In February 2019, the Agencies finalized regulations implementing the private flood insurance-related provisions of the Biggert-Waters Act. The private flood rules established guidelines for both mandatory and discretionary acceptance of private flood policies. They also created a compliance aid that a lender may rely on in its assessment of the policy. You can read Compliance Alliance’s Private Flood Insurance Final Rule Summary at https://compliancealliance.com/find-a-tool/tool/private-flood-insurance-final-rule-summary.
The Agencies issued proposed new and revised Interagency Questions and Answers in July 2020 that included two Q&As related to private flood insurance. The Agencies are now proposing 24 questions and answers for public comment. You can read the proposed FAQs at https://www.federalregister.gov/documents/2021/03/18/2021-05314/loans-in-areas-having-special-flood-hazards-interagency-questions-and-answers-regarding-private and submit comments until May 17, 2021. The agencies categorized the proposed FAQs in the three sections:
- Private Flood Insurance – Mandatory Acceptance (9 questions)
- Private Flood Insurance – Discretionary Acceptance (4 questions)
- Private Flood Insurance – General Compliance (11 questions)
The newly proposed FAQs mirror many of the questions we answer on Hotline. Members often ask us whether there are any circumstances under which lenders must accept a discretionary acceptance policy. Proposed new Q&A Mandatory 1 says a lender may decide to only accept private flood insurance policies under the mandatory acceptance provision of the regulation.
Members also frequently ask about the deductibles on private flood insurance policies. The proposed FAQs would provide that a policy with a coverage amount exceeding that available under the NFIP may have a deductible exceeding the specific maximum deductible under an SFIP. However, the proposed answer would also advise that the lender should consider whether the deductible is reasonable based on the borrower’s financial condition for safety and soundness purposes. The proposed FAQs also tell lenders that the lender may require the deductible to be lower than the maximum deductible allowable under the NFIP.
Members often ask our Hotline advisors what paperwork is necessary to determine whether the lender may accept a private flood policy. Under the proposed FAQs, the lender may rely solely on the declarations page if it: (1) provides sufficient information for the lender to determine whether the policy meets the mandatory acceptance provision or the discretionary acceptance provision of the regulation or (2) if the declarations page contains the compliance aid assurance clause. However, the lender should request additional information about the policy to aid its determination if the declarations page lacks sufficient information for the lender to determine whether the policy satisfies the mandatory acceptance or the discretionary acceptance provision of the regulation.
Compliance Alliance is committed to bringing you the tools and training you need to comply with all applicable federal regulation. Our recent webinar on Flood Insurance at https://compliancealliance.com/news-events/flood-insurance-requirements-2020-webinar includes all the information you need on private flood insurance. Our C/A Flood Toolkit at https://compliancealliance.com/find-a-tool/by-toolkit/flood contains a Private Flood Insurance Policy Checklist (https://compliancealliance.com/find-a-tool/tool/private-flood-insurance-policy-checklist) to help you evaluate private flood insurance policies from your borrowers. If you are looking for even further assistance, Review Alliance can even help review the private flood insurance policies to assist in your determinations.