Q: Bank ABC has a new business customer that will require flood insurance. Their insurance agent just sent over what they are saying is their flood policy. However, it looks like it is just an endorsement under their business policy. Is that acceptable or should Bank ABC request a separate policy?
A: The bank would want to review it and determine whether to accept this under the private flood insurance policy. The only time the Bank would “have” to accept it is if it meets the mandatory acceptance requirements as set out below:
“Mandatory Acceptance
- Under the regulation, “private flood insurance” means an insurance policy that: is issued by an insurance company that is licensed, admitted or otherwise approved to engage in the business of insurance by the insurance regulator of the State or jurisdiction in which the property to be insured is located, or
- is recognized, or not disapproved as a surplus lines insurer by the insurance regulator of the State or jurisdiction in which the property to be insured is located in the case of a policy of difference in conditions, multiple peril, all risk, or other blanket coverage insuring nonresidential commercial property;
- provides flood insurance coverage that is at least as broad as the coverage provided under the NFIP’s Standard Flood Insurance Policy (SFIP) for the same type of property, including when considering deductibles, exclusions and conditions offered by the insurer; to be at least as broad as the coverage provided under an SFIP, the policy must at a minimum:
…”
https://www.fdic.gov/regulations/compliance/manual/5/v-6.1.pdf
If it does not meet that, then the Bank won’t be required to accept it. The Bank can require a separate flood policy in this case if it requires it for its internal underwriting standards, or as a part of secondary market investor requirements.
C/A has a checklist to help for private flood insurance here: https://www.compliancealliance.com/find-a-tool/tool/private-flood-insurance-policy-checklist
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