National Flood Insurance Program; Assistance to Private Sector Property Insurers

FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 62

RIN 3067-AC26

National Flood Insurance Program; Assistance to Private Sector

Property Insurers

AGENCY: Federal Insurance Administration, FEMA.

ACTION: Interim rule.

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SUMMARY: This interim rule amends the interim rule published in the

Federal Register on May 25, 1994, to require Write Your Own (WYO)

Companies to participate in a National Flood Insurance Program (NFIP)-

approved Single Adjuster Program to handle any combined wind and flood

loss during catastrophic events, e.g., hurricanes, and to change the

basis for calculating the amount of collected premium to be retained

for operating expenses by the WYO Companies.

DATES: Effective date: This interim rule and this modification to the

offer are effective as of May 25, 1994. The revised Financial

Assistance/Subsidy Arrangement remains applicable with respect to flood

insurance policies written under the Arrangement with an effective date

of October 1, 1994, and later. Comment Date: September 12, 1994.

ADDRESSES: Comments are requested and should be sent to the Rules

Docket Clerk, Office of the General Counsel, Federal Emergency

Management Agency, 500 C Street, SW., room 840, Washington, DC 20472,

(fax) (202) 646-4536.

FOR FURTHER INFORMATION CONTACT: Charles M. Plaxico, Jr., Federal

Emergency Management Agency, Federal Insurance Administration, 500 C

Street, SW., Washington, DC 20472, (202) 646-3422.

SUPPLEMENTARY INFORMATION: On May 25, 1994, FEMA published in the

Federal Register (59 FR 26965-26970) an interim rule that amended the

National Flood Insurance Program (NFIP) regulations for the ``Write

Your Own'' (WYO) Program relating to the marketing of flood insurance

policies.

This new action amends two sections of that May 25, 1994 interim

rule as it relates to the Arrangement offered by the Federal Insurance

Administrator to companies wishing to participate in the WYO Program.

The first change amends the section dealing with the adjustment of

claims, at Article II--Undertakings of the Company, paragraph C. of the

Arrangement, by requiring a WYO Company to participate in an NFIP-

approved Single Adjuster Program to handle any combined wind and water

losses during catastrophic events, such as hurricanes. The second

change amends the section establishing the amount of written premium

which may be retained as operating and administrative expenses at

Article III--Loss Costs, Expenses, Expense Reimbursement, and Premium

Refunds, Section B. of the Arrangement, by stating the exact percentage

of premium that may be retained for Arrangement year 1994-1995 (which

is the same percentage as that calculated for the 1993-1994 Arrangement

year by the formula that is being replaced by this change) and by

providing for an increase or decrease in that exact percentage

depending on the extent that the WYO Company meets marketing goals.

For the reasons cited in the May 25, 1994 interim rule, FEMA has

determined that sufficient cause exists for making this rule effective

immediately and that delaying the effective date until after a comment

period would be impracticable and contrary to the public interest.

However, comments are requested and will be considered before further

regulations are issued.

National Environmental Policy Act

This rule is categorically excluded from the requirements of 44 CFR

Part 10, Environmental Consideration. No environmental impact

assessment has been prepared.

Executive Order 12898, Environmental Justice

The socioeconomic conditions relating to this interim rule were

reviewed and a finding was made that no disproportionately high and

adverse effect on minority or low income populations result from this

interim rule.

Executive Order 12866, Regulatory Planning and Review

This interim rule is not a significant regulatory action within the

meaning of Sec. 2(f) of E.O. 12866 of September 30, 1993, 58 FR 51735,

and has not been reviewed by the Office of Management and Budget (OMB).

Nevertheless, this interim rule adheres to the regulatory principles

set forth in E.O. 12866.

Paperwork Reduction Act

The information collection requirements set forth in this interim

rule will be submitted for approval to the OMB under the Paperwork

Reduction Act of 1980, 44 U.S.C. 3501 et seq.

FEMA is particularly interested in getting comments on the

estimated burden, i.e., the amount of time and resources required of

the WYO companies to comply with application, testing, and reporting

requirements contained in this interim rule. Submit comments on these

estimates to the Office of Management and Budget, 3235 New Executive

Office Building, Washington, D.C., 20503 marked ``Attention: Donald

Arbuckle'' and to the FEMA Clearance Officer, 500 C Street, SW,

Washington, DC 20472. This final rule will respond to any OMB or public

comments on the information collections requirements.

Executive Order 12612, Federalism

This rule involves no policies that have federalism implications

under Executive Order 12612, Federalism, dated October 26, 1987.

Executive Order 12778, Civil Justice Reform

This rule meets the applicable standards of section 2(b)(2) of

Executive Order 12778.

List of Subjects in 44 CFR Part 62

Flood insurance.

Accordingly, 44 CFR part 62 is amended as follows:

PART 62--SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS

1. The authority citation for Part 62 continues to read as follows:

Authority: 42 U.S.C. 4001 et seq.; Reorganization Plan No. 3 of

1978, 43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127 of Mar. 31,

1979, 44 FR 19367, 3 CFR, 1979 Comp., p. 376.

2. The table of contents for subpart C of Part 62 is revised to

read as follows:

* * * * *

Subpart C--Write Your Own (WYO) Companies

62.23 WYO Companies authorized.

62.24 WYO Company participation criteria: new applicants.

* * * * *

3. Part 62 is amended by adding a new Sec. 62.24 to read as

follows:

Subpart C--Write Your Own (WYO) Companies

Sec. 62.24 WYO Company participation criteria: new applicants.

New companies seeking to participate in the WYO Program, as well as

former WYO Companies seeking to return to the WYO Program, must meet

standards for financial capability and stability, for statistical and

financial reporting, and for commitment to Program objectives.

(a) To demonstrate the ability to meet the financial requirements,

an applicant for entry or reentry into the WYO Program must:

(1) be a licensed property insurance company;

(2) have a five (5) year history of writing property insurance;

(3) disclose any legal proceedings, suspensions, judgments,

settlements, or agreements reached with any State insurance department,

State attorney general, State corporation commission, or the Federal

government during the immediate prior five (5) years regarding the

company's business practices;

(4) submit its most recent National Association of Insurance

Commissioners (NAIC) annual statement;

(5) submit, as data become available, information to indicate that

the company meets or exceeds NAIC standards for risk-based capital and

surplus; and

(6) submit its last State or regional audit, which should contain

no material negative findings.

(b) An applicant for entry or reentry into the WYO Program must

also pass a test to determine the company's ability to process flood

insurance and meet the Transaction Record Reporting and Processing

(TRRP) Plan requirements of the WYO Financial Control Plan. Unless the

test requirement is waived, e.g., where the company's reporting

requirements will be fulfilled by an already qualified performer, the

applicant must prepare and submit test output monthly tape(s) and

monthly financial statements and reconciliations for processing by the

NFIP Bureau and Statistical Agent contractor. For test purposes, no

error tolerance will be allowed. If the applicant fails the initial

test, a second test will be run, which the applicant must pass to

participate in the Program.

(c) To satisfy the requirement for commitment to Program goals,

including marketing of flood insurance policies, the company shall

submit information concerning the company's plans for the Write Your

Own Program including plans for the training and support of producers

and staff, marketing plans and sales targets, and claims handling and

disaster response plans. Applicants must also identify those aspects of

their planned flood insurance operations to be performed by another

organization, managing agent, another WYO Company, a WYO vendor, a

service bureau or related organization. Applicant companies shall also

name, in addition to a Principal Coordinator, a corporate officer point

of contact-- an individual, e.g., at the level of a Senior Executive

Vice President, who reports directly to the Chief Executive Officer or

the Chief Operating Officer. Each applicant shall furnish the latest

available information regarding the number of its fire, allied lines,

farmowners multiple peril, homeowners multiple peril, and commercial

multiple peril policies in force, by line, and the company's Best's

Financial Size Category for the purpose of setting marketing goals.

Appendix A to Part 62 [Amended]

4. Appendix A to Part 62, is amended by revising Section B., item

1.9, and section C. in Article II and section B. in Article III to read

as follows:

* * * * *

Article II--Undertakings of the Company

* * * * *

B. * * *

1.9 For the elements of work enumerated above, the elapsed time

shown is from the date of receipt through the date of mail out. Days

means working, not calendar days.

In addition to the standards for timely performance set forth

above, all functions performed by the Company shall be in accordance

with the highest reasonably attainable quality standards generally

utilized in the insurance and data processing industries.

These standards are for guidance. Although no immediate remedy

for failure to meet them is provided under this Arrangement,

nevertheless, performance under these standards and the marketing

guidelines provided for in Section G. below can be a factor

considered by the Federal Insurance Administrator (the

Administrator) in requiring corrective action by the Company, in

determining the continuing participation of the Company in the

Program, or in taking other action, e.g., limiting the Company's

authority to write new business.

C. To ensure maximum responsiveness to the National Flood

Insurance Program's (NFIP) policyholders following a catastrophic

event, e.g., a hurricane, involving insured wind and flood damage to

policyholders, the Company shall agree to the adjustment of the

combined flood and wind losses utilizing one adjuster under an NFIP-

approved Single Adjuster Program in the following cases and under

procedures issued by the Administrator:

1.0 Where the flood and wind coverage is provided by the

Company;

2.0 Where the flood coverage is provided by the Company and the

wind coverage is provided by a participating State Property

Insurance Plan, Windpool Association, Beach Plan, Joint Underwriting

Association, FAIR Plan, or similar property insurance mechanism;

3.0 Where the flood coverage is provided by the Company and the

wind coverage is provided by another WYO Company and the necessary

information on the dual coverage is part of the Claims Coordinating

Office (CCO) system; and

4.0 Where the flood coverage is provided by the Company and the

wind coverage is provided by another property insurer and the State

Insurance Regulator has determined that such property insurer shall,

in the interest of consumers, facilitate the adjustment of its wind

loss by the adjuster engaged to adjust the flood loss of the

Company.

The Government shall provide for the direct business flood

losses to be adjusted by a single adjuster where the wind damage

coverage is insured by a state market mechanism described in 2.0,

above, or by a WYO Company as described is 3.0 above, or by a

property insurer, as described in 4.0 above.

Except for 1.0, above, the Company shall submit its flood losses

that are reasonably believed to involve wind damage to the Single

Adjuster Program's Stationary CCO in Lanham, Maryland at the

following address: National Flood Insurance Program, Stationary

Claims Coordinating Office, 10115 Senate Drive, Lanham, Maryland

20706.

Such flood losses shall be reported on the ACORD Notice of Loss

form, ``ACORD 1 (1/93),'' or a like form calling for the reporting

of losses involving both flood and wind damage arising out of a

single hurricane event under the following procedures:

Where flood losses reasonably believed to involve wind

damage are reported by property insurance agents or brokers, the

Company shall instruct its agents or brokers to mail or preferably

send by facsimile the ACORD Notice of Loss form, with complete

details regarding flood and, if available, wind insurance policies

covering the property, to the Single Adjuster Program Stationary CCO

for assignment to a single adjuster. The Stationary CCO will also

accept loss information directly from the agent by modem in CCO

format where the Company has arranged for its agents to provide the

information in this fashion.

Where flood losses reasonably believed to involve wind

damage are reported directly to the Company by its policyholders or

agents, by telephone, the Company shall report the flood loss, with

the wind property insurer information, if available, to the Single

Adjuster Program Stationary CCO, by modem transfer in CCO format as

such flood losses are reported to the Company. Transfer by facsimile

from the Company can also be arranged where circumstances warrant

it.

Upon receipt of the Notice of Loss, the Stationary CCO shall

effect immediate entry of all relevant data into the stand-alone CCO

System (i.e., not part of the NFIP mainframe computer system) for

instantaneous relay to the Catastrophe CCO established in the field.

At the Catastrophe CCO, which will be sited and fully operational

within 24 hours of landfall, in coordination with the State

Insurance Regulator, a qualified loss adjustment organization shall

be promptly selected for each loss, and participating insurers shall

be promptly advised of the selection for their assignment of the

loss to that organization.

In respect to the foregoing, the Administrator will continue to

implement existing and future CCO Arrangements with State Insurance

Regulators and their State Property Insurance Plans, Windpool

Associations, Beach Plans, Joint Underwriting Associations, FAIR

Plans, or similar property insurance mechanisms, for example, as has

been done with the Insurance Department of the State of South

Carolina.

* * * * *

Article III--Loss Costs, Expenses, Expense Reimbursement, and

Premium Refunds

* * * * *

B. The Company shall be entitled to withhold, on a provisional

basis, as operating and administrative expenses, including agents'

or brokers' commissions, an amount from the Company's written

premium on the policies covered by this Arrangement in reimbursement

of all of the Company's marketing, operating and administrative

expenses, except for allocated and unallocated loss adjustment

expenses described in C. of this Article, which amount shall be

32.6% of the Company's written premium on the policies covered by

this Arrangement. The final amount retained by the Company shall be

determined by an increase or decrease depending on the extent to

which the Company meets the marketing goals for the combined 1994-

1995 and 1995-1996 Arrangement years contained in marketing

guidelines established pursuant to Article II. G.

The decrease or increase in the amount retained by the Company

shall be made after the end of the 1995-1996 Arrangement year. Any

decrease from 32.6% made as a result of a Company not meeting its

marketing goals shall be directly related to the extent to which the

Company's goal was not achieved, but shall not exceed two (2)

percentage points (providing for a minimum of 30.6%). The amount of

any decrease shall be calculated for each month, and each month's

decrease shall be subject to interest compounded at rates provided

for by 31 U.S.C. 3717(a)(1). Upon notice of the cumulative monthly

decreases and interest, the Company agrees to promptly remit to the

Government the total amount due.

The increase, which shall be distributed among the Companies

exceeding their marketing goals, shall be drawn from a pool composed

of the difference between 32.6% of all WYO Companies' written

premium in Arrangement years 1994-1995 and 1995-1996, and the total

amount, prior to the increase, provided to the Companies on the

basis of the extent to which they have met their marketing goals. A

distribution formula will be developed and distributed to WYO

Companies which will consider the extent to which the Company has

exceeded its goal and the size of the Company's book of business in

relation to the total number of WYO policies. The amount of any

increase shall be paid promptly to the Company after the end of the

1995-1996 Arrangement year.

If the Company does not enter into the Arrangement for 1995-

1996, the extent to which the Company met its goals shall be based

upon its Arrangement year 1994-1995 performance, and the final

amount retained shall be determined after the end of the 1994-1995

Arrangement year, but the Company shall not be entitled to any

increase above the provisional amount.

Premium income net of provisional reimbursement (net premium

income) and Federal Policy Fee shall be deposited in a special

account for the payment of losses and loss adjustment expenses (see

Article II, Section E).

The Company, with the consent of the Administrator as to terms

and costs, shall be entitled to utilize the services of a national

rating organization, licensed under state law, to assist the FIA in

undertaking and carrying out such studies and investigations on a

community or individual risk basis, and in determining more

equitable and accurate estimates of flood insurance risk premium

rates as authorized under the National Flood Insurance Act of 1968,

as amended. The Company shall be reimbursed in accordance with the

provisions of the WYO Accounting Procedures Manual for the charges

or fees for such services.

* * * * *

(Catalog of Federal Domestic Assistance No. 83.100, ``Flood

Insurance'')

Dated: July 21, 1994.

Elaine A. McReynolds,

Administrator, Federal Insurance Administration.

[FR Doc. 94-18425 Filed 7-28-94; 8:45 am]

BILLING CODE 6718-05-P