Flood Insurance...A Continuing Yo-Yo
On again…off again…. on again. It seems like the world of flood insurance has become quite the yo-yo to keep track of. As we all know, after being temporarily renewed in July 2018, the NFIP expired again in November 2018 and was temporarily renewed in December 2018, in the final hours just prior to the government shut down. However, this is once again just temporary to get us through to the next reauthorization deadline on May 31, 2019. https://www.congress.gov/bill/115th-congress/senate-bill/3628
We will keep you posted on the continuing reauthorization yo-yo.
In the mean-time, there is a new player we must all familiarize ourselves with on the flood insurance frontline, private insurance policies. The question regarding private flood insurance has been out there for years with the introduction of Biggert Waters Flood Insurance Reform Act of 2012. Congress passed the law mandating the acceptance of private flood insurance pending the implementing regulations. Seven years and two proposals later we have a regulation!!
Included in the Final Rule, effective on July 1, 2019, are two conditions which the policy must meet in order to fall under the mandatory requirement for accepting a private flood insurance policy:
1) The statutory definition of “private insurance” as defined in the Act, and
2) The mandatory purchase requirement
As for the policy itself, there are 4 main criteria the policy must contain to meet the definition of “private insurance”. We also have a welcomed enhancement to the proposed final rule in the form of a compliance aid. The compliance aid provision includes the following statement that allows an institution to accept the policy without further review.
“This policy meets the definition of private flood insurance contained in 42 U.S.C 4012a(b)(7) and the corresponding regulations.”
So, assuming insurance companies put this on their policies, your job is easy right? Well not so fast…. if the plan was to just pass on accepting policies that don’t have the compliance aid statement, think again. If a policy doesn’t contain the compliance aid statement, the burden falls back on the institution to determine if the policy meets the definition of private flood insurance. This will mean obtaining a copy of the actual policy and not just the Dec. page we have all become accustom to relying on.
There is an additional provision for discretionary acceptance. This is different from a policy which doesn’t contain the compliance aid statement. In this case, these policies do not meet the definition of private flood insurance, as defined above. However, it doesn’t mean you can’t accept them. The policies will just require additional due diligence to determine if they are acceptable. The Final Rule provides for elements that must be included in the policy in order for an institution to accept it when it does not meet the definition.
Some final thoughts as you put this program in place are document, document, document. Be sure you are documenting flood policy reviews. Also, especially where your institution may allow for discretionary acceptance, be sure to monitor for fair lending.
March 04, 2019