National Flood Insurance Program Reauthorization News

As you probably know, the National Flood Insurance Program (NFIP) expired on midnight May 31, 2010 and has not been reauthorized by Congress. Consequently, the Program is experiencing a hiatus – a period without authority to:

Issue increased coverage on existing policies for which endorsement and premium payment dates are on or after June 1, 2010, or Issue renewal policies for which the renewal premium is received by the company on or after June 1, 2010, and after the end of the 30-day renewal grace period, until Congress reauthorizes the Program.

While awaiting Congressional reauthorization, FEMA is issuing the guidance below. For the most up-to-date information on the status of the NFIP please visit http://www.fema.gov/business/nfip/nfip-reauth.shtm or call the FEMA News Desk at 202-646-3272.

New Policies

New policies for which the application was completed on or before May 31, 2010, and the application and premium payment were received within 10 days of the application date, will be issued for coverage and will become effective on the requested effective date, in accordance with the applicable waiting period rules.

For loans closing prior to the first day of hiatus, when the application is dated on or before closing and the premium payment is from the escrow account (lender’s check), title company, or settlement attorney, and is received within 30 days from the closing date, the policy can be issued effective the date of the closing.

For loans closing prior to the first day of hiatus, when the application is dated on or before closing and the premium payment is not part of the closing (i.e., the applicant or applicant’s representative check or credit card) and the application and premium were received within 10 days of the application date, the policy can be issued effective the date of the closing only if the presentment of premium was on or before the closing date. If the presentment of premium (check or credit card date) was on or after June 1, 2010, the policy cannot be issued, even though the application and closing occurred prior to the hiatus.

For loans closing on or after the first day of hiatus, when the application is dated prior to the hiatus and the presentment of premium is prior to the hiatus, the policy may be issued effective at closing so long as premium is received within 10 days of the closing date.

As always, the starting dates of NFIP coverage depend on the applicable flood insurance waiting period.
Claims

Policies that are in force before midnight of the last day of effective Program authorization will remain in force, and claims under those policies are to be processed and paid as usual afterwards (once hiatus begins).

Claims for covered losses occurring during a hiatus, on existing policies and on policies issued effective after the last day of effective authorization, are to be processed and paid as usual.

WYO Companies may investigate claims under a reservation-of-rights letter or a non-waiver agreement, up to the point of payment. Under either, WYO Companies would reserve the right not to pay the claim if Congress does not reauthorize the NFIP while continuing the investigation of the claim.

If reauthorization is granted retroactively, WYO Companies can issue policies effective as of the date they receive payments (subject to applicable waiting periods), and claims for covered losses can be processed.

Determining Payment Receipt Dates, New Policy Premiums, Renewal Policy Premiums, Added Coverage Endorsements

The controlling factor in determining payment receipt dates for new policy premiums, renewal policy premiums, or added coverage endorsements is when the insurance company receives payment, not the standard mail postmark.

However, proof of mailing receipts or third-party receipts that WYO Companies receive through certified mail or from entities such Federal Express (FedEx), United Parcel Service (UPS), and courier services do serve as payment receipt dates.

There will be no interruption in coverage if a customer mails the premium and the WYO Company receives it on or prior to midnight of the last day of effective Program authorization. See the exception listed below under Hiatus Scenarios, where the WYO Company is allowed to issue or renew policies even if the premium is received after a hiatus begins.

Hiatus Scenarios

Policies without a 30-Day Waiting Period

If the reauthorization is not retroactive to the first day of the hiatus, policies without a 30-day waiting period would become effective on the date the reauthorization is effective. This rule applies to loan closings occurring on or after the first day of the hiatus.

Policies with a 30-Day Waiting Period

If the reauthorization is not retroactive to the first day of the hiatus, policies with a 30-day waiting period would become effective 30 days after Congress has reauthorized the NFIP.

Renewals

If the renewal offer was issued prior to authorization expiration, and the renewal premium is received before or within the 30-day grace period, the policy can be renewed even if the renewal premium was received after authorization expiration. The same rule applies on an underpayment notice issued before authorization expiration.
WYO Companies are no longer authorized to renew policies if the premium is received on or after the first day of the hiatus and after the end of the 30-day renewal grace period.

Cancellations

Existing policies can be canceled during the hiatus in accordance with valid NFIP cancellation reason codes.
Assignment of Flood Policies

An existing policy can be assigned provided the insured signs and dates the endorsement request.

For more details and FAQs concerning the NFIP reauthorization and how it affects the processing of flood insurance, go to http://www.fema.gov/pdf/nfip/w_10063.pdf.

Please email us at info@femafloodsmart.com with any questions about NFIP and FloodSmart.