Flood insurance is required by federal law and is a
common sense risk management tool for both lenders
and borrowers. Institutions are responsible for
ensuring that borrowers timely renew their policies.
Flood insurance premiums are not required to be
escrowed if an institution does not require the escrow
of other funds to cover other loan-related charges.
However, escrowing flood insurance premiums helps
ensure that borrowers are aware of the cost of flood
insurance, and that such insurance is maintained.
If flood insurance coverage lapses, both borrowers
and institutions are exposed to the risk of an
uninsured loss from flooding. That risk increases in
situations where flood insurance premiums are not
escrowed. Therefore, it is important for institutions
that do not escrow flood insurance premiums to have
internal controls in place to verify that borrowers are
maintaining adequate flood insurance coverage for
the life of the loan. Such controls include:
- Monitoring notices from the insurance carrier about when a borrower's flood insurance is due for renewal, and following up if the policy renewal is not received from the borrower;
- Commencing force placement procedures when the institution determines that required flood insurance coverage is deficient or lapsed; and
- Checking flood insurance policies to confirm that they were written for the risk zone noted in the flood determination and, if not, resolving the difference.
FDIC-Supervised Banks (Commercial and Savings)
Chief Executive Officer
Flood Disaster Protection Act of 1973, as amended
FDIC Part 339 - Loans in Areas Having Special Flood
Interagency Questions and Answers Regarding Flood
Insurance (Financial Institution Letter 77-97)
Mira Marshall, Senior Policy Analyst, at (202) 898-3912 or
firstname.lastname@example.org; or John Jackwood, Senior Policy
Analyst, at (202) 898-3991 or email@example.com
FDIC financial institution letters (FILs) may be accessed
from the FDIC's Web site at
To receive FILs electronically, please visit
Paper copies of FDIC financial institution letters may be
obtained through the FDIC's Public Information Center,
3501 Fairfax Drive, E-1102, Arlington, VA 22226 (1-877-
275-3342 or 202-416-6940).