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Perspectives on Private Flood Insurance Regs Related to NFIP Standards

Kirk A. Stephens is the Chief Compliance Officer at Breckenridge Insurance Group.

After several years of private flood regulatory uncertainty, federal banking regulatory agencies issued final rules governing Private Flood Insurance effective July 1, 2019, which mandates regulated financial institutions to accept private flood insurance policies.

While financial institutions were hoping to see relief from having to review and regulate insurance policies, the federal banking agencies felt it was important for regulated institutions to carry out the review and continue to bear the burden of flood regulatory enforcement absent such process. The overall intent of the Final Rules was to lessen the burden for financial institutions of having to evaluate insurance policies oftentimes in conflict with banking personnel’s skill sets.

While the final regulations provide several options for financial institutions to accept private flood insurance, the overarching requirement that regulated institutions accept private flood if it meets the statutory definition as promulgated in the Biggert-Waters Flood Insurance Reform Act defeats the overall regulatory intent. The net result is continued pressure on resources at these institutions to stay in compliance or face penalties set forth.

In providing a solution to a lender’s potential lack of insurance risk management skills, OSC has partnered with financial institutions in providing a comprehensive private flood insurance policy review service for residential and commercial property where the OSC insurance compliance personnel evaluate private flood insurance policies on behalf of the institution. The services include a formal written assessment of the review for documentation purposes and provides an overall recommendation conclusion on whether the policy is in substantial compliance with the statutory definition based on multiple criteria.

This model allows financial institutions of varied sizes and complexity to rely on experienced risk management insurance professionals as needed and without adding more staff and investing further in associated training and development costs.

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