What is the Compliance Aid for Flood Insurance?
In this Compliance Clip (video), Adam answers the question of “what is the compliance aid for flood insurance?” To answer this question, Adam explains what the compliance aid is, how it is used, and what to watch out for. For those looking for more information on the 2019 Private Flood Insurance rules, check out the curriculum of our program on the 2019 Private Flood Insurance Final Rule here.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about what is the compliance aid for private flood insurance. The question I've seen several times over the last couple of months is “What is the Compliance Aid for private flood insurance?”
The answer to this, of course, is found in the interagency guidance on private flood insurance because as of June of 2019, you are required to accept private flood insurance if it meets the definition of private flood insurance. So that's where this comes from
Let's take a look at what the compliance aid is. Now, in order to assist financial institutions in determining whether a policy qualifies for the mandatory acceptance rule of private flood insurance, the final rule includes something called a “compliance aid”. Now, this compliance aid is basically just a statement. It's a statement that's included on the flood insurance policy or the private flood insurance policy. Basically what the statement is, is it's this language right here. The language included in the compliance aid is “This policy meets the definition of private flood insurance contained in 42 U.S.C 4012a(b)(7) and the corresponding regulation.” So that's what the compliance aid is. So if this statement here is included in the private flood insurance policy, you are permitted then to accept the policy without conducting a review of the policy to determine whether or not it qualifies as private flood insurance. Long story short, the rules require financial institutions to make a determination whether a private flood insurance policy meets the definition of flood insurance. And if it does, you automatically have to accept that private flood insurance policy.
Now, in lieu or in place of conducting this review, if the compliance aid is there, you can automatically accept it and not have to conduct the in-depth review to determine if you have to actually accept this policy. You can just go ahead and accept it based on the compliance aid. So the compliance aid is sort of like a safe harbor to be able to accept private flood insurance.
Now, you as a financial institution can choose to not rely on this statement. So if you don't think that it's accurate or something seems odd, maybe it's a policy from an overseas insurer and you're just not sure if it really complies with what we need here in the United States, even though the compliance aid there, you could decide that we're gonna actually do a formal review and determine if this is private flood insurance or not.
Just a note, I think it's important to point out that while you can automatically accept a policy that has the compliance aid, you cannot automatically deny a policy just because it doesn't have the compliance aid. In other words, if the compliance aid's not there, you have to dive into the policy to see if you have to accept it or not.
That's all I have for you today in this Compliance Clip.