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Binding Restrictions: What Are They, How Do They Affect Me, and What Can I Do About It?

Have you been told you can’t get insurance due to a “binding restriction”? Here, we will share with you what this means, how it affects you, and what you can do about it.

Binding restrictions don’t come up often – so most people aren’t familiar with what they are, what the process is, or how it can throw a wrench in their renewal or purchase of a new policy. A binding restriction is when an insurance company temporarily prohibits the issuing of new policies, and the increasing of limits in existing policies, for a period of time. When a tropical storm or hurricane is approaching, it is common for every insurance company to issue a binding restriction, or in other words, to stop writing new policies, until the threat of the storm has passed.

Typically, binding restrictions only occur when there is a major storm heading toward the affected area. To a lesser extent, sometimes companies will have binding restrictions remain in effect after a storm while they assess what they are dealing with from a claim perspective, or while reviewing their financials to determine if they wanting to continue growing or to pause their growth for a time.

What are some ways a binding restriction could affect me?

  • If you’re planning to close on a new home or property this week, you are not going to be able to get insurance coverage and that may affect your ability to close.
  • If your renewal is during this period, and you are planning to move to another insurance company, but you haven’t signed up yet, you will not be able to until the restriction is lifted.
  • If you don’t have coverage, and you are thinking of getting it now that a storm is approaching, you cannot get coverage during this period.

Why do binding restrictions exist?

Insurance rates are based on people having coverage for a full year, and a prediction of what claims could arise during that year. When people purchase a policy only when a storm is coming, there is a disproportionate risk that a claim could occur before a full year of the policy has been paid. It throws the insurance ‘ecosystem’ out of balance due to an influx of potential claims that otherwise would not exist.

What can I do if a binding restriction is impacting me?

There are no quick and easy solutions to obtain insurance while a binding restriction is in place. However, here are a few tips and suggestions to keep in mind:

  • If you’re under contract for a new property, do your best to get an insurance policy in place as early in the process as possible, especially during hurricane season.
  • If your existing policy renewal is during hurricane season, don’t wait until the last moment to execute your decision if moving from one insurance company to another. The best way to avoid the issue entirely is by changing your renewal date to a time out of storm season.
  • Keep in close contact with your insurance agent and ask them to communicate with you IMMEDIATELY after the binding restriction has lifted so you can secure coverage without any additional delay.

Are you dealing with a binding restriction? Contact us today to review your options and get fast tracked to a new policy as soon as the restrictions are lifted.