We understand that the FDIC will approve mutual aid society flood plans (such as Amish aid policies) for flood insurance purposes on a case-by-case basis. The Illinois Department of Insurance does not regulate or recognize mutual aid society flood plans or Amish aid policies. Would the state’s lack of acceptance of mutual aid society flood plans prevent the FDIC from approving them?

No, we believe that the FDIC may approve mutual aid society flood plans for flood insurance purposes if such plans are not expressly prohibited by the state in which the relevant FDIC-supervised institution operates.

The FDIC rules for accepting mutual aid society plans establish four criteria for accepting mutual aid society flood plans, and the four criteria do not contain any requirements related to state acceptance of such plans. The FDIC commented on this point in the supplementary information for its private flood insurance rule, explaining that the FDIC did not intend to “inadvertently prohibit” acceptance of mutual aid society plans in the event that a state did not have “explicit policies, rules, or laws addressing mutual aid societies.”

We are not aware of any Illinois laws that expressly prohibit mutual aid society plans. Consequently, we believe that the FDIC may approve mutual aid society flood plans in Illinois, provided that the plans meet the FDIC’s criteria for such approvals.

However, as noted in an earlier GoToIBA.com Q&A on this topic, the FDIC also has noted that its approval of mutual aid society plans will be “rare and limited,” and the FDIC has not issued guidance on its approval process.

For resources related to our guidance, please see:

12 CFR 339.3(c)(4) (“An FDIC-supervised institution may accept a plan issued by a mutual aid society, as defined in § 339.2, in satisfaction of the flood insurance purchase requirement in paragraph (a) of this section if:

(i) The FDIC has determined that such plans qualify as flood insurance for purposes of the Act;

(ii) The plan provides coverage in the amount required by paragraph (a) of this section;

(iii) The plan covers both the mortgagor(s) and the mortgagee(s) as loss payees; and

(iv) The plan provides sufficient protection of the designated loan, consistent with general safety and soundness principles, and the FDIC-supervised institution documents its conclusion regarding sufficiency of the protection of the loan in writing.”)

12 CFR 339.2 (“Mutual aid society means an organization –

(1) Whose members share a common religious, charitable, educational, or fraternal bond;

(2) That covers losses caused by damage to members’ property pursuant to an agreement, including damage caused by flooding, in accordance with this common bond; and

(3) That has a demonstrated history of fulfilling the terms of agreements to cover losses to members’ property caused by flooding.”)

Final Rule, Loans in Areas Having Special Flood Hazards, 84 Fed. Reg. 4953, 4955 (February 20, 2019) (“One commenter requested that the Agencies add a fourth criterion to the definition that would require an organization to demonstrate that it meets a specified exemption under State insurance or licensing rules allowing mutual aid societies to provide insurance. . . . Although this final rule would permit regulated financial institutions to accept plans providing flood coverage issued by mutual aid societies, the rule would not interfere with a State’s ability to regulate the provision of such coverage, including a State’s ability to explicitly prohibit such coverage from being issued in a particular State. Moreover, it is the Agencies’ understanding that many States may not have explicit policies, rules, or laws addressing mutual aid societies, which may result in mutual aid society coverage being inadvertently prohibited if organizations are required to demonstrate that State law affirmatively permits them to provide coverage. Therefore, the Agencies are not adding the suggested criterion and are adopting the definition as proposed.”)

Final Rule, Loans in Areas Having Special Flood Hazards, 84 Fed. Reg. 4953, 4963 (February 20, 2019) (“Based on their current practices regarding non-traditional flood insurance, the Board, FDIC, and NCUA expect that cases in which they approve policies issued by mutual aid societies will be rare and limited.”)

Consumer Compliance Outlook, Transcript of 2019 Interagency Flood Insurance Update on Private Flood Insurance Rule (June 19, 2019), page 17 (“Since the final rule was issued, the FDIC has been considering our policy for mutual aid society flood plans. We are still evaluating how we will implement the mutual aid society provision of the final rule.”)