United States

Time to revisit flood insurance policies


Recent regulatory violations and concerns related to flood insurance require financial institutions to continue to evaluate flood insurance policies and procedures for compliance with regulations. Recent civil money penalties have been issued within the industry related to:

  • Failure to obtain and maintain adequate flood insurance during the term of the loan
  • Failure to notify borrowers of the requirement to obtain flood insurance
  • Failure to follow force-placement procedures and force-place insurance when required

Under the current regulatory flood insurance requirements, financial institutions are required to obtain flood insurance coverage when the financial institution makes, increases, renews or extends a loan secured by a dwelling located in a special flood hazard area. In doing so, the financial institution must notify the borrower of the requirement for flood insurance by providing the required notice of special flood hazard area to the borrower. Additionally, financial institutions are required to ensure adequate coverage is maintained throughout the term of the loan and force-place flood insurance on designated loans determined to have insufficient coverage. In the event adequate coverage is not maintained, financial institution must force-place flood insurance at least by the 46th day after notifying the borrower of the flood insurance requirement. The regulatory requirements do allow for financial institutions to obtain and force-place coverage upon identification of insufficient coverage rather than waiting until the 46th day. In determining the amount of adequate coverage, financial institutions must ensure coverage is equal to the lesser of the required insurance available or the outstanding principal balance of the loan.

Financial institutions should take the opportunity to revisit flood insurance policies and procedures, and implement controls, where needed, to comply with the regulatory requirements for flood insurance.


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