Your bank may choose to engage outside counsel or a compliance consulting firm to review the terms of a private flood insurance policy; however, we believe this likely will be unnecessary in many cases.

The February 2019 private flood insurance final rule provides that a bank must accept a private flood insurance policy that meets the statutory definition of “private flood insurance.” However, as this definition is quite lengthy, the final rule also includes a “Compliance Aid” to help lenders evaluate whether a flood insurance policy meets the statutory definition of private flood insurance. If a flood insurance policy includes the following “Compliance Aid” statement, the lender may rely on the statement as proof that the policy meets the statutory definition of private flood insurance without further reviewing the policy: “This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.”

However, a lender may not reject a private flood insurance policy solely because it does not contain the Compliance Aid statement. If a private flood insurance policy meets the definition of “private flood insurance” and fulfills the flood insurance coverage requirements, a lender is required to accept the policy even if it does not include the Compliance Aid statement. Consequently, your bank may choose to engage a third party to review private insurance policies that do not contain the Compliance Aid statement.

For resources related to our guidance, please see:

• OCC Flood Insurance Rules, as effective July 1, 2019, 12 CFR 22.3(c) (“(c) Private flood insurance — (1) Mandatory acceptance. A national bank or Federal savings association must accept private flood insurance, as defined in § 22.2(k), in satisfaction of the flood insurance purchase requirement in paragraph (a) of this section if the policy meets the requirements for coverage in paragraph (a) of this section.

  (2) Compliance aid for mandatory acceptance. A national bank or Federal savings association may determine that a policy meets the definition of private flood insurance in § 22.2(k), without further review of the policy, if the following statement is included within the policy or as an endorsement to the policy: ‘This policy meets the definition of private flood insurance contained in 42 U.S.C. 4012a(b)(7) and the corresponding regulation.’”)

• Final Rule, Loans in Areas Having Special Flood Hazards, 84 Fed. Reg. 4953, 4954 (February 20, 2019) (“The final rule requires regulated lending institutions to accept ‘private flood insurance,’ as defined in the Biggert-Waters Act. As suggested by commenters, the final rule also includes a streamlined compliance aid provision to help regulated lending institutions evaluate whether a flood insurance policy meets the definition of ‘private flood insurance.’ This compliance aid allows a regulated lending institution to conclude that a policy meets the definition of ‘private flood insurance’ without further review of the policy 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.’”)

• Final Rule, Loans in Areas Having Special Flood Hazards, (84 Fed. Reg. 4953, 4959) (February 20, 2019) (“The Agencies note, however, that this provision does not relieve a regulated lending institution of the requirement to accept a policy that both meets the definition of ‘private flood insurance’ and fulfills the flood insurance coverage requirement, even if the policy does not include the statement. In other words, this provision does not permit regulated lending institutions to reject policies solely because they are not accompanied by the statement.”)