What is a binding authority restriction and why does it matter?

If you call to purchase a new insurance policy or change your existing coverage, you may be told it’s not possible due to a binding authority restriction. In this article, we’ll explain what a binding authority restriction is, why it may be in place and what it means for you and your insurance. 

What is a binding authority restriction? 

An insurance company may issue a binding authority restriction for a geographical area (usually defined by postal code) if there is an imminent threat of being damaged by an existing or known event.  

This means you will be unable to purchase new coverage or change existing coverage affected by a binding authority restriction. 

Are all types of insurance affected by a binding authority restriction? 

Yes, both personal lines and commercial insurance can be affected by a binding authority restriction.  

What is the purpose of a binding authority restriction? 

Insurance is designed for unexpected events. Some people may see the imminent risk of damage and want to make a last-minute purchase of insurance to ensure they’re covered. This goes against the principle of how insurance works and is unfair to others.  

When you purchase insurance, your premiums go into a pool that pays those who experience a loss – if someone doesn’t contribute anything, they’re just taking from that pool. This can lead to higher insurance premiums for the rest. A binding authority restriction prevents people from taking advantage of the system in this scenario. 

What are some examples of a binding authority restriction? 

In June 2022, Calgary experienced significant rainfall. Some insurers issued a binding authority restriction for certain areas around the Bow and Elbow rivers, as they felt there was a high likelihood of water damage due to flooding. 

Throughout the summer in 2021, BC experienced wildfires across the province. Many insurers issued binding authority restrictions for places within a certain distance of a wildfire. This can be as little as 25 kilometers to as vast as 100 kilometers. 

When can binding authority restrictions be an issue? 

In the case of an intense fire or flood season, it may make it difficult for individuals and businesses to purchase new insurance, update existing coverage or go through the renewal process.  

What can I do if I need new insurance or want to change my existing coverage? 

First, speak to your broker. There are some scenarios where we can appeal against the binding authority restriction. We may also be able to place your risk with another insurer. 

In some cases, if you have an existing policy that needs to be renewed, it will remain in effect until the binding authority restriction is removed. This isn’t offered by every insurer, however. 

If this is a potential recurring issue, you can extend your policy by a few months or six months to bring the renewal dates outside of primary fire or flood season. 

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