Flooding disasters of the 1920s and 1930s led to federal involvement in protecting life and property from flooding, with the passage of the Flood Control Act of 1936. Generally, the only available financial recourse to assist flood victims was postdisaster assistance. When flood insurance was first proposed in the 1950s, it became clear that private insurance companies could not profitably provide flood coverage at a price that consumers could afford, primarily because of the catastrophic nature of flooding and the difficulty of determining accurate rates. In 1965, Congress passed the Southeast Hurricane Disaster Relief Act that provided financial relief for victims of flooding and mandated a feasibility study of a national flood insurance program, which helped provide the basis for the National Flood Insurance Act of 1968 that created NFIP. FEMA, through its Federal Insurance and Mitigation Administration (FIMA), manages the flood insurance program and sells and services NFIP policies primarily through private insurance companies in the Write- Your-Own (WYO) program. Program participation takes place at the community and the property-owner level. To participate, communities must adopt and enforce land use and control measures to mitigate the effects of flooding on new or existing homes in SFHAs. Participation for property owners (borrowers) in participating communities initially was voluntary; however, due in part to low levels of borrower participation; Congress established the mandatory purchase requirement for properties located in SFHAs in participating communities. Regulated lending institutions and loan servicers acting on their behalf must ensure that borrowers (1) purchase flood insurance for any building or a mobile home located or to be located in an SFHA in a participating community at the time a mortgage loan for that property is obtained, or at the time of increasing, extending or renewing the loan, and (2) maintain the insurance through the life of the loan, or add it if the property is remapped into an SFHA and the borrower is then required to purchase flood insurance under the mandatory purchase requirement. Regulated lending institutions may not make, increase, extend, or renew any loan secured by improved real estate or a mobile home located or to be located in an SFHA community participating in NFIP unless the building or mobile home and any personal property securing such loan is covered by flood insurance for the term of the loan, subject to certain exceptions. Although FDPA did not define “flood insurance” to specifically include or exclude private insurance, guidance issued by the Federal Insurance Administration in 1974 stated that private flood insurance policies could satisfy the mandatory purchase requirement as long as they met specified criteria. The National Flood Insurance Reform Act of 1994 (1994 Act) further amended the statutory framework for the mandatory purchase requirement and its enforcement by federal regulators. The 1994 Act directed that federal regulators issue regulations to require regulated lending intuitions to notify borrowers in SFHAs about the availability of flood insurance coverage under NFIP, and that such coverage is also available from private insurers. Regulations implementing the 1994 Act require that regulated lending institutions mail or deliver a written notice to the borrower and servicer before completion of the transaction. The notice must contain the following information: a warning that the building or the mobile home is or will be located in a description of the flood insurance purchase requirements under FDPA, as amended; a statement, where applicable, that flood insurance coverage is available under NFIP and also may be available from private insurers; and a statement whether federal disaster relief assistance may be available if flooding (from a federally declared disaster) causes damage to the building or mobile home. The 1994 Act also requires regulators to assess civil monetary penalties against regulated lending institutions found to have a pattern or practice of violating certain federal flood insurance requirements. It also required Fannie Mae and Freddie Mac to implement procedures reasonably designed to ensure that any mortgage they purchase (secured by improved real estate or a mobile home in an SFHA) has flood insurance. More recently, in 2012, the Biggert-Waters Act reauthorized NFIP through September 30, 2017, and made some significant changes to FDPA. For example, the Biggert-Waters Act increased the maximum penalties that may be assessed against a regulated lending institution. The Biggert- Waters Act also required regulators to issue regulations directing lending institutions to accept private flood insurance (as defined by the act) and modified the required notification of borrowers of the availability of private flood insurance. In 2013, the federal regulators issued a joint notice of proposed rulemaking to implement certain provisions of the Biggert-Waters Act, including the modified notification and required acceptance of private flood insurance. In July 2015, the regulators issued a final rule implementing the modified notification provision and certain other provisions from the Biggert-Waters Act and HFIAA. The July 2015 final rule did not include implementation of the Biggert-Waters Act’s requirements on private flood insurance; the agencies noted that they planned to address those requirements in a separate rulemaking. See figure 1 for a summary timeline of selected federal flood insurance legislation. Insurance is primarily regulated by the states, unless federal law specifically relates to the business of insurance (as in the cases of flood and terrorism insurance). Federal regulators generally have authority over the activities of regulated lending institutions that relate to the flood insurance requirements under FDPA. The Federal Reserve, FDIC, OCC, NCUA, and FCA are the regulators responsible for overseeing the federal flood insurance requirements, including the mandatory flood insurance purchase requirement, for their institutions (see table 1). Requirements and processes for regulating insurance may vary from state to state, but state regulators generally license insurance companies and agents, review insurance products and premium rates, and examine insurers’ financial solvency and market conduct. According to NAIC, state regulators monitor an insurers’ compliance with laws and regulations, and a company’s financial condition through solvency surveillance and examination mechanisms. Insurance regulators use insurance companies’ financial statements and other information as part of their continuous financial analysis, which is performed at least quarterly, to identify issues that could affect solvency. State insurance regulators typically conduct on-site financial solvency examinations every 3–5 years, although they may do so more frequently for some insurers, and may perform additional examinations as needed. Through NAIC, the regulators also collect financial information from insurers for ongoing monitoring of financial solvency. Admitted insurers can sell insurance in one or more states but must be licensed to operate in every state in which they sell coverage. Admitted insurers can be licensed to sell several lines or types of coverage to individuals or families, including personal lines (such as homeowners, renters, and automobile insurance) and commercial lines (such as general liability, commercial property, and product liability insurance). Their activities are regulated primarily by the states. State regulators require admitted insurance companies to maintain specific levels of capital to continue to conduct business. Admitted insurers provide coverage for numerous risks, but they may not be willing to cover some risks. These include risks that are difficult to assess, occur too frequently to be acceptable to admitted insurers, are specialized or unusual, or require coverage that exceeds the capacity of admitted carriers. In these cases, potential insureds may turn to the nonadmitted market. The nonadmitted market offers insurance products for risks for which coverage is unavailable in the admitted market. Among the nonadmitted insurers are surplus lines insurers. These insurers provide coverage for general, management, and professional liabilities and commercial, automobile, environmental, and property risks, among other things, and tailor their products to meet the needs of the insured. For example, they may write policies to cover personal lines of insurance such as homeowners insurance in flood-prone areas. In 2014, the total surplus lines direct premiums written in the U.S. market totaled more than $40 billion. While admitted insurers must be licensed in the states in which they sell insurance, surplus lines insurers must be licensed in only one state but may sell in others in which they are not licensed, provided they are eligible according to the states’ surplus lines laws. Surplus lines insurers also must sell their insurance through a state-licensed broker. The brokers typically represent insurance buyers and place coverage with surplus lines insurers. According to NAIC, on a surplus lines placement, the insurance regulator of the policyholder's home state has authority over the placement of the insurance by a surplus lines broker and can sanction the surplus lines broker, revoke their license, and hold them liable for the full amount of the policy. To place coverage in the surplus lines market, brokers must follow state due diligence requirements. Although they vary from state to state, according to an association representing surplus lines insurers and brokers, these requirements generally call for a “diligent search” of the admitted market before turning to a surplus lines insurer. The diligent search generally requires brokers to establish that three admitted companies licensed to write the kind and type of insurance being requested had declined to provide it. All eight of the lenders with whom we spoke stated that they accept or would accept private flood insurance as satisfaction of the mandatory purchase requirement. Moreover, all but one stated that they have policies and procedures that use one or more sources of guidance when determining if a private policy satisfies the mandatory purchase requirement. All but one of the lenders referenced the criteria in FEMA’s (now rescinded) Mandatory Purchase of Flood Insurance Guidelines (Guidelines) as one set of guidance—the Guidelines provided lenders with six criteria to evaluate private flood insurance policies for compliance with the mandatory purchase requirement. The Guidelines also provided that to the extent the policy differs from the NFIP standard policy, the differences should be examined before the policy is accepted. (See table 2 and app. II for more detailed information on the criteria.) Half of the lenders with whom we spoke also referenced the July 2009 Interagency Questions and Answers Regarding Flood Insurance (2009 Questions and Answers) provided by the federal regulators, which cite FEMA’s Guidelines as criteria for evaluating private flood insurance policies.