Statewide Insurance Blog

As Congress continues passing resolutions for short-term extensions of the National Flood Insurance
Program (NFIP), the possibility of an NFIP authority lapse remains. Therefore, FEMA has developed
the attached set of guidelines and recommendations for Write Your Own (WYO) Companies and their
agents to consider.
In the unlikely event that a hiatus occurs, the NFIP will not be able to: (a) issue new policies, (b)
increase coverage on existing policies, or (c) issue renewal policies. Again, the Program is not likely to
lapse, but as reauthorization dates approach, our partners need as much information as possible in order
to effectively make decisions that will have the least amount of impact on their operations and, most
importantly, their customers.
As always, we will keep you informed of NFIP-related activities on Capitol Hill, and we will let you
know when Congress takes any action related to the NFIP’s statutory authority. Finally, we will
continue to do all we can to help WYO Companies and agents operate smoothly through fiscal year
2010 and beyond.
Attachment
cc: Vendors, IBHS, FIPNC, Government Technical Representative
Suggested Routing: All Departments
U.S. Department of Homeland Security
500 C Street, SW
Washington, DC 20472
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NFIP Reauthorization
Information for WYO Companies and Agents
2009
NFIP Authorization
• If Congress does not reauthorize the NFIP by midnight of the last day of effective authorization, the
Program will experience a hiatus – a period without authority to:
o issue new policies,
o issue increased coverage on existing policies, or
o issue renewal policies until Congress reauthorizes it.
• If there is a lapse in NFIP authorization, any hiatus period should be brief, and most of the nearly 5.6
million flood insurance policyholders nationwide will not be affected.
New Policies
Payments received before midnight of the last day of effective Program authorization
• New policies for which premium payment is received by the insurance company on or before midnight of
the last day of effective Program authorization will be issued for coverage and will become effective after
the last day of effective authorization, regardless of the policy effective dates.
• For loans closing prior to the first day of hiatus, when the premium payment is from the escrow account
(lender’s check), title company, or settlement attorney, and the application date is on or before the
closing, the policy can be issued even if the premium and application are received after the last day of
effective Program authorization.
• As always, the starting dates of NFIP coverage depend on the applicable flood insurance waiting period.
Claims for Policies-in-Force
Policies-in-Force before midnight, last day of effective authorization
• 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.
U.S. Department of Homeland Security
500 C Street, SW
Washington, DC 20472
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New Policy Premiums, Renewal Policy Premiums, or Added Coverage Endorsements
Received on or after NFIP Authorization expiration (during possible hiatus)
Financials
• If there is an NFIP hiatus – Congress does not reauthorize the Program by midnight of the last day of
effective Program authorization – the NFIP recommends that WYO Companies hold, in abeyance, any
new policy premiums, renewal policy premiums, or added coverage endorsements received on or after the
first day of the hiatus. See exceptions listed below “Determining Payment Receipt Dates.”
• If the renewal offer was issued prior to authorization expiration, and the renewal premium is received
within the 30-day grace period, the policy can be reinstated even if the renewal premium was received
after authorization expiration. The same rule applies on an underpayment notice issued before
authorization expiration.
Claims
• For any new policy premiums, renewal policy premiums, or added coverage endorsements received on or
after the first day of the hiatus, claim payments for losses suffered during a hiatus cannot be made until
Congress retroactively extends NFIP authority. See exceptions listed above, under “Financials.”
• 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 there is an NFIP hiatus, eventual reauthorization will likely be granted retroactively, and WYO
Companies can issue policies effective as of the date they receive payments (subject to applicable waiting
periods).
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.
o 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.
o For policies to be renewed, WYO Companies must receive payments on or before midnight of the
last day of effective Program authorization, as per payment receipt date determination factors
listed above.
o 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 exceptions listed above where the WYO Company is allowed to issue or renew policies even
if the premium is received after a hiatus begins.
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Hiatus Scenarios
The 30-Day Waiting Period, Renewals
Policies without a 30-Day Waiting Period
• In the unlikely event of a hiatus and 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
• Policies with a 30-day waiting period would become effective when both the 30-day waiting period has
ended and Congress has reauthorized the NFIP. The same rule applies for those applications and
premiums made prior to the first day of the hiatus, and received on or after the first day of hiatus. The 30-
day waiting period would be calculated from the application date and not from the NFIP reauthorization
date. However, the policy cannot be effective before the reauthorization date.
Renewals
• In the unlikely event of a hiatus, for renewal payments received after midnight of the last day of effective
authorization, the renewal policy will go into effect at the earliest date consistent with both the terms of
the expiring policy and the extension of the NFIP’s authority. Such renewal policies will only become
effective if a new NFIP authorization becomes law, which is expected. If this does not occur, premiums
will be refunded.
• WYO Companies are no longer authorized to renew policies if the premium is received on or after the
first day of the hiatus, with the following exceptions:
o Renewal Effective Dates Prior to the first day of the hiatus – If the premium is received on or after the
first day of the hiatus, but the premium receipt date is within 30 days from the policy expiration date,
the policy can be renewed.
o Renewal Effective Dates on or after the first day of hiatus – If the renewal offer was mailed prior to
the first day of hiatus, and the premium is received within 30-day grace period, the policy can be
renewed even if the premium receipt date is on or after the first day of the hiatus.
Action Required by WYO Companies during an NFIP Hiatus
• WYO Companies are to communicate the status of the program to their agents ASAP.
• WYO Companies are no longer authorized to issue renewal offers after the last day of effective
authorization.
• New Business applications and renewals not meeting the criteria listed above cannot be issued.