Private Flood Insurance Rule | Final Thoughts

Now that we have the NFIP safely tucked away until September 30, 2019, all eyes are on the implementation of the Private Flood Insurance Rule.  As we’ve inched closer to July 1st, there remains a lot of confusion around accepting private flood insurance policies.  The biggest misconception stemming from this rule is surrounding the compliance aid statement.  Under this rule, you are required to accept a private flood insurance policy if the following statement has been included in the policy, “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”  This is the easy part:  Find the statement, accept the policy. But, what if the statement isn’t in the policy?  You can’t simply reject the policy at that point.  If a policy does not include the compliance aid statement, you must review the provisions of the policy to determine whether it otherwise conforms to the definition of private flood insurance under the rule. If it does, you are required to accept it.  That’s where it get a little tricky.
“Private flood insurance” means an insurance policy that:
  • Is issued by an insurance company that is:
    • Licensed, admitted or otherwise approved to engage in the business of insurance by the insurance regulator of the State or jurisdiction in which the property to be insured is located, or
    • Recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the State or jurisdiction in which the property to be insured is located in the case of a policy difference in conditions, multiple peril, all risk or other blanket coverage insuring nonresidential commercial property.
  • Provides flood insurance coverage that is at least as broad as the coverage provided under a Standard Flood Hazard Insurance Policy (SFIP) for the same type of property, including when considering deductibles, exclusions and conditions offered by the insurer.

  • Includes all of the following:
    • A requirement for the insurer to give written notice 45 days before cancellation or non-renewal of flood insurance coverage.
    • Information about the availability of flood insurance coverage under the NFIP.
    • A mortgage interest clause similar to the clause contained in an SFIP.
    • A provision requiring an insured to file suit not later than one year after the date of a written denial or all or part of a claim under the policy
  • Contains cancellation provisions that are as restrictive as the provisions contained in an SFIP.

How are you supposed to easily determine whether the policy you are reviewing addresses each one of the above provisions?  Here are some tips on how to do so:

 Determining Company Licensure
The best place to go to determine whether the company meets the licensure provision is the Department of Insurance website for your state.  The URL of each State’s Department of Insurance is a little different, but if you touch the magic Google, you should be able to readily locate the correct website.  We’ve tested quite a few of state-specific insurance websites and have found them relatively easy to navigate as they contain search functions to locate specific companies.
“At least as broad as an SFIP” Provision
This little provision is a little more difficult to determine.  Policies and their parameters are written in generally vague terms. One of the main provisions you will look for is that the policy provides coverage to you as the loss payee and that the definition of flood is as broad as the NFIP definition.  The NFIP defines flood as:  A general or temporary condition of partial or complete inundation of 2 or more acres of normal dry land or of 2 or more properties (at least one of which is the policyholder’s property) from:
  • Overflow of inland or tidal waters.
  • Unusual and rapid accumulation or runoff of surface waters from any source.
  • Mudflow.
  • Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.

The other provision you want to look for is that deductibles are below the maximum allowed under the NFIP (i.e. generally $10,000, but may be less depending on the amount of coverage needed).

Itemized ContentThis provision is relatively straight-forward in terms of looking for the enumerated items in the definition of private flood insurance (e.g. insurance is also available under the NFIP, mortgage interest clause, timeframe for filing suit on a denied claim, and the 45-day cancellation/non-renewal notice).  You can use this list as a checklist of sorts when reviewing a policy.

Cancellation ProvisionsFlood policies may be terminated mid-term or full-term by cancellation, or full-term by nullification. The insured may request cancellation or nullification of an NFIP policy for the specific reasons outlined by NFIP cancellation instructions.  Reviewing the cancellation reasons is a good place to start to determine whether the policy in front of you meets this requirement.

What if you don’t want to go through the mental gymnastics to determine whether a policy complies with the definition of private flood insurance?  You can’t outrightly reject the policy if does not include the compliance aid statement, but you can look for insurance expertise to assist you in making this determination.  There are some insurance professionals who will, for a fee of course, review a policy to determine whether it complies with the private flood insurance definition.  However, you may not have to go down that road.  As insurers react to this leglslation they should all comply with this program and include the compliance aid statement. We talked to a few companies recently who stated that they will not issue a flood policy on or after July 1st unless it contains that statement, and why would they?  It makes everyone’s lives easier if the statement is included.