Moratoriums, when insurance companies say no and why it might leave you saying “OH NO!!”

We all know that California and states along the west coast and around different areas of the US make the news with their raging forest fires. We see video of people displaced from homes, aftermath of burn earth and debris, and raging fires that seem to never end.

During catastrophic events like earthquakes, fires, hurricanes, etc insurance companies use a strategy where they place a moratorium on new business in those areas. Essentially this is just a blanket “we will not take new business in this area until further notice”. Until the moratorium is lifted agents will not be able to help you with insurance in those areas for the named lines of business that the moratorium affects. This could leave you in a bad spot if you haven’t planned again and got your ducks in a row prior to things happening.

As independent insurance agents we have a moral and ethical obligation to do what’s in your best interest at all times BUT…. in the event of catastrophes we have the same moral and ethical obligation to the carrier to NOT write business we know is more likely to have a loss than not.

For example, if the forest fire is in your backyard and you don’t have homeowners insurance and you call me to place insurance on your home, it is my professional obligation to tell you know. This is called adverse selection. Adverse selection is where one party of a transaction has more information to base their decisions off of than the other. In this case if you failed to disclose your fire in your backyard and a company took on the risk because that information was withheld then it would be considered adverse selection. One party is making a decision to enter a contractual agreement under the assumption of normal conditions and your situation has additional risk that is not disclosed.

Most likely due to losses in your area a moratorium would have already been issued but if the agent or carrier writes that policy without knowledge of the fire in your backyard there could be reason for declining coverage for misrepresentation of the risk and ultimately could leave you in the same spot you would have been uninsured anyways.

To combat moratoriums and adverse selection its important to talk through your insurance planning with your agent and make sure you are protected. If you need a second option on a topic or line of business we would love to assist.

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