We have a borrower that needs about $10,000 in contents coverage. Their insurance agent wrote them up for the $10,000 but placed on a $50,000 deductible.
The Bank is ok with the borrower having a $50,000 deductible on the non-residential structure. They have a lot of cash that they can payout in the event of a flood so we are ok with it from a safety/soundness perspective.
But to me, writing the policy on the contents for $10,000 and putting the $50,000 deductible basically means they are self-insuring for the contents and I am not sure if that is ok.

And they are paying for this privilege? Makes little sense to me and sounds like insurance malpractice

The insurance agent is trying to tell us that it is something that is wrong with the FEMA specs on the application. That the deductible for the contents insurance has to be the same as the deductible on the non-residential structure. He says it has ALWAYS been like that. Unfortunately I don't have another similar situation in which I have a low contents value with a high deductible insurance policy to compare it to.

I really don't like it, but requiring the borrower to drop the deductible will increase his premium by $1,300 and of course the lender does not want to have to tell them that. Especially at the 11th hour.

The insurance agent is an idiot.

Flood Insurance Manual - Page: Rate-17

III. DEDUCTIBLES
As shown in Table 8A below, the NFIP minimum deductibles vary based on the policy rating and the amount of coverage purchased. An optional deductible amount may be applied to most policies. Please note that building and contents deductibles can be different.