The federal regulatory agencies (Federal Reserve Board, FCA, Federal Deposit Insurance Corp., NCUA and the OCC) have issued a joint final rule to implement provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (the Act). This guidance requires financial institutions to accept certain private flood insurance policies. The long-awaited implementation of these rules goes into effect July 1, 2019.
The updates to the flood insurance coverage will affect financial institutions having loans secured by improved real estate or mobile homes located in special flood hazard areas (SFHAs) in which flood insurance is available under the National Flood Insurance Program (NFIP) for both personal and commercial purposes. Specifically, the changes include:
- Requiring financial institutions to accept private flood insurance policies; however, there are exceptions to this requirement if the policy does not meet the Act’s flood insurance policy definition or is less than the mandatory purchase requirement.
- Allowing financial institutions to rely on the insurer’s written assurances that private flood insurance policies meet the Act’s definition.
- Accepting private flood insurance policies that do not meet the Act’s definition when certain criteria are met, such as having adequate flood insurance coverage issued by an authorized insurer, covers the mortgagor and mortgagee as loss payees, and general safety and soundness considerations are met.
- Allowing financial institutions to accept flood coverage plans provided by mutual aid societies, subject to the institution’s regulatory agency approval.
As the effective date for the requirement to accept private insurance policies is fast approaching, financial institutions should ensure that compliance risk assessments have been updated, policies and procedures have been updated, and employees involved in the monitoring of flood insurance policies have had the appropriate training.