I know that you must require the customer to purchase flood insurance if they are located in a flood area where flood insurance is available and that you should monitor renewals and force-place insurance if they fail to renew. Would it be a violation if the lender just purchased a blanket policy that would cover them if the borrower failed to renew their flood policy and suffered a flood loss? This would save the time of monitoring but be more expensive.

The regulations are pretty explicit. When you become aware of the fact that coverage is not adequate to comply, you must pursue and if the customer fails to cover within 45 days, you must force-place.

Regulators are taking a dim view of passive systems where a bank only acts if it learns of a problem. They want you to be proactive and watch for non-renewals, cancellations, etc. That includes following up when a policy maturity date passes and no renewal/replacement documentation arrives.

In short, the blanket policy might cover you if the bank sustained a loss as result of not catching something, but it doesn't make you compliant with the regulation. The regulation is there to protect the government from huge uninsured losses.