Breaking Down Flood Insurance Revisions into Manageable Waves

About a year ago, in response to a heavy succession of major floods that took their toll on the National Flood Insurance Program, Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012, which not only re-authorized the National Flood Insurance Program (NFIP) through 2017, it called for a sweeping overhaul of the 44-year-old program.

Such a huge revision spelled out the plan for a much-needed modernization to the program, but it also created a flood of questions, so to speak, from all impacted by the change.

Hence, in March 2013, a much-anticipated update to Biggert-Waters was released, and while it provided some clarification on a few aspects of the anticipated changes, there remains so much more that is needed. Still, the update provides some understanding of the anticipated changes and merits consideration. Here are the key points addressed by the update.

Force Placement

While the issue could have been addressed by adding Q&A 62, FDPA (Federal Disaster Protection Act of 1973) was instead amended to allow a lender/servicer to charge the borrower premiums or fees incurred for coverage beginning on the date on which flood insurance coverage lapsed or was insufficient.

This effectively closes the 15-day non-coverage gap that required lenders to somehow arrange for coverage through their own policies and the like at their own expense.

However, there are key elements that must be met in order to meet the requirements for recovering this fee.

  • All of the previously existing notification requirements must be observed.
  • The lender must terminate its force-placement policy and refund any overlap in coverage within 30 days of receipt of confirmation of a borrower’s existing adequate flood insurance policy coverage.
  • Evidence of coverage consists of a declaration page that includes the existing flood insurance policy number and the identity and contact information of the insurance company or agent.

This provision apparently was effective as of the date of the Act’s enactment, which was July 6, 2012.

Civil Monetary Penalties 

While the potential of up to a $2,000 penalty per violation was established, the update confirmed that it was effective July 6, 2012, as was suspected.

Private Flood Insurance

Lenders must now accept private flood insurance policies as long as the coverage meets the requirements under the Act. Lenders must disclose three points on such policies to the borrower:

  1. Flood Insurance under NFIP is available from private insurance companies or from the NFIP directly.
  2. Flood Insurance that provides the same level of coverage as an NFIP policy may be available from private insurance companies; and
  3. Borrowers are encouraged to compare policies.

When this notice should be provided and other elements of the anticipated notice remain outstanding and are will not be effective until the final regulations are issued.


The anticipated requirement for escrowing of flood insurance premiums for residential improved real estate or mobile home is scheduled to goes into affect on July 7, 2014. The exceptions include institutions having assets of $1 billion or less and institutions that did not have a mandated escrow program as of July 6, 2012, however this area continues to receive a lot of attention and may be further revised. For example, issues such as what happens to borrowers when the institution crosses over the $1 billion in asset size threshold and is then required to escrow remain unknown. It is anticipated that these issues will be resolved upon publication of the regulations prior (hopefully) to the implementation date of July 2014.

What Now?

While many pieces of this puzzle are not yet known, given the sweeping scope of this regulatory change, the prudent institution will begin working through the pieces of the puzzle that are known and formulating a plan for tackling the regulation in waves, with the highest priority/longest-lead time items sooner than later. What you can prepare today will give you just that much more advantage in the future.

To help credit unions sort through these changes, we have prepared a 14-page guide, “Biggert-Waters Financial Institution Impact & Action Analysis.”

The guide breaks each of the primary sections of the Act into a table, with columns that estimate the relative risk impact of each requirement and an estimate of the relative demands on the institution each requirement carries.

Of course, these estimates are subjective and each financial institution’s circumstances will vary, but they can prove helpful as a starting point in formulating your institution’s game plan. We plan on updating this guide as more insights and clarifications are received.

To receive a complimentary copy of the 14-page guide “Biggert-Waters Financial Institution Impact & Action Analysis” and to be on our notification of updates to the guide, please contact NB Risk Partner’s Mike Lane (email address link: or 1-888-972-3624, ext. 7015.

Ken Agle

Ken Agle

Ken Agle, President of AdvisX, brings more than 25 years of experience covering almost all facets of financial institution risk management operations. He has conducted more than 350 compliance reviews ... Web: Details