Understanding Real Estate Investment Insurance Moratoriums

With the impacts of the COVID-19 eviction moratorium still in recent memory, the mere mention of the word “moratorium” may make you uneasy as a landlord.  However, the fact is that moratoriums in real estate investment insurance are not hurdles to dread, but deliberate pauses designed to bolster stability and equity. Let’s dive into how they work, why they are essential to the insurance landscape, and how to navigate them judiciously.

What Is an Insurance Moratorium?

A moratorium, in the context of real estate investment insurance, is a temporary suspension or pause in certain insurance availability. During a moratorium period, specific types of coverage may not be available for purchase or addition to an existing policy. In many cases, moratoriums occur when an insurance company temporarily stops issuing or allowing changes to insurance policies for investment properties in an area at high risk for weather-related damage. 

While this might sound alarming, it's essential to understand that moratoriums are strategically employed measures and are not a negative—or permanent—development. They also do not impact claims coverage for policies already in effect.

Generally, moratoriums will go into effect 24 to 48 hours before a “potentially catastrophic” weather event. These events may be natural or man-made disasters that could cause significant damage to properties. Some examples of common catalysts for moratoriums are:

• Hurricanes and tropical storms
• Floods
• Wildfires

For unforeseen events that are less predictable, like hail storms or earthquakes, a moratorium may take  affect immediately afterwards. 

What Can You Not Do During a Moratorium?

Depending on the severity of the event and the state-specific regulation, you may not be able to:

• Purchase insurance: Insurers may enlist a stopgap to prevent issuing insurance policies for investment properties in the affected area.
• Expand your policy: You may not be able to make any expansions in coverage under your insurance policy during a moratorium, such as or changing your deductible.

Why Do Insurance Moratoriums Happen?

Providers often implement moratoriums as a response to heightened risk. For example, during natural disasters or other exceptional circumstances, the number of claims related to certain types of damages may rise significantly. By implementing a moratorium, insurance companies can assess the situation accurately and determine appropriate responses to claims without being overwhelmed.

In scenarios where widespread damages occur, an abrupt influx of new customers could potentially strain the company's resources. A moratorium helps ensure that the insurer remains solvent and capable of fulfilling its obligations to all policyholders.

State-imposed vs. Provider-imposed Moratoriums

A state-imposed insurance moratorium is a government action that temporarily prohibits insurance companies from canceling or non-renewing insurance policies in a specific area. This is usually in response to a natural disaster or other event that has caused widespread damage.

The goal of a state-imposed insurance moratorium is to protect consumers from being left without insurance coverage in the aftermath of a disaster. It can also help to stabilize the insurance market by preventing insurers from canceling policies en masse.

State-imposed insurance moratoriums may last for a few weeks, months, or even a year or more. The specific length of the moratorium will vary depending on the circumstances.

For instance, since 2019, the California Department of Insurance (CDI) has consistently renewed year-long mandatory moratoriums on policy cancellations and non-renewals after widespread wildfires created a state of emergency.

How Long Do Insurance Moratoriums Last?

There is no fixed timeframe for how long a moratorium will last; it depends on factors like the nature of the situation, the extent of damages, or the time required for assessment and resolution.

For instance, a moratorium may be put in place prior to an impending hurricane. Though the bulk of storm-related damage may be over in several days, an extended period of flooding could cause an insurance company to lengthen the duration of the moratorium.

How You Can Get Ahead of (and Respond) to Moratoriums

As a prudent real estate investor, you're well aware that success is often sustained by preparedness. These temporary pauses in insurance coverage might initially seem daunting, but a proactive approach can keep you, your tenants, and your investment safe.

Assess Your Risk:

Ideally, before you purchase a property you’ll have taken the time to understand the risk associated with that property’s location. If you haven’t already done so, Obie’s risk map is a great place to start to understand what the right insurance for your rental property needs to include.

Understand Your Policy:

Familiarize yourself with your insurance policy's terms and conditions, including any clauses related to moratoriums. This will help you know what to expect and what your rights are during such periods.

If you rent out multiple properties, consider looking into umbrella insurance, a type of add-on insurance policy that provides additional coverage over and above your landlord insurance’s limits.  

Stay Informed:

Keep yourself informed about any developments that could trigger a moratorium. This might mean watching weather forecasts for potential natural disasters or checking government sites to learn about changes in local regulations.

Plan for Emergencies:

Have an emergency plan in place for your property. This could involve protective measures such as reinforcing windows, securing loose objects, or ensuring proper drainage systems.

Keep Communication Lines Open:

If you're in an area prone to wildfires, floods, or other weather risks, establish open communication with your insurance provider. They can advise you on best practices for risk mitigation and how to navigate the claims process during a moratorium.

If you’re unsure of your coverage status or limits during a moratorium, the best thing to do is reach out to your insurance provider. They can provide information about what you can and cannot change under your existing policy during a moratorium, and any procedures you should follow after the period ends.

File Claims Promptly:

If you experience a loss that falls within your policy’s existing coverage, file a claim promptly. Even if a moratorium is in place, you can initiate the claims process, and the insurance company will assess the situation appropriately.

Be Patient:

Understand that moratoriums are temporary measures put in place for the benefit of both insurance companies and policyholders. While they may cause delays in purchasing or altering policies, they are designed to ensure accurate assessments and fair treatment.

This Too Shall Pass

While they might cause some delays in purchasing insurance, moratoriums do not last forever. If you’re in the process of seeking insurance when a moratorium occurs, rest assured that once the situation stabilizes, you will be able to secure the coverage you need.

Post-moratorium, it's essential to reassess and adjust insurance policies if necessary to ensure appropriate protection going forward. This is especially critical if a lack of insurance or insufficient coverage has left you paying for previous damages out of pocket. Make sure you know what to look for in a good insurance policy, including the specific perils and coverage limits you need to protect your property.

If your current policy doesn’t make the grade, you can easily get a tailored quote from Obie that takes your unique needs into account. And if you can’t complete your quote due to a moratorium, remember that it’s only temporary.

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