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Jul 22
Flood Insurance-Carrier Options are Now in the Law
By Mary Byrnes​AAI-M, AU​, Education Department​​

Flood is one of those coverages that many need, but not many are ecstatic about buying. Effective July 1, 2019 a change went into effect that could open the door to perhaps more affordable options for coverage placement.  It's good if you have the information on what the reform act allows; it might give you an edge on your competition.

You've likely heard the talk at the Federal level about privatization of flood insurance, it's not just talk.

Federal law prohibits lending institutions (banks, credit unions, etc) from making loans on property located in a qualifying special flood hazard area if the community participates in the NFIP unless the property has flood insurance for the entire loan period.  You can find out which communities participate in the NFIP easily. 

Whether you've heard of the Biggert-Waters Flood Reform Act of 2012 is immaterial, but what you do need to know is that there is a big part of it that went into effect on July 1st.  It requires lenders to accept private flood insurance when they issue loans for real property that is in a designated high-risk flood area.

It lays out the conditions that lenders may accept a flood policy other than issued  by the NFIP or a plan offered by a mutual aid society:

1. Mandatory acceptance of private flood insurance


-Issued by an insurer that is properly licensed, admitted, or otherwise approved by a regulatory agency of that jurisdiction to provide insurance
-Coverage must be at least as broad as the Standard Flood Ins. Policy (SFIP) (watch limits, coverage, deductibles, etc)
-Cancellation provisions that are at least as restrictive as the SFIP
-Requires a 45 day notice before cancellation or nonrenewal
 -Notifies the policyholder that coverage is available under the NFIP
-Contains a mortgage interest clause similar to the SFIP
-Includes a provision that a lawsuit must be filed within one year after a written claim denial by the insured

There's a “compliance aid" provision to assist lenders in evaluating and accepting policies.  Lender may rely on the statement, “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation."  This statement means that the lender doesn't have to do any further review of the policy language.  This statement can be relied up by the lender, but if the statement is not on the policy, a lender cannot reject the coverage out of hand (the lender would need to review the policy for the required criteria).


2.       Discretionary acceptance of private flood insurance

 ​Lending institutions can at their discretion accept private flood insurance without determining if it meets the criteria of a “private flood policy" as defined by Biggert-Waters (you can find the definition on the directive to credit unions by the NFIP definitions section).  It is not mandatory that the lending institution use this option.

 3.       Coverage by mutual aid societies

Mutual aid societies mean an organization whose members share a common religious, charitable, educational, or fraternal bond.  The one that I could find a reference to was the Amish Aid Plans.
The directive of the National Credit Union Administration is really well laid out and an interesting reference.

This is a step in the right direction, hopefully you'll find somewhat better coverage for your insureds and maybe some rate relief.


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