WASHINGTON (Dec. 2, 2013) — Federal rules requiring flood insurance coverage to secure certain mortgaged loans should include a safe harbor for equivalent coverage offered by private excess and surplus lines insurers, the R Street Institute, National Taxpayers Union and American Consumer Institute said today in a letter to federal banking regulators.

Offered in response to a joint request for comments on loans in special flood hazard areas from the Office of the Comptroller of the Currency, FDIC, NCUA, Farm Credit Administration and Federal Reserve board, the letter asks that the regulators proceed with implementing as proposed the regulators’ planned streamlined, lender due diligence safe harbor for admitted market insurers.

However, because insurers in the non-admitted market typically do not file forms with state insurance regulators, the banking regulators’ proposed process could be interpreted to exclude surplus lines insurers, particularly for products that may not meet the statutory definition of “flood insurance.”

“In the medium term, we feel the existence of a safe harbor is vital to the development of a vibrant private flood insurance market,” the groups wrote. “Without it, many lenders will likely be reluctant to allow borrowers to procure private flood insurance policies.”

While encouraging the regulators to confer with E&S market participants to develop a certification process to establish equivalence for products that do not meet the statutory definition of flood insurance, in the meantime, they proposed three basic standards for flood insurance from E&S insurers:

  1. Policy limits should at least equal either the full value of the insured property or the maximum insured valued allowed by the National Flood Insurance Program.
  2. Deductibles should be equivalent to those permitted in a given state’s admitted homeowners insurance market.
  3. E&S carriers should have a rating from a Nationally Recognized Statistical Rating Organization that indicates financial security.

“To protect taxpayers, homeowners and communities, the United States must make greater use of private capital in flood insurance markets,” the groups wrote. “The regulations you have suggested would, with appropriate modifications, represent a major step in that right direction for the nation’s flood safety.”

The full letter can be found here:


Featured Publications