What do fair lending and disparate impact have to do with the new private flood insurance rules?
July 1, 2019, is the “go date” for the new private flood insurance requirements, which basically say that if a borrower provides the bank with a private flood insurance policy and it meets the definition of private flood insurance under the Rule, the bank is required to accept it.
Now it’s not quite that simple but you get the idea.
Since the Rule came out; however, there have been some evolutions. One of the things that keeps coming up is the issue of fair lending and disparate impact.
Within the Rule, there are two types of private policies where a bank is allowed to apply discretion with respect to whether or not they want to accept the private policy.
Listen to the video as Jerod explains more.
Since we are in the business of providing solutions, we’ve put together a last-minute webinar on the Private Flood Insurance Rules that will be held on May 29, 2019. We’ll spend 30 minutes giving you the latest and greatest information we have. We’ll look at the requirements and the evolution since the Final Rule was issued. All this in time so you have time to adjust your program/procedures if necessary.
The industry is beginning to adapt to the New Private Flood Insurance Rules as we get closer to the July 1, 2019 mandatory compliance date. We have already discussed this new Rule in previous blogs but there is one recent development that has caused some confusion.
The new Rule mentions a Compliance Aide Statement that lenders may rely on when they are looking at a private policy. Specifically, if a private policy contains the statement, a lender may accept the policy.
We’ve recently seen a few private flood policies that include the Compliance Aide Statement but it is followed by a disclaimer stating that “the insurer is not licensed in the state or jurisdiction in which the property is located”. The Rule also requires that private policies can only be accepted from licensed insurers!
So, what gives?
In some cases, it appears that the “unlicensed insurer” is actually working with a local insurance agent or broker who IS licensed in the state. There is also flexibility with policies issued by “surplus lines insurers”. These are usually a large insurance company (like Lloyd’s of London, for example) that insure areas that a regular insurance company will not. The key is to have a surplus lines insurer that is “not disapproved” by the insurance regulator.
In short, if you see such a disclaimer, don’t panic. The Compliance Aide Statement was designed to make it easier to evaluate the policy and you can rely upon it.
Private Flood Insurance – It is not going to be that easy
The new private flood insurance rules are finally here! One thing to note is that they specifically dictate that a lender cannot reject a private flood insurance policy simply because it doesn’t include the compliance aid statement. This means, you are still going to have to understand the criteria and do your due diligence when a private flood insurance policy is provided to determine whether or not you must accept it relative to the mandatory acceptance conditions.
If you didn’t know the rules just came out or you want to learn what they are all about, you’re in luck!
We have put together a 30-minute webinar to get you up to speed and give you everything you need to know about these new requirements.
We hope to see you there. Register today! We can’t wait to see you there!
We have a Final Rule for the Private Flood Insurance requirements of the Biggert-Waters Act! If you recall, there was a proposal in October 2013 followed by another proposal in November 2016 to address how lending institutions should be evaluating private flood insurance policies.
We have known for some time that there would be a requirement to accept “private flood insurance” policies. The difficult part was determining whether or not a particular policy would meet the statutory definition. The Final Rule outlines how lending institutions are permitted to exercise their own discretion when accepting flood insurance policies from private insurers. The Rule also addresses plans providing flood coverage issued by mutual aid societies that do not meet the definition of “private flood insurance”.
The Rule streamlines the process of determining whether or not a private policy meets the definition in the regulation. A private policy may be accepted, without further review, if the policy itself or an endorsement to the policy states: “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”
Another important part of the rule allows certain policies to be accepted from private insurers, even if they do not meet the definition under the law. Such policies can be accepted so long as they provide “sufficient protection” and your institution documents its evaluation and conclusion in writing.
Rest assured that the team at Banker’s Compliance Consulting is currently reviewing the entire Final Rule. We will be covering the impact of private flood insurance in future articles in our Banking on BCC Magazine, as well as covering it in detail during our Two-Part Webinar Series on Flood Insurance coming up in March.
The Final Rule goes into effect on July 1, 2019, so don’t delay in getting prepared for this new requirement!