Q: Flood Insurance Triggers. If a lender offers a payment deferral program or skip-a-payment program, will this trigger the Federal flood insurance requirements?
A: For certain flood insurance policyholders, the Federal Emergency Management Agency (FEMA) announced that the grace period for making premium payments has been extended during the COVID-19 emergency. Specifically, on March 29, 2020, FEMA indicated it was taking steps to ensure flood insurance policies are not canceled for nonpayment of premiums due to the COVID-19 emergency. FEMA acknowledged that National Flood Insurance Program (NFIP) policyholders may experience serious changes to their financial situations, including loss of income, along with disruptions of normal business services.
Due to a concern about possible lapses or reduction in coverage and the subsequent denial of claims occurring during the gap in coverage, FEMA extended the grace period for receipt by the NFIP of flood insurance renewal premiums and of any additional premiums due as required by an underpayment notice from 30 days to 120 days. The announcement applies to flood insurance policies with an expiration date between February 13, 2020 and June 15, 2020. Accordingly, lenders should factor this extended grace period (or as further extended by FEMA) in working with borrowers or with respect to force placement of flood insurance.
For additional information about FEMA’s extension of the grace period for flood insurance renewal premiums, please see: https://nfipservices.floodsmart.gov/sites/default/files/w-20002.pdf; and https://www.fema.gov/news-release/2020/03/29/fema-extends-grace-periodflood-insurance-renewal-premiums
This Q&A was contained in the Frequently Asked Questions for Financial Institutions Affected by the Coronavirus Disease 2019 (Referred to as COVID-19) – As of March 3, 2021 (which may be updated from time to time). This may be found on the FDIC’s website here: https://www.fdic.gov/Coronavirus/faq-fi.pdf.