TOPIC: Flood

Flood Insurance Worksheet with Private Insurance Required

SVP at a bank ($1.1BUSA)
Does anyone have a flood insurance worksheet that has been revised to include a requirement for an amount for private insurance?  Our Underwriting department is beginning to require private insurance on loans that pose a higher risk to the bank based on the borrowers specific credit criteria, etc.  

    Flood Insurance and Contents Coverage

    Employee at a bank ($246MUSA)
    We have an interim construction loan that the real estate is in Zone AE; our Deed of Trust list building materials along with the real estate we are taking a lien on, all of the building items listed are covered under the building insurance with the exception of drapes (yes, the Deed of Trust for some unknown reason lists drapes), drapes would have to be covered under contents coverage.  The building plans and specs does not list drapes (and I highly doubt drapes would be included in the construction)….do we have to have contents coverage since the Deed of Trust list drapes?

      Property in flood, includes contents with no insurable value

      SVP at a bank ($848MUSA)
      We currently have property that was re-zoned and is now in a flood zone,  even though it was not our intention to take contents, our deed has boiler plate verbiage that covers personal property.  In researching FDIC's information it has been brought to our attention that we are required to determine in the borrower has any contents located on the property and then to determine if the contents have any insurable value.  It was suggested that in cases where personal property or contents securing  loan have negligible or no insurance value, affidavits from borrowers or insurance agents have been used to document that Coverage B insurance is not obtainable.   Does anyone have a sample affidavit you wouldn't mind sharing?


        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.  

          Flood policy language related to Notice of Servicers Identity

          SVP at a bank ($812MUSA)
           we purchased a basic flood policy and are making it our own.  It has been suggested that we place this in the policy- but I have never heard of this requirement before.  I know how long it will take me to get a response from FEMA on if they know why or who we would notifiy

          Have any of you'all added this to your policy???  I do not find it as a regulatory requirement.

          Thank you.

          Notice of Servicers Identity

          It is the policy of the Bank in the event it makes, increases, extends, renews, sells, or transfers a loan secured by a building or mobile home located or to be located in a special flood hazard area, to notify the Director of FEMA (or the Director of FEMA's designee), in writing, of the identity of the[DF1]  servicer of the loan.  The Director of FEMA has designated the insurance provider to receive the Bank's notice of the servicer's identity.  This notice may be provided electronically if electronic transmission is satisfactory to the Director of FEMA's designee. 
           [DF1]Check this out- never heard of it.

            California Banks- Private Flood Insurance

            Employee at a bank ($771MUSA)
            My question is for California banks with private flood insurance (PFI) on a residential property. Our attorney is advising that we don't accept PFI from a surplus line insurer for a residential property. Beginning July 1, 2019 we will be required to accept PFI if it meets FEMA's criteria.

            FEMA's Criterion #1 states "The insurance company issuing the policy must be licensed, admitted, or otherwise approved to engage in the business of insurance in the State of jurisdiction in which the property is located..." However there is a provision in the California Insurance Code that continues to disqualify surplus line insurers from meeting FEMA's criteria. It states "the permission granted in [Chapter 6. Surplus Line Brokers of the CIC] to place any insurance in a nonadmitted insurer shall not be deemed or construed to authorize any insurer to do business in the state".

            Commenters on the rule expressed concern that Criterion #1 could be interpreted to exclude policies surplus line insurers issue for noncommercial properties. Here is how the Agencies responded:

            In response to these commenters, the Agencies confirm that policies issued by surplus line insurers for commercial properties already are covered in the definition of "private flood insurance" as policies that are issued by insurance companies that are "otherwise approved to engage in the business of insurance by the insurance regulator or the State or jurisdiction in which the property to be insured is located".

            Although the Agencies did not discuss the acceptability of surplus line insurers' policies on residential property in the 2019 Final Rule, the did note a relevant congressional discussion in a footnote. *

            *During discussion of the Biggert-Waters Act on the Senate floor, Sen. Crapo noted that surplus lines insurers can provide coverage for residential properties and asked for clarification regarding the inclusion of surplus lines coverage in the definition of “private flood insurance.” In his response, Sen. Johnson stated, “the definition of ‘private flood insurance’ includes private flood insurance provided by a surplus lines insurer and is not intended to limit surplus lines eligibility to nonresidential properties. While the Senator is correct that surplus lines insurance is specifically mentioned in that context, overall the definition accommodates private flood insurance from insurers who are ‘licensed, admitted, or otherwise approved’ in the State where the property is located.”

            Our attorney states “Since the acceptability of a surplus line insurer’s PFI policy on residential property still turns on the insurer’s standing with the CDI and because SIS Section 1776 continues to exist, it is still not clear whether a surplus line insurer meets new Criterion #1”

            What are other California banks doing about this?
            Thank you for any input!