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New Rule Covers Private Flood Insurance

Monday, February 25, 2019   (0 Comments)
Posted by: Teresa Taylor
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WASHINGTON—Five federal regulatory agencies issued a joint final rule to implement provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 requiring regulated institutions to accept certain private flood insurance policies in addition to National Flood Insurance Program policies. 

The rule, which takes effect July 1, 2019: • Implements the Biggert-Waters Act requirement that regulated lending institutions accept private flood insurance policies that satisfy criteria specified in the Act;

• Allows institutions to rely on an insurer’s written assurances in a private flood insurance policy stating the criteria are met;

• Clarifies that institutions may, under certain conditions, accept private flood insurance policies that do not meet the Biggert-Waters Act criteria; and

• Allows institutions to accept certain flood coverage plans provided by mutual aid societies, subject to agency approval.


Regulations implementing the federal flood insurance statutes prohibit regulated lending institutions from making loans secured by improved real property located in special flood hazard areas unless the property has adequate flood insurance coverage.


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Comment: The final rule requires that a bank accept a private flood insurance policy that provides coverage at least as broad as an SFIP and in satisfaction of the flood insurance rules. The final rule allows a bank to determine that a private policy provides the necessary coverage if the following statement is included within the policy or as an endorsement to the policy: “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.” A bank can simply rely on the statement, without independently assessing the policy. However, the final rule does not require insurance companies to include such a statement in a private policy, and a bank can’t reject a private policy simply because the statement is not provided.


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