I know everyone groans when the issue of flood insurance comes up – but here is a quick and easy summary of an important update.
As of July 1, 2019, credit unions are now required to accept certain private flood insurance policies that meet the requirements established with the flood rules. And, while July 1st has come and gone, there could still be some confusion from the rule – specifically with the compliance aid provision.
In general, the new rule requires credit unions to accept private flood insurance as defined in the Biggert-Waters Act through four main provisions – among them – a streamlined compliance aid provision. Under the final rule, a credit union may find, without further review, that a policy meets the definition of private flood insurance if the policy (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.”
However, credit unions may also choose to not rely on an assurance statement and conduct their own due diligence to ensure the private policy meets the definition of private flood insurance.
The policy doesn’t include the assurance statement – now what?
Finding the assurance statement is the easy part. If the statement is in the policy, a credit union may accept it without further review of the policy and move on. But, what does a credit union do if the statement is missing? Does the credit union reject it?
Unfortunately, rejecting the policy isn’t an option. Credit unions are required to accept a policy that both meets the Biggert-Waters Act definition of private flood insurance and fulfills the flood insurance coverage amount – even if the policy does not contain the assurance statement. Put simply, a credit union cannot reject a private policy solely because the policy does not include the above statement.
The policy is reflecting compliance aid language that is different from the safe harbor version shown in the regulation. Is that okay?
The federal financial regulatory agencies (which includes the NCUA) covered this issue in a June 18, 2019 interagency webinar. As explained in the question and answer portion of the webinar, if the credit union finds language in a policy that is different from the compliance aid assurance clause stated in the regulation, the credit union should not rely on the policy’s assurance clause. In order for a credit union to rely on the assurance statement without further review of the policy, the statement must be stated in the policy exactly as set forth within the regulation.
Ultimately, if the policy is missing the assurance statement, or it reflects language that differs from the safe harbor version, a credit union must be prepared to perform an in-depth review of the policy to determine whether it meets the definition of private flood insurance under NCUA Rules and Regulations §760.2.
For credit unions wanting a refresher on private flood insurance: