Overview of New Private Flood Insurance Rules
In this Compliance Clip (video), Adam provides an overview of the new rules that require the mandatory acceptance of certain private flood insurance policies. This rule must be followed by July 1, 2019, so financial institutions must ensure they soon have a full understanding of this new rule.
For those looking for in-depth training on the new private flood insurance rule, be sure to check out our Compliance Class on this topic in our store at https://www.compliancecohort.com/video-webinar-private-flood-insurance-2019-final-rule.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to give an overview of the mandatory acceptance requirements under the new rules for private flood insurance that were issued by the interagencies.
This is a rule that was issued on February 20, 2019 and it is mandatory to be followed by July 1, 2019. This rule is fastly approaching as of the date of the publication of this video. Now, the rule does a number of things, so we're going to provide an overview here.
First of all, the final rule provides a background on the Private Flood Insurance Rules and talks about how it originated and how some things changed and how we ended up where we are today. The final rule also provides a mandatory requirement to accept private flood insurance. So, the way this works is if you, as a financial institution, have a borrower who provides you with a private flood insurance policy and it meets the definition of private flood insurance as outlined in this new rule, then you are required to accept it. You cannot deny the policy because it is private flood insurance. You have this mandatory acceptance requirement if it meets the definition of private flood insurance.
Of course the rule also provides us with a clear definition of what private flood insurance is, which helps us to understand what private flood insurance isn't. This can actually be quite complex. There's a lot of hoops that have to be jumped through in order to determine whether a policy is in fact private flood insurance. It's not something that's super easy to understand. It's going to take a bit of work on your part. Now, there is some relief in this final rule because what the regulators have done is they have provided something called a Compliance Aid, which is basically a safe harbor. This is a statement that can be included in a private flood insurance policy and if that statement is there, you as a financial institution can rely on that statement and you don't have to dig into the policy any further to see if it actually meets the definition of private flood insurance.
The final rule also includes rules for discretionary acceptance because there may be some instances where state law and the new federal rule do not align. Therefore, some states may have never approved policies that actually align with the new federal rule. So if you have a policy that doesn't meet the definition of private flood insurance, you're actually allowed to accept it in some cases, but there are specific hoops that have to be jumped through under the rules for discretionary acceptance.
Finally, the final rule includes rules for accepting a policy from a mutual aid society. There are some religious organizations, some other clubs, and groups that get together and provide their own insurance. One example that I see here in the area that I live in in northern Indiana is the Amish. So there are some instances where you, as a financial institution, could be permitted to accept a policy from a mutual aid society that's not actually insurance. Now those rules are also a little bit complex and they're not as easy as we would have hoped they would have been. But there are some hoops that have to be jumped through but it is potentially possible under the final rule.
That's all I have for you today on this Compliance Clip. Hope that gives you an overview and understanding of private flood insurance.