sports equipment and umbrellas so they cannot blow away. Trimming large trees may also help to reduce the risk of large branches falling onto your roof and causing injuries. If you live in a wildfire-prone area, creating a defensible space around your property could help protect your home.
• Check your windows: For hurricanes and tornadoes, reinforcing windows may help keep them intact during storms and heavy winds. Reinforcement may also be crucial before a wildfire, as windows that don’t seal properly could allow smoke to seep into a house.
• Prepare your home: Besides reinforcing your windows, there are other ways to stormproof your home to limit damage from natural disasters. This can include trimming dead tree branches, cleaning your gutters and downspouts so water drains away from your house and sealing outside openings in your walls like outdoor outlets, vents and pipe and cable locations.
• Make a plan: Keeping your family and yourself safe during a natural disaster is likely your top priority. Most experts recommend having an evacuation plan and an emergency kit stocked with water, food and other necessities. Any important documents should be backed up digitally and stored properly to avoid damage. Once a disaster has passed, you may want to consult this Bankrate checklist to begin assessing damage and planning for repairs.
• Secure access and alert tools: Having access to weather and other alerts in your area may help ensure your family is able to evacuate and navigate to safety if disaster strikes. The FEMA mobile app provides National Weather Service severe weather alerts for up to five locations you select. You might consider getting a multi-function weather radio that can provide alerts, broadcasts and lighting even if the power or cell services go down.
• Seek assistance as needed: Government organizations like FEMA and nonprofit organizations like the Red Cross may have set up centers to assist with the aftermath. The IRS might also provide tax relief for taxpayers who have been affected by natural disasters.

Frequently asked questions

• How long do insurance moratoriums last?

  The length of a moratorium in insurance will depend on each company. In most cases, it starts a few days before a natural disaster is expected to impact an area and ends once the disaster has passed. Your insurance agent may be able to advise you on these dates and any updates from the company due to a change in the storm pattern.

• Does the government regulate homeowners insurance moratoriums?

  In most scenarios, an insurance company can start and end a moratorium on homeowners insurance policies without guidance from the government, especially in response to natural disasters. However, in some cases, a state government can impose a different type of moratorium on insurance companies to prevent insurance companies from canceling or not renewing policies during and after a natural disaster. One example of this is the California fire insurance moratorium. During and following a wildfire, California may issue a one-year moratorium on nonrenewals for property policies in specific ZIP codes.

• Can renters insurance be put under a moratorium?

  It could be possible for renters insurance to be put under a moratorium, just like any other type of property insurance. A licensed insurance agent or representative of the insurance company you’re interested in may have more information.