Federal banking agencies issued a final rule, effective July 1, 2019, implementing the requirement in the Biggert-Waters Flood Insurance Reform Act (the “Act”) for the acceptance of private flood insurance on covered properties. The final rule largely mimics the proposal (which we addressed previously here), but with a few interesting revisions and additional details.

First, the agencies adopted the proposed definition of “private flood insurance” largely unchanged. The Act defines the term, so the agencies had little discretion. However, the agencies clarified what coverage is “at least as broad as” coverage provided under a standard flood insurance policy (“SFIP”). Specifically, the final rule removes the requirement that the policy cover both the mortgagors and mortgagees as loss payees.

The most important change from the proposed stage may be a revision to the rule’s so-called compliance aid. To assist in determining whether a particular private flood insurance policy meets the necessary criteria, the agencies initially proposed that a policy would meet the definition of “private flood insurance” if: (1) the policy includes a written summary identifying the policy provisions meeting each criterion and confirming the insurer’s licensing/approval status; (2) the regulated lending institution verifies in writing the provisions identified in the summary, and that those provisions in fact satisfy the criteria; and (3) the policy includes the following assurance clause: “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”

The final rule indicated that the reaction to that proposed compliance aid was largely negative.
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Flood insurance reform continues to generate interest from Congress, particularly in the context of the National Flood Insurance Program (NFIP) reauthorization debate. (The program will expire September 30, 2017, absent reauthorization or a continuing resolution.)

In December we discussed a proposed rule to implement the statutory definition of “private flood insurance.” That proposal was related to the Biggert-Waters Flood Insurance Reform Act’s requirement that the agencies issue a rule directing lending institutions to accept such insurance, with the goal of stimulating the private flood insurance market.  In March, Senators Heller (R-NV) and Tester (D-MT), and Reps. Ross (R-FL) and Castor (D-FL),** reintroduced legislation to further define “private flood insurance,” seeking to clarify the issue, and the Senate Committee on Banking, Housing, and Urban Affairs recently held hearings on the Senate version of that legislation.
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Flood Insurance

Federal banking agencies issued a revised proposal on November 7th to implement requirements for regulated institutions to accept private flood insurance. The Biggert-Waters Flood Insurance Reform Act (the “Act”) required those agencies to issue a rule directing their respective regulated lending institutions to accept such insurance. The purpose of the requirement is reportedly to stimulate the private flood insurance market, which in turn supports the financial solvency of the National Flood Insurance Program (“NFIP”).
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