Agencies Release Final Rules for Private Flood Insurance

On January 25, 2019, the joint agencies issued a final rule requiring lending institutions to accept “private flood insurance.”  This long-awaited rule was mandated by the Biggert-Waters Act and went through two different proposals.

One of the biggest challenges the new rule could have created relates to how lenders will determine whether a private flood insurance policy is considered to be in compliance and, therefore, acceptable.  To alleviate this challenge, the final rule provides a “compliance aid” that allows a lender to conclude that a policy meets the definition of “private flood insurance” without further review of the policy if the policy (or an endorsement to the policy) states the following:  “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”

In addition, the final rule permits regulated lending institutions to choose to accept certain flood insurance policies issued by private insurers, subject to a few conditions, even if the policies do not meet the statutory and regulatory definition of “private flood insurance.”  The key conditions in the final rule for accepting a flood insurance policy that does not meet the statutory and regulatory definition include 1) a requirement that the policy provide sufficient protection for a designated loan and 2) a requirement that the regulated lending institution document its conclusion regarding the sufficiency of protection in writing.  The final rule also allows regulated lending institutions to exercise their discretion to accept certain plans providing flood coverage issued by “mutual aid societies.”

The new rules for private flood insurance will be effective on July 1, 2019.  

The full final rule can be found here:

Note: A full analysis of this final rule will be included in our 1stQ 2018 Quarterly Compliance Update, which will be released in April of 2018.

Two Comments Due Next Week

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