We have a proposed loan to a commercial property which lies in a SFHA, and we have sent the appropriate notices and suggested that the customer obtain a NFIP policy. The customer/officer is insisting on using the current insurer and their private flood insurance policy. We are currently reviewing the policy to see if it meets the 6 requirements from the FEMA guidebook (since we don't have official rules on private flood just yet).

So far we know it has met 5/6, we are currently having issues with the 45-Day Cancellation/Non-Renewal Notice clause.

The Private Policy maintains that it will provide 45 days notice for cancellation/non-renewal, but will only provide 10 days notice in the case of non-payment of premium.

By comparison, after review it appears that a NFIP policy does not contain a clause regarding nonpayment of premium.

So if the NFIP has not stated a notification timeframe regarding non-payment of premium, would the 45 day clause of the Private Policy be acceptable?

Forget the FEMA guidebook.

Regulations are yet to be issued. What you do in the meantime is up to you, put you should be at least reviewing the policy to see if it meets the minimum requirements.

The Biggert-Waters Act established the criteria for private policy acceptability.

. The law indicated the following as the minimum requirements for acceptance of a private policy:

1. The policy provides flood insurance coverage which is at least as broad as the coverage provided under a standard flood insurance policy under the national flood insurance program, including when considering deductibles, exclusions, and conditions offered by the insurer.

2. Includes:

a. a requirement for the insurer to give 45 days’ written notice of cancellation or non-renewal of flood insurance coverage to:
i. the insured; and
ii. the regulated lending institution or Federal agency lender;

b. information about the availability of flood insurance coverage under the national flood insurance program;

c. a mortgage interest clause similar to the clause contained in a standard flood insurance policy under the national flood insurance program; and

d. a provision requiring an insured to file suit not later than 1 year after date of a written denial of all or part of a claim under the policy; and

e. contains cancellation provisions that are as restrictive as the provisions contained in a standard flood insurance policy under the national flood insurance program.

I'd like to revisit this topic. Are there any tips on where we can find what "as broad as the coverage under a SFIP" might entail? I'm looking at a private policy that has a laundry list of exclusions, conditions etc.

The only thing of any benefit currently is the proposed regulations for the acceptance of private flood insurance, but they have yet to be finalized:

https://www.occ.treas.gov/news-issuances/news-releases/2016/nr-ia-2016-139a.pdf

I am still unsure as to whether or not one can accept a private policy with annual aggregate limits. This seems to be the norm so what are others doing? This was also a comment in the proposed rule (below). If we could ever get a final rule we could hopefully (depending upon what we get) eliminate the confusion around this process.

Beyond the 6 criteria guidelines it seems like currently the determination of whether or not we can accept a policy with an aggregate limit is up to each financial institution. Do others agree or disagree?



Another commenter noted that private flood insurance policies typically include a provision that details the maximum coverage amount, or aggregate limit, payable during the policy term.

NFIP flood policies do not have aggregate limits. A per occurrence limit is not the same as an aggregate.

NFIP policies have per occurrence limits with no aggregate. That means, for each flood during the policy term, the policy will pay up to a specified amount. For each separate flood, the limit reinstates to the full limit.

An aggregate is different in that it is the maximum amount payable during the policy term regardless of the number of occurrences. If you have multiple flood events during a policy term, the aggregate will reduce by the amount paid and not reinstate to the full limit again until renewal. The danger would be having multiple flood events in one policy term and ending up with an inadequate limit.

If "at least as broad as NFIP" is the standard you are using, in my mind, an aggregate limit is not going to meet the standard. I write a lot of private market flood in my agency. We are seeing aggregates, but we won't use a market that insists on an aggregate limit for that reason.

Yes, but that is using the 6 criteria that at this time are just unofficial "guidelines." This becomes a little more complicated when you are lending to a large corporation with potentially thousands of locations across the country insured by a master policy. Sometimes difficult to fit a round peg in the square hole with these. This appears to be an industry standard speaking from an insurance perspective. So does anyone see something in the current environment (pre-final rule) that would disallow the acceptance of a policy with aggregate limits?

You are left with what is in the Biggers-Waters Act and the regulators have stated that those provisions are not effective until the final regulations are issued. So acceptance is totally in the hands of the bank at this time.

https://www.fdic.gov/news/news/financial/2013/fil13014.html#cont

It seems that many of the private flood insurance policies that I've seen (especially for non-residential properties) do not make any reference to the flood risk rated zone like we see on NFIP policies. Is this a potential issue for determining if the lender has evidence of adequate coverage, or is the entire notion of ensuring that the policy is written for a high risk zone (A or V) for properties in SFHAs only a consideration in the context of NFIP?

The risk zone is solely for determining the flood risk and the premium associated with that risk for an NFIP policy. If a private company bases their premium on that or something else, it really doesn't matter.

I'm also looking at a private policy that not only has a limit but also a deductible of “5% of the dwelling value at the time of loss, for each flood loss.” Would this be an acceptable provision for a dwelling?

Up to you - there is currently no guidance on the acceptability of private flood insurance policies. You need to be prepared if that changes and decide if this is this acceptable from a safety and soundness perspective.