This is probably the most commonly asked question we receive at Save Flood Insurance Agency Inc – will my lender accept private flood insurance? It’s a fair question, of course! Many people, sometimes lenders included, are unaware that private flood insurance agencies even exist. However, we do. The flood insurance policies I write here for the agency also include a clause to explain to lenders and policy holders that the private flood insurance policy in fact meets all the requirements of the National Flood Insurance Program.
Taken from an actual policy, this is the wording,
IMPORTANT NOTICE TO BANKS, MORTGAGEES& LENDERS
To assure compliance with the NFIP Mandatory Purchase of Flood Insurance Guidelines booklet, FEMA F-083, see Endorsement Section of this policy under
“PRIVATE PLACEMENT FLOOD INSURANCE ENDORSEMENT”
on page 23 -24, which states: “It is understood and agreed that, where required, this insurance shall be fully compliant with Federal Law, as regards Private Placement Insurance, applicable to the National Flood Insurance Program. Also, see the Biggert-Waters Flood Insurance Reform Act of 2012 on page 25.
PRIVATE PLACEMENT FLOOD INSURANCE ENDORSEMENT
It is understood and agreed that, where required, this insurance shall be fully compliant with Federal Law, with regards Private Placement Insurance, applicable to the National Flood Insurance Program (NFIP).
Listed below are the six (6) NFIP vs. Catastrophic Insurance Plan (aka CIP), criteria that conforms to the mandatory flood insurance purchase requirements of the 1994 Reform Act.
1. Licensure: NFIP: The insurer must be licensed, admitted, or otherwise approved to do business in the jurisdiction where the Building is located by the insurance regulator of that jurisdiction, except as indicated in B. below.
CIP: Coverage for all Catastrophic Insurance Plan policies is provided by Certain Underwriters at Lloyds of London. Lloyd’s is a Surplus Lines Carrier. Surplus Lines Carriers are financially stable companies that are regulated by the State Department of Insurance. Surplus Lines Carriers submit financial information, articles of incorporation, list of officers & pay taxes to the state department of insurance in order to conduct business in this state. Each state insurance department maintains a list of approved Surplus Lines insurance companies approved to do business in your state. Certain Underwriters at Lloyds, London is a recognized surplus lines insurer in the United States.
2. Surplus Lines Recognition (Non-Residential Commercial): NFIP: In the case of Non-Residential commercial property insurance issued under a policy of difference in conditions, multiple peril, all risk, or other blanket coverage, the insurer should be recognized, or not disapproved, as a surplus lines insurer by the insurance regulator of the jurisdiction where the Building is located.
CIP: This is a Flood Policy.
3. Requirement if 45-Day Cancellation/Non-Renewal Notice: NFIP: The private flood insurance policy should include a requirement for the insurer to give 45 days’ written notice of cancellation or non-renewal to the insured with respect to the flood insurance coverage. The policy should also state that, to be effective, such notice must be mailed to both the insured and the lender or Federal agency lender, and must include information about the availability of flood insurance coverage under the NFIP. The policy should be as restrictive in its cancellation provisions as the SFIP.
CIP: The form provided under the Catastrophic Insurance Plan does have a 45- day cancellation clause, please see below. “We reserve the right to cancel this Policy at any time as provided by its terms, but in such case notice must be given simultaneously to the mortgagee (or Trustee) named herein. If we decide to cancel or not renew this policy, coverage hereunder for the peril of Flood only will continue in effect for the benefit of the mortgagee but only for 45 days from the date that cancellation or non-renewa l is sent to the Mortgagee.”
4. Breadth of Policy Coverage: NFIP: The policy must guarantee that the flood insurance coverage, considering deductibles, exclusions, and conditions offered by the insurer, is at least as broad as the coverage under the SFIP.
CIP: Definitions of Flood provided under the Residential and Non-Residential Policy terms and conditions are broader than those provided by the NFIP standard flood insurance policy. The Residential and Non-Residential Policy also provides options for higher limits than those under the NFIP.
The Residential and Non-Residential Policy has specifically incorporated a “Private Placement Flood Insurance Endorsement” which states…. “It is understood and agreed that, where required, this insurance shall be fully compliant with Federal Law, as regards Private Placement Insurance, applicable to the National Flood Insurance Program.”
Will my lender accept private flood insurance?
The short answer is yes, your lender should approve of a private flood policy as long as it meets all the criteria mentioned above – please keep in mind however this is for a conventional loan. for FHA loans, FHA mortgage holders to purchase private flood insurance policies you still may be required to purchase an NFIP policy for the time being. As of 2018, the Federal Housing Administration (FHA) is currently considering and proposing allowing like their conventional counterparts – however this has not been approved as of yet, but could be approved by the end of 2018 or early in 2019.