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Understanding Insurance Binding Restrictions

Since Tropical Storm Cindy recently hit, many people are curious about insurance moratorium or binding restrictions that were issued by some insurance companies. What does it mean and why do insurance companies do this?

An insurance moratorium or binding restriction simply means an insurance company places a temporary halt on writing new business, making changes to, or raising limits on existing policies for a certain time frame. Binding restrictions occur most often during natural disasters such as hurricanes, tornadoes, flooding, and wildfires. During the binding restrictions, you are still able to receive quotes from your insurance agent. All the binding prohibitions related to a potential natural disaster are lifted at some point after the disaster has occurred or when the threat has passed.

Binding restrictions are only focused on areas most likely to be impacted by a natural disaster or civil commotion. They are not state wide. For instance, the moratoriums most insurance companies issued for Tropical Storm Cindy were assigned 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 passed, insurance companies lifted the binding restrictions allowing new policies to be issued and limits to be adjusted as desired.

The reason insurance companies do this is to avoid paying for immediate and highly probable claims. No company wants to write a policy on a business or home that has an increased likelihood of being ruined by a hurricane or flooded. To do so would be financially remiss for the company and unfair to existing policyholders.

Flood polices see the most binding restrictions. 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. This is to prevent people from waiting until a flood has already occurred before purchasing flood insurance.

The best way to protect yourself from future insurance moratorium or binding restrictions is to review your personal and business polices now. You want to make sure you have enough coverage before the next storm or other natural disaster strikes. Check out this article Texas Monthly recently published predicting this is going to be one of the worst years ever for Houston, storm wise. Possibility of NAMED storms coming through this Gulf this summer is anywhere from 11-17. 5-9 of those are predicted to be hurricanes.

For more information or if you have any additional questions please contact our office at 281.242.0020 or

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