Due to the threat of a government shutdown, the month of December has experienced a lot of back and forth regarding the authorization and funding status for the Federal Emergency Management Agency (FEMA) and the National Flood Insurance Program (NFIP).
Even if the NFIP's authority expires, we recommend your financial institution continues all normal practices related to flood insurance servicing, so that you can maintain compliance and continue managing risk on your properties.
Recommended flood insurance servicing practices include:
- Timely remittance of escrow payments
- Proper exposure processing
- Flood lender placement as per normal guidelines
Policy Impact of an NFIP Lapse
The following are key impacts to NFIP policies should a lapse in authority occur at any point:
New Policies or Requests to Increase Coverage
- Applications for new policies or requests to increase coverage dated after lapse will not be issued or processed
- Applications for new policies or requests to increase coverage will not be issued if received after the grace period AND the premium payment is not received within 10 days of the application date
- It is recommended that financial institutions either delay closing on loans requiring flood insurance or request the borrowers to obtain coverage through a private flood insurance carrier.
Renewals
- Renewal offers will not be made during lapse
- Renewals will be issued if renewal offer is made prior to lapse AND premium is received before or during lapse period
- Lender-placed coverage will be cancelled effective the date of any retroactively issued NFIP policy, should the NFIP choose to offer retroactive renewal policies after reauthorization as they've done in the past
Cancellations
- Policies can be canceled during lapse period according to NFIP cancellation reason codes
Endorsements
- Endorsements that do not increase coverage will be processed
Claims
- Claims on valid, in-force policies will be processed and paid as usual
Proactive Response to an NFIP Lapse
Due to these impacted policy changes, we recommend your lending institution take the following precautions as soon as you learn of a potential lapse in NFIP authority:
- Your institution or policy holders should request renewal invoices and make payments on the insureds' policies.
- Your financial institution should either delay closing on loans requiring flood insurance or request that your policy holders obtain coverage through a private flood insurance carrier.
- If any NFIP policy expires during a lapse in authority, it is recommended that these policy holders obtain coverage through a private flood insurance provider or that your financial institution covers the property through lender-placed coverage written with a private carrier. Allied Solutions does utilize private flood insurance as an outlet on our lender-placed coverage and will therefore accommodate this need.
Please note that if a lapse occurs in the NFIP authority, it will not interrupt or alter our processes related to the monitoring, escrowing, or lender-placement of flood insurance.
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