Federal Regulators Issue Final Rule on Private Flood Insurance
On February 13, 2019, the FDIC, OCC, the Federal Reserve Board, the NCUA, and the Farm Credit Administration issued a joint final private flood insurance rule to amend their respective regulations concerning loans in special flood hazard areas. The rule mandates acceptance of private flood insurance that meets certain criteria; includes a compliance aid provision regarding whether a policy meets the definition of private flood insurance; provides for discretionary acceptance of private flood insurance that does not meet the statutory and regulatory definition in certain circumstances; and provides for coverage by a mutual aid society.
In accordance with the rule, covered institutions must accept private flood insurance that meets both the statutory definition of private flood insurance and the mandatory purchase requirement.
The rule also allows covered institutions to conclude that a private flood policy meets the definition of private flood insurance if the policy includes the following statement in the policy or as an endorsement by the insurer: “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.” Institutions will also be allowed to conduct their own due diligence to determine whether the policy meets the definition.
In addition, covered institutions may accept private flood insurance policies that do not meet the statutory and regulatory definition of private flood insurance if the policy provides coverage in the amount required by the flood insurance purchase requirement; is issued by an authorized insurer licensed, admitted, or not disapproved by a state insurance regulator; covers both mortgagor and mortgagee as loss payees; and provides sufficient protection of the loan, and the covered institution documents that the loan is sufficiently protected in writing.
Finally, the rule provides that a covered institution may accept a flood insurance policy provided by a mutual aid society if it meets an added definition. The organization must have members that share a common religious, charitable, educational, or fraternal bond; it must, by agreement, cover losses caused by damage to its members’ property (including flood damage); and it must have a demonstrated history of covering losses caused by flooding. In addition, the mutual aid society’s plan must provide coverage in the amount required by the flood insurance purchase requirement; cover both mortgagor and mortgagee as loss payees; and provide sufficient protection of the loan, and the covered institution documents that the loan is sufficiently protected in writing.
The final rule will take effect on July 1, 2019.
