NMHC/NAA responded in early January, 2017, to a call for comments by several banking regulators on a proposed rule entitled “Loans in Areas Having Special Flood Hazards-Private Flood Insurance.” The rule stems from the Biggert Waters Act of 2012, which aside from reauthorizing the National Flood Insurance Program (NFIP), called upon regulators such as the Federal Reserve and the Office of the Comptroller of the Currency to issue much-needed guidance for lenders on what should be considered an acceptable private flood insurance policy.
Currently, federal law requires apartment properties with federally regulated and insured mortgages in high-risk flood areas to purchase flood insurance. However, the private insurance market offers few policy options, and those that do are, in most cases, cost prohibitive. This proposed rule is intended to help foster increased private market competition, making coverage more affordable for at-risk property owners nationwide.
NMHC/NAA applauded the efforts of the Regulators for going “to great lengths in providing long-overdue clarity over the acceptability of private flood coverage for property owners and lenders,” while highlighting specific areas where the rule should be expanded to better address the realities faced by the multifamily industry. In particular, NMHC/NAA urged that the Regulators expand the proposed rule entirely and create separate federal guidance for private flood insurance coverage specific to multifamily properties. In doing so, the multifamily industry is urging the acceptability of policies that may differ from standard NFIP coverage and allow benefits such as:
- One policy for multiple properties and buildings.
- Replacement cost coverage (RCV) and business interruption coverage.
- Custom limit that is different than NFIP maximum limits and that matches the flood deductible of the insured’s property insurance policy.
- Coverage for property outside the building and items that are excluded by the NFIP, such as parking lots, basements, and items below Base Flood Elevation (BFE).
NMHC/NAA believe that allowing the private market to further complement the NFIP with coverage options such as those outlined above will help apartment owners mitigate risk and better manage the rising cost of providing housing. As the proposal moves through the rule making process, NMHC/NAA will continue to work with regulators to advocate for positive changes that improve the proposal’s workability for multifamily owners, developers, and managers.