United States

Clarification around force-placed flood insurance compliance


Due to recent regulatory violations and concerns related to force-placed flood insurance requirements, financial institutions continue to be required to evaluate policies and procedures for compliance with the regulations.

Under the current regulatory flood insurance requirements, financial institutions are required to issue force-placed flood insurance on designated loans determined to have insufficient insurance coverage or lack adequate flood insurance coverage. In doing so, the bank must notify the borrower upon determination and allow the borrower 45 days to provide evidence of adequate flood insurance coverage. Upon the 46th day, the bank may assess the flood insurance premium charge if evidence of sufficient coverage has not been obtained.

Recent civil money penalties have been issued related to the failure to purchase force-placed coverage within the 45-day period. As previously mentioned, financial institutions are required to issue force-placed flood insurance at least by the 46th day after notifying the borrower of the required flood insurance. Financial institutions are guided to force-place flood insurance within a reasonable time upon notification of insufficient flood insurance coverage or lack of flood insurance coverage on designated loans, and any delays to such placement should be well documented. In relation to the issuance of force-placed flood insurance, the practice of “restarting” the 45-day timing requirement has been seen as a technical violation by regulatory authorities. In the event a financial institution receives evidence of flood insurance coverage during the 45-day period but determines the amount of coverage is insufficient, financial institutions are instructed to not restart the 45-day timing requirement and issue force-placed flood insurance upon the 46th day after the initial notification was provided to the borrower. The practice of restarting the 45-day timing requirement does not comply with the intent of the regulatory flood insurance requirements.

Financial institutions should take the opportunity to revisit force-placed flood insurance policies and procedures and implement internal controls, where needed, to comply with the regulatory requirements to issue force-placed flood insurance when required.