Feds to set private flood insurance requirements

Feds to set private flood insurance requirements
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Five regulators are preparing to clarify which private flood insurance policies meet federal requirements.

The agencies asked on Monday for feedback on guidelines for banks and lenders to follow when reviewing private flood insurance.
 
Commenters have 60 days to send their thoughts to the five regulators: the Federal Reserve, the Office of the Comptroller of the Currency, the Farm Credit Administration, the National Credit Union Administration and the Federal Deposit Insurance Corporation.
 
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The notice of proposed rulemaking is the latest effort to ease pressure on the debt-riddled National Flood Insurance Program (NFIP).

Established in 1968, the NFIP offers federal flood insurance to families in flood-prone areas. The NFIP also determines areas in which residents are legally mandated to have flood insurance.

The NFIP was solvent until Hurricane Katrina in 2005. Events like Superstorm Sandy saddled the program with $23 billion in debt.

Lawmakers from both parties say private flood insurance — almost nonexistent when the NFIP was enacted — could reduce that burden. Monday’s proposed rulemaking is geared to clear up confusion over which private policies satisfy the NFIP insurance requirement.

Banks and lender would be mandated to accept private flood policies that meet criteria laid out in the new rule, the agencies said. The criteria include standards for the breadth of coverage, accreditation requirements for the issuer, and reporting and cancellation provisions that mirror federal plans. 

The new rule would also make sure banks and lenders knew which policies they’d be able to deny based on the new criteria, the agencies said.

The proposal reflects a bill passed by the House in April. The bill, called the Flood Insurance Market Parity and Modernization Act, would clarify which private policies fulfill the federal requirement.