When it comes to flood insurance for condominiums, one thing that institutions need to be aware of is co-insurance penalties. The general rule is that in order to receive the face value of a flood insurance policy, the borrower must be insured to at least 80% of the replacement cost value. If they are below that and they experience a flood loss, they will receive a payout that is less than the amount that the policy was written for. In other words, a co-insurance penalty is the difference between the amount the borrower thinks they will receive and what they will actually receive in the event of a loss. Now this really isn’t a compliance issue because the flood rules set out specific minimums for insurance coverage and if you meet those you are compliant, but this could affect your institution from a safety and soundness perspective.
Jerod walks through an example in the video.
Published
2025/04/24
