Would it be acceptable to have a policy that we will not accept any private flood insurance policy? If so, what are the dangers of doing so?

Having to revise it when they make acceptance mandatory.

I heard that once you force place a flood policy, if the borrower gets their own private flood policy that the NFIP won't allow you to cancel the force placed policy because it's a private policy. Kind makes it lenders NOT want to take a private policy; otherwise, they get screwed later on (if they need to FP).

Thoughts?

You have it backwards. You can except a private policy upfront. If they cancel it and you use the MPPP to force place - then the customer should be informed that they then need to purchase a NFIP policy in order to cancel the force placed insurance. Not sure that has anything to do with accepting a private policy upfront.

What if we don't use the MPPP? I guess what happened is the borrower had their own insurance (NFIP), then let it expire, so we then force placed flood through our 3rd party vendor. The borrower eventually got their own insurance, but it was a private policy (for some reason he couldn't get an NFIP policy). The third party vendor said that they could cancel the FP policy, but they wouldn't cancel the policy flat (like they normally would if canceled within a certain time frame). So we ended up having to pay the premium and felt we couldn't charge the borrower because they really did have insurance and we didn't want to charge them for overlapping coverage. Basically, we were out of money. So mgmt. doesn't want anything to do with private policies now.

Sounds like a problem with your force placed insurance vendor. If you are force placing private policies, then you need to look for a new vendor. Most don't have any problem with providing insurance on a prorated basis, regardless of when you ask to cancel the force placed policy.

Has anyone heard of accepting a private flood policy being a Safety and Soundness issue (i.e. risk of the agent properly fulfilling the policy in the event of a loss)??

The agent has nothing to do with the policy - they just sell it. If you are worried about the actual insurance company, you are more than able to check their financial ratings through a number of insurance company rating agencies to determine acceptability.

Can someone share their process for doing that (that being check their financial ratings through a number of insurance company rating agencies to determine accept)??

I am sure that whoever in your bank that performs the due diligence reviews for insurance companies that are used by the bank has access to one of the rating sites. I would start there. The four major rating services are Fitch Ratings, A.M. Best, Standard and Poor's, and Moody's.

Also, your state insurance commissioner can usually assist in identifying companies they find to be appropriate. A lot of states have a list on that page of their "blessed" providers.

A couple of observations from the insurance side of things: Private market flood policies will often have a minimum earned premium. In my experience, its at least 25%, but can be more. Pro rata cancellations are not something I have seen on private market (usually excess and surplus lines) flood policies. If you are dealing with a non-NFIP policy, look for the minimum earned premium requirements in the contract.

My agency only sells what I like to call "NFIP compliant" private market flood programs. We mainly concern ourselves with the Biggert Waters requirements that say a flood contract must be "at least as broad as NFIP" in order to be accepted by lenders and mortgage servicers.

Private market flood policies require reading the contract to understand exactly what you are getting. While agents are not responsible for actually adjusting and paying a loss, they should know what they are selling and if most banks are accepting it.