I am wondering how other banks have been handling borrowers who obtain temporary coverage under the NFIP while waiting for their elevation certificates. These policies seem to be acceptable under the flood rules, but in the event of a loss the payout would be low. What is the bigger risk to the bank - insurance that won't pay as much as a regular policy, or loans that can't be closed until the elevation certificate is available?

but in the event of a loss the payout would be low.

I do not understand this statement. Typically these tentatively rated policies are rated very high and usually the premiums are reduced once the EC is received and the property is properly rated.

A tentatively rated policy cannot be renewed - so they only have one year.

Thank you for the clarification! We are tightening up procedures to require a dec page before closing so the borrower is not bumped into a tentative policy (leaving them underinsured.)

Depending on the backlog of getting an elevation certificate in your specific region, you might be delaying your closings by months.

I think your fears are a little unfounded as if there was a loss during the time a tentatively rated policy was in effect, once the proper premium was determined and paid, the insurance policy would be effect at it's face value and would be paid out. So I am a little unsure of your reference to underinsured might be.

My concern is that, without a dec page (closing based on application and proof of payment), we may collect a premium that is too low. Then, once the policy comes back at the tentative rate, we would need to force place.

You may collect a premium that is too low? What do you mean by "you collect". The premium is paid to the insurance agent.

If the policy is going to require tentative rating, this all is to be addressed by the agent within the application process and you should get a copy of it all.

I think you need to download a copy of the Flood Insurance Manual and read the new chapter on provisional rating because I'm not sure that you have a full understanding of how this all works.

Typically the tentative rated policies are rated extremely high and the customer is going to be due a refund and not owe more money.

Thank you for talking this through with me, Mr. Carey. I received some additional information from our operations department that has made it clear that the problem is caused by closing loans with only the application and proof of payment. The application and payment are based on a standard policy; but NFIP underwriters are finding technical problems with the elevation certificates our borrowers provide and issuing tentative coverage dec pages for the amount the borrower already paid, thinking they were getting a standard policy. This of course leaves them with a fraction of the required coverage, and we have to force place. Going forward, we will be requiring dec pages before closing.

OK, I understand now also. Yes, that is a risk in accepting an application and proof of payment. It is probably going to become all more common in the future also.