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From PIA National — Private Insurers & the Flood Insurance Market

Posted By staff reporter, Tuesday, February 12, 2019

Good news for insurers and independent insurance agents in the area of flood insurance. PIA National sent out a news release last week that said a final rule regarding private flood insurance will soon be coming.

The association anticipates it will be good news.

In legal terms, the rule — says PIA National — “requires lenders to accept certain private flood insurance policies that meet the regulatory definition; allows lenders to rely on a ‘self-certification’ by the insurer that the policy meets the regulatory definition; and generally maintains lenders’ discretion to accept private flood insurance that doesn’t meet the statutory definition, as long as the policy provides sufficient protection to the loan in accordance with the lenders’ general safety and soundness requirements.”

Putting it in layman’s terms, the rule — if agreed upon by all five agencies involved — says mortgage lenders will be required to accept private flood insurance as an alternative to insurance sold by the National Flood Insurance Program (NFIP) and backed by the federal government.

The promulgation of the rule — along with notification to borrowers of the availability of flood insurance policies issued by private insurers — is required by a provision in the Biggert-Waters Act of 2012. It reauthorized and reformed the National Flood Insurance Program (NFIP).

It’s just not official yet.

PIA National said private flood insurance now accounts for less than 5% of the residential market, and most private flood insurance policies cover commercial properties or residential properties that need coverage above the $250,000 limit.

Five agencies have oversight in relation to mortgage lenders. Two of them, The U.S. Treasury and the Federal Deposit Insurance Corporation (FDIC) have approved the rule. The other three, the Federal Reserve, the Farm Credit Administration and the National Credit Union Administration (NCUA) still have it under consideration.

PIA National said, “Lenders are required to accept private flood policies that look exactly like NFIP policies (same deductibles for similar insurance amounts), etc. Lenders can accept other policies at their discretion; discretionary acceptance requires that a private flood policy must provide enough protection of the designated loan, and the FDIC-supervised institution documents in writing its conclusion regarding the sufficiency of the protection of the loan.”

This rule — PIA National says — “answers several questions about the functionality of flood insurance policies issued by private insurers, but, of course, it does not answer all of them — most significantly, the issue of continuous coverage. As the NFIP approaches a reauthorization deadline again in a few months, we will continue our aggressive advocacy with Congressional leadership on NFIP-related issues.”

Tags:  flood insurance market  Hartford flood program  Private insured 

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