We have just started accepting private flood insurance policies. I developed a process to have them reviewed backroom using a checklist that outlines the 6 FEMA points. Reviewing these policies has proven to be difficult, time consuming and frustrating.

If you are accepting private flood insurance policies, do you have any advice on how to make the review operationally efficient?

Mel,

This has been a challenge for my bank too. We talked to a few people in the insurance industry and decided to have our force place insurance vendor review the policies. Unfortunately in order to do the review you really need the whole policy. What the vendor does is maintain a list of carriers that have had policies reviewed previously, which helps us know if the carrier's private policy is acceptable. There have been very few that aren't acceptable, and usually the carrier is willing to change the policy if it falls short.

The banking industry and the regulators have both proposed safe harbors so that you and I don't have to become 'certified' private flood insurance experts, but they're only proposals at this point. The regulators proposed that the state insurance agencies determine if policies are acceptable. I have reservations about that because we could have 50 different standards and in my experience states don't want anything to do with flood insurance. Their stock reply is, 'Flood insurance is a federal matter.' Bankers want the insurance companies to add some sort of endorsement to the policy stating that it meets the 6 criteria, which would make life easier for us. There's also a push by banking industry lobbyists to get Congress to amend Biggert-Waters to remove the narrow definition of private insurance.

Good luck getting the States on board - I called our Insurance Commissioner's office, and they had no such list, had no plans to implement a list, and had never heard of the proposal.

I must have missed something; I thought this provision was still waiting on regulations to be issued? Could someone provide a link?

Smiling - You're correct, the rules haven't been finalized, but the private insurance definition is included in the law so now it's a matter of how the regulators decide to implement it.(Not a matter of if but when...)

With flood compliance being a zero tolerance issue our bank wanted to get our ducks in a row to make sure the policies we're accepting meet the new requirements. The last thing we want is to have to do a file review to try to determine if any private policies currently in the portfolio don't meet the new rules.

Whew...thanks Phil. I do wish they regulators would at least provide a statement of what is left.

By the way what were the 6 points for review? I know I saw it but cannot find it now.

We are getting a lot of heat for not accepting private flood insurance policies. A local insurance agent quoted "it is illegal for a lender backed by the FDIC to reject private flood insurance as a replacement to the NFIP if the policy meets the 6 guidelines set forth by BW Act of 2012".

Where is this coming from??

SEC. 100239. USE OF PRIVATE INSURANCE TO SATISFY MANDATORY PURCHASE REQUIREMENT of the BWA.

I must have missed the memo that we are required to accept private policies. I knew this was in the B-W Act, but thought regulations need to be implemented.

Another thing that has crossed my mind is FNMA is required to accept them under 100239, so as a servicer of FNMA loans, do we also need to accept them??

Guess we have to get a process in place to accept private policies ASAP. It requires another level of expertise to know if they are acceptable, creating some operational issues for us.

Banks have benn accepting private policies for years, particularly when the loan and property value far exceed NFIP limits. What is new is the requirement to accept private policies. The agencies issued guidance stating that this part of BW would be effective upon issuance of regulations, which have not yet been finalized.

http://www.occ.gov/news-issuances/bulletins/2013/bulletin-2013-10a.pdf

Proposed regulation.

http://www.federalreserve.gov/newsevents/press/bcreg/20131011a.htm

In the right hand column of page 65110 of the 10/30/13 issue of the Federal Register it says "In contrast, both the escrow and private flood insurance provisions will become effective when the Agencies finalize implementing regulations." The rule has not yet been finalized.

In the middle of page 65114, it discuses the rescinded FEMA Mandatory Purchase of Flood Insurance Guidelines booklet. It says that "The Agencies note that currently institutions continue to have the discretion to accept flood insurance issued by a private insurer pursuant to section 102(b)(1)(a) of the FDPA." Pages 57 and 58 of the rescinded publication discuss the six items that must be reviewed when looking at a private policy.

We have just received our first private policy. Am I correct in saying that we can accept this policy if we review the six items and find the policy acceptable?
The Agent is asking us to give them something in writing that we will accept it, is this standard practice? The property is a rental home and the coverage amount is adequate.

It's up to you (the lender) to decide if it's acceptable or not.

Thank you David.

I spent most of yesterday trying to get full policies so I could determine which were and which were not NFIP policies. All I got was the dec pages--Absolutely no luck whatsoever. One agent told me she had never been asked for the entire policy before.

There should be no problem telling an NFIP policy from a private policy by the dec. page. You would only need a copy of a policy if it was a private policy as every NFIP policy is the same.

What should I look for to identify an NFIP policy? I don't see maps, etc that you had mentioned in an earlier post, just information on coverage etc.

Who is the insurance company? If it is Lloyds, then it is private. If it one of the standards, Allstate, State Farm, etc. they are all WYO companies. If other, then you need to get the policy. Make sure you are dealing with actual declaration pages and not some sort of certificate of insurance or binder document - those are worthless for any type of flood insurance policy.

I would guesstimate that only about 1 in 10 policies are actually private policies and you don't have actual declaration pages.

Yes, I've noticed a recurring service called NoticeXChange providing a renewal notice lender copy. Now when you say WYO companies, does that mean they more than likely wouldn't be NFIP policies?

Yes, I've noticed a recurring service called NoticeXChange providing a renewal notice lender copy. Now when you say WYO companies, does that mean they more than likely wouldn't be NFIP policies?

WYO companies are State Farm, Farmers, All State, etc. They write their own policies through the NFIP.