On November 20, 2018, FEMA posted a press release reminding interested parties that the National Flood Insurance program (NFIP) expires at 11:59 p.m. on November 30, 2018. While FEMA is confident Washington will vote to reauthorize the NFIP, if a lapse were to occur, it would not impact policies already in effect. We will continue to monitor the NFIP news coming from Washington. TCA is optimistic that there will not be a disruption to the NFIP; but if there is, we should be prepared as best possible.
FEMA provided guidance to insurance agents in December of 2017 concerning how it would determine the date of new contracts in the event of a lapse. The guidance includes an FAQ section. It appears that, in order for the policy to be accepted, the application had to be submitted no later than the last day prior to the NFIP lapsing (11:59 p.m. on November 30, 2018). There are varying rules, depending on the situation concerning when payment of the premium has to be (or had to be, in some cases) received by the insurance agent.
This begs the question, “What do we do if that happens?” The FRB issued informal guidance back in 2010 (the last time the program was allowed to lapse). Below is the summary of that article.
Lenders may continue to make loans subject to the flood provisions of Regulation H, 12 C.F.R. § 208.25 without flood insurance during a period when the NFIP is not available. Such lending does not violate 12 C.F.R. § 208.25. However, lenders must continue to make flood determinations, provide timely, complete, and accurate notices to borrowers, and comply with other parts of the flood insurance regulations. In addition, they must evaluate safety and soundness and legal risks and prudently manage those risks during the lapse period. Further, lenders should have a system in place to ensure that policies are obtained as soon as available following reauthorization for properties that are subject to mandatory flood insurance coverage.
Banks may wish to urge borrowers affected by properties in flood zones to consider purchasing a “private flood policy.” Alternatively, a borrower may wish to renew their existing policy before the 11:59 p.m. November 30th deadline.