The impact of NCUA’s final rule on private flood insurance

Credit unions will have three ways to meet BW-12’s requirements come July 1.

As late winter and early spring flooding begins its annual assault, we’re reminded once again of the catastrophic and uncontrollable nature of flooding. Nearly 75% of declared disasters in the U.S. are flood-related, and flooding is the country’s most common and expensive type of natural disaster. Since the 1980s, the U.S. has seen a $100 billion increase in flood losses each decade.

Escalating losses—especially in the post-Hurricane Katrina era—have forced the federal government to revisit its role as the top (and often only) provider of flood insurance. Between 2004 and 2018, the National Flood Insurance Program borrowed $39.4 billion from the U.S. Treasury (repaying $2.82 billion). Seeking ways to transfer insurance coverage from the federal government to private insurance—without driving up insurance rates or compromising lenders’ insurance protection and collateral—led to the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12). One of  BW-12’s main functions: to require lenders to accept private flood insurance as long as it met the conditions defined by BW-12  42 U.S.C. §4012a(b)(7).

In the seven years since the Act’s passage, the National Credit Union Administration has worked in conjunction with four other federal agencies (the Federal Deposit Insurance Corp., Farm Credit Administration, Office of the Comptroller of the Currency and Board of Governors of the Federal Research System) to determine how to implement BW-12. Two rounds of comments (in 2013 and 2016) showed credit unions had concerns in a number of key areas, including liability, cost of compliance, insufficient policy information at time of mortgage closing (which could delay closings and impact borrowing), rules that didn’t reflect key differences between residential and commercial policies, and a lack of financial standards requirements for insurance providers. They also felt it would be difficult to ascertain if a policy truly complied with NFIP standards.


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