The Biggert-Waters Flood Insurance Reform Act of 2012 (the Biggert-Waters Act) amended Federal flood insurance legislation to require the federal regulatory agencies to issue a final rule that directs insured depository institutions to accept private flood insurance. On February 13, 2019 federal regulatory agencies announced the issuance of a joint final rule to amend their respective regulations regarding loans in special flood hazard areas to incorporate and implement certain provisions regarding private flood insurance.
In general, the final rule requires institutions to accept flood insurance policies that meet the statutory definition of private flood insurance in the Biggert-Waters Act and permits institutions to exercise their discretion to accept flood insurance policies issued by private insurers and flood plans provided by mutual aid societies, even if such policies or coverage do not meet the statutory definition of private flood insurance, as long as certain criteria are met.
The final rule covers three key provisions:
Mandatory Acceptance of Private Flood Insurance and Compliance Aid
The Biggert-Waters Act requires institutions to accept private flood insurance that meets both the statutory definition of private flood insurance and meets the existing mandatory purchase requirement. The final rule includes a streamlined compliance aid provision to assist institutions with evaluating policies by relying on written assurances from the insurer that a policy satisfies the criteria set out in the Biggert-Waters Act. This provision allows an institution to conclude that a private flood insurance policy meets the definition of private flood insurance, without further review of the policy, if the following statement is included within the policy or as an endorsement to the policy 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.”
An institution may also choose not to rely on an assurance statement and conduct its own due diligence to ensure the private policy meets the definition of private flood insurance which is provided in the final rule.
Discretionary Acceptance of Private Flood Insurance
The final rule provides that institutions may accept private flood insurance policies that do not meet the Biggert-Waters Act's criteria for mandatory acceptance, provided that certain conditions are met.
Specifically, the final rule permits institutions to accept flood insurance policies issued by private insurers that do not meet the statutory and regulatory definition of private flood insurance if the policy:
Coverage by Mutual Aid Societies
The final rule allows institutions to accept certain flood plans provided by mutual aid societies, such as an Amish Aid Plan, when certain conditions are met. As defined in the final rules, a mutual aid society means an organization whose members share a common religious, charitable, educational, or fraternal bond that covers losses caused by damage to members’ property pursuant to an agreement, including damage caused by flooding if the common bond has a demonstrated history of fulfilling the terms of agreements to cover losses to members’ property caused by flooding.
Pursuant to the final rule, an institution, in satisfaction of the mandatory flood insurance requirement, may accept a plan provided by a mutual aid society, if the institution’s primary Federal supervisory agency has determined that such plans qualify as flood insurance for purposes of the Biggert-Waters Act and the plan:
Effective Date
The final rule becomes effective on July 1, 2019. As such financial institutions should work diligently to make necessary changes to their policies, procedures and operating systems to ensure compliance by the effective date.
Click on the link below to access the joint final rule in its entirety, for additional information, including the statutory definition of private flood insurance:
https://www.fdic.gov/news/news/press/2019/pr19006a.pdf
In general, the final rule requires institutions to accept flood insurance policies that meet the statutory definition of private flood insurance in the Biggert-Waters Act and permits institutions to exercise their discretion to accept flood insurance policies issued by private insurers and flood plans provided by mutual aid societies, even if such policies or coverage do not meet the statutory definition of private flood insurance, as long as certain criteria are met.
The final rule covers three key provisions:
- Mandatory Acceptance of Private Flood Insurance and Compliance Aid
- Discretionary Acceptance of Private Flood Insurance
- Coverage by Mutual Aid Societies
Mandatory Acceptance of Private Flood Insurance and Compliance Aid
The Biggert-Waters Act requires institutions to accept private flood insurance that meets both the statutory definition of private flood insurance and meets the existing mandatory purchase requirement. The final rule includes a streamlined compliance aid provision to assist institutions with evaluating policies by relying on written assurances from the insurer that a policy satisfies the criteria set out in the Biggert-Waters Act. This provision allows an institution to conclude that a private flood insurance policy meets the definition of private flood insurance, without further review of the policy, if the following statement is included within the policy or as an endorsement to the policy 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.”
An institution may also choose not to rely on an assurance statement and conduct its own due diligence to ensure the private policy meets the definition of private flood insurance which is provided in the final rule.
Discretionary Acceptance of Private Flood Insurance
The final rule provides that institutions may accept private flood insurance policies that do not meet the Biggert-Waters Act's criteria for mandatory acceptance, provided that certain conditions are met.
Specifically, the final rule permits institutions to accept flood insurance policies issued by private insurers 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 that is licensed, admitted, or not disapproved by a state insurance regulator;
- Covers both the mortgagor(s) and the mortgagee(s) as loss payees, except in the case of a policy that is provided, and for which the premium is paid by a condominium association, cooperative, homeowners association, or other applicable group; and
- Provides sufficient protection of the designated loan, consistent with general safety and soundness principles
Coverage by Mutual Aid Societies
The final rule allows institutions to accept certain flood plans provided by mutual aid societies, such as an Amish Aid Plan, when certain conditions are met. As defined in the final rules, a mutual aid society means an organization whose members share a common religious, charitable, educational, or fraternal bond that covers losses caused by damage to members’ property pursuant to an agreement, including damage caused by flooding if the common bond has a demonstrated history of fulfilling the terms of agreements to cover losses to members’ property caused by flooding.
Pursuant to the final rule, an institution, in satisfaction of the mandatory flood insurance requirement, may accept a plan provided by a mutual aid society, if the institution’s primary Federal supervisory agency has determined that such plans qualify as flood insurance for purposes of the Biggert-Waters Act and the plan:
- Provides coverage in the amount required by the flood insurance purchase requirement;
- Covers both the mortgagor(s) and the mortgagee(s) as loss payees; and
- Provides sufficient protection of the designated loan, consistent with general safety and soundness principles
Effective Date
The final rule becomes effective on July 1, 2019. As such financial institutions should work diligently to make necessary changes to their policies, procedures and operating systems to ensure compliance by the effective date.
Click on the link below to access the joint final rule in its entirety, for additional information, including the statutory definition of private flood insurance:
https://www.fdic.gov/news/news/press/2019/pr19006a.pdf
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