Yes, a customer may purchase private flood insurance from a provider outside of the National NFIP, provided that certain conditions are met. In fact, the Biggert-Waters Flood Insurance Reform Act of 2012 (Act) requires regulated lending institutions to accept private policies that meet the statutory definition of “private flood insurance.”

The Act defines “private flood insurance” as an insurance policy that: (1) is issued by an insurance company that is licensed, admitted, or otherwise approved to engage in insurance in the state where insured property is located; (2) provides flood insurance coverage that is at least as broad as a standard flood insurance policy (SFIP); (3) requires the insurer to give written notice 45 days before cancellation or non-renewal of flood insurance coverage to the insured and the regulated lending institution, or a servicer acting on the institution's behalf; (4) includes information about the availability of flood insurance coverage under the NFIP; (5) includes a mortgage interest clause similar to the clause contained in an SFIP; (6) includes a provision requiring an insured to file suit not later than one year after the date of a written denial for all or part of a claim under a policy; and (7) contains cancellation provisions that are as restrictive as the provisions contained in an SFIP. If your customer’s private flood insurance meets these criteria, then your bank must accept the policy.

We also note that the federal banking agencies issued a proposed rule in October 2016 to implement the Biggert-Waters private flood insurance requirement. The proposed rule is more permissive than the Act and would allow lenders to accept policies that do not meet the statutory definition of “private flood insurance” on a discretionary basis, subject to certain similar restrictions. For example, the insurer still must be licensed in the state where the property is located, and the policy must provide coverage similar to policies in the NFIP. Until the rule is finalized, however, we recommend accepting only those private policies that comport with the Act’s definition.

For resources related to our guidance, please see:

• 42 USC 4012a(b)(1)(B) (“Each Federal entity for lending regulation … shall by regulation direct regulated lending institutions . . . to accept private flood insurance as satisfaction of the flood insurance coverage requirement under subparagraph (A) if the coverage provided by such private flood insurance meets the requirements for coverage under such subparagraph.”)

• 42 USC 4012a(b)(7) (Defines “private flood insurance”)

• FDIC Compliance Manual, Lending – Flood Disaster Protection, pg. 6.1 (“Flood insurance may be provided through the NFIP or through a private insurance carrier.”)

• Interagency Proposed Rule, 81 FR 78063 (November 7, 2016) (“Specifically, the proposed rule would require regulated lending institutions to accept policies that meet the statutory definition of private flood insurance in the Biggert-Waters Act and permit regulated lending institutions to accept flood insurance provided by private insurers that does not meet the statutory definition of ‘private flood insurance’ on a discretionary basis, subject to certain restrictions.”)