National Flood Insurance Program; Insurance Coverage and Rates

FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 61

RIN 3067-AC29

National Flood Insurance Program; Insurance Coverage and Rates

AGENCY: Federal Insurance Administration, FEMA.

ACTION: Final rule.

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SUMMARY: This final rule amends the National Flood Insurance Program

(NFIP) regulations to increase the waiting period before which flood

insurance coverage becomes effective under the Standard Flood Insurance

Policy and to increase the limits of coverage available under the NFIP.

This final rule is necessary to comply with the waiting period

requirement and maximum flood insurance coverage amounts established by

the National Flood Insurance Reform Act of 1994. The intent of this

final rule is to establish a 30-day waiting period, with certain

exceptions, before flood insurance coverage becomes effective under the

Standard Flood Insurance Policy and to provide higher limits of flood

insurance coverage to current and new policyholders.

EFFECTIVE DATE: March 1, 1995.

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: As part of the implementation of the

National Flood Insurance Reform Act of 1994 (the Reform Act), on

November 15, 1994, the Federal Emergency Management Agency (FEMA)

published in the Federal Register (Vol. 59, page 58808) a proposed rule

to increase the waiting period from five days to 30 days before flood

insurance coverage becomes effective under the Standard Flood Insurance

Policy and to increase the limits of coverage available under the

National Flood Insurance Program.

The Reform Act provided for two exceptions to the 30-day waiting

period, i.e., (1) when the initial purchase of flood insurance is in

connection with the making, increasing, extension, or renewal of a loan

and (2) when the initial purchase of flood insurance occurs during the

one-year period following notice of the issuance of a revised flood map

for a community.

A 45-day period was provided for review and comment on the proposed

changes. FEMA received comments on the proposed changes from five

respondents. The tally of comments included representatives from three

private insurance companies participating in the NFIP Write Your Own

(WYO) Program, one bank, and a national trade association representing

savings and community financial institutions.

All five respondents commented on the waiting period.

One WYO company respondent commented that imposing a longer waiting

period before coverage becomes effective ``will have a potential

negative impact on efforts to market flood insurance'' and that

imposing a longer waiting period will also result ``in an increase in

disaster assistance payments since, at the time of a flood, people not

yet flooded will be less inclined to buy flood insurance.'' Whatever

the validity of these points may be, the longer waiting period must be

implemented since, as the respondent pointed out, the Reform Act

mandates such action.

Another WYO company respondent noted that the waiting period does

not apply to the initial purchase of flood insurance in connection with

the making, increasing, extension, or renewal of a loan and inquired

whether this exception extends to transactions related to refinancing

and home equity loans. The exception extends to such transactions so

long as the purchase of flood insurance is the initial purchase of such

insurance. The regulations currently provide for no waiting period in

the case of a title transfer, so long as the policy is applied for and

the premium is paid at or prior to the title transfer. It is important

to point out that the Reform Act does not provide for this exception

and, therefore, the current provision related to title transfers will

not apply on and after March 1, 1995. This provision has, in essence,

been replaced by the loan closing exception which, in most cases, has

the same result.

The national trade association respondent commented on the

exception to the waiting period in connection with the purchase of new

flood insurance coverage for one year after notice of a remapping or

redesignation of a flood zone. That respondent noted that the

``provision presupposes that the servicer of the loan has an obligation

to require purchase by a borrower within a specific period of time

following the publication of a notice of remapping or redesignation''

and further commented that ``it is not clear under either the statute

or the proposal just what the nature of the servicer's obligation is as

it relates to this form of purchase obligation. The Conference

Committee Report refers to `tripwires' and suggests that the obligation

to require purchase by the borrower may only arise when a lender is

`making, increasing, extending or renewing' a loan.''

Based on its interpretation, this respondent commented that ``it

would be inappropriate to include the one-year limitation * * * because

the purchase obligation could arise at any time, not just within one

year of publication of map amendments.'' This respondent further

commented that the specific one-year limitation is not included in the

language of the statute and suggested that, ``Until the issue of timing

of the purchase requirement can be resolved'', FEMA should eliminate

the one-year limitation and replace the opening phrase with the

following language: ``At any time following the issuance of a

revised''.

FEMA is not clear about the respondent's concern and points out

that the specific one-year period related to map revisions is indeed

included in the statute (sec. 579 of the Reform Act) which revises

section 1306 of the National Flood Insurance Act of 1968 to add

subsection (c). The specific reference to the one-year period is in

section 1306(c)(2)(B).

As pointed out in the Supplementary Information section of the

proposed rule, the Reform Act provides that the [[Page 5584]] one-year

period starts on the date of publication of the notice of the revision

and requires that the notice be published not later than 30 days after

the effective date of the map revision. Since agents using flood maps

automatically get copies of revised maps with the effective date of the

revision shown on the map but may not see the new notice that is

required, FEMA is interpreting the period for this exception to be the

13-month period beginning on the effective date of the map revision.

Due to a technical oversight, this 13-month interpretation was not

included in the regulatory text of the proposed rule. This oversight

has been corrected and the exception to the waiting period in

connection with the purchase of new flood insurance coverage made

pursuant to a remapping or redesignation of a flood zone is revised in

this final rule to reflect the 13-month period.

A WYO company respondent made reference to the current procedure

for allowing for the renewal of policies with the same policy number

after the 30-day grace period but within 90 days of the policy

expiration. In such an instance, current procedures require that the 5-

day waiting period be calculated from the date the renewal premium

payment is received. In those instances where the policy has lapsed for

more than 90 days, a new application is required. This respondent has

expressed concern that ``using the 30-day waiting period would require

a new application on any renewal payments received sixty (60) or more

days after expiration, as the addition of the waiting period would

extend the lapsed coverage to ninety (90) days or more.''

This concern indicates a misunderstanding of one of the FEMA rules

regarding policy renewal when the renewal payment is received after the

30-day grace period. The respondent mistakenly believes that the

premium has to be received early enough so that the 30-day waiting

period is over and the coverage is in force by the 90th day. However,

in that situation, in order not to be required to submit a new

application, it is sufficient that the premium be received within 90

days after expiration. If the renewal notice and premium are received

on day 90, the policy bearing the former policy number may be placed in

force 30 days following receipt, without a new application.

That respondent and another WYO company respondent expressed

concern as to the impact the 30-day waiting period will have on

policies issued through the Mortgage Portfolio Protection Program

(MPPP). Both of these respondents pointed out that, since the MPPP

guidelines require a 45-day notification letter cycle prior to

application for force-place flood insurance coverage, imposing the 30-

day waiting period for policies issued under the MPPP will result in a

minimum of 75 days before coverage could be in effect. The other WYO

company respondent further commented that, in accordance with the

provisions of the Reform Act, ``if the lender and borrower dispute the

flood zone in writing to the Director and the Director does not respond

for 45 days, the collateral is still listed as being in a flood zone,

and the customer does not purchase the required insurance, collateral

could potentially be uninsured for an additional 45 days increasing the

total to 120 days.'' Based on their concerns, these respondents urged

that the 30-day waiting period not be applicable in those instances

where the lender is purchasing the flood insurance coverage for the

borrower, even though the cost of the policy will be passed on to the

borrower.

While FEMA appreciates their concerns, the statute is quite

specific concerning the exceptions to the 30-day waiting period and,

since the examples cited by these respondents do not fall within those

exceptions, FEMA cannot waive the 30-day waiting period for these

situations. Therefore, the revisions to the waiting period are

incorporated into the final rule as originally proposed, except for the

change related to the 13-month period in connection with the remapping

or redesignation of a flood zone as discussed above.

As pointed out in the proposed rule, however, the Reform Act

requires FEMA to conduct a study to determine the appropriateness of

existing requirements regarding the effective date and time of coverage

under flood insurance contracts obtained through the national flood

insurance program. Congress stipulated that, in conducting the study,

the Director shall determine whether any delay between the time of

purchase of flood insurance coverage and the time of initial

effectiveness of the coverage should differ for various classes of

properties or for various circumstances under which such insurance was

purchased. The comments received from the respondents will be

considered as FEMA conducts this study.

Two of the respondents commented on the proposal to increase the

limits of coverage under the NFIP.

A WYO company inquired whether a primary single family residence

that is currently insured in the maximum amount of coverage and thus

qualifies for replacement cost coverage would still be entitled to

replacement cost should a loss occur between the time the increased

limits of coverage take effect and the time the policy is due for

renewal. The company questioned whether, in such an instance, the loss

would be settled on a replacement cost or actual cash value basis. The

company also inquired regarding the same scenario when the insured has

a three-year policy and in the case of a condominium building which is

insured under the Residential Condominium Building Association Policy.

FEMA will be issuing implementing instructions which will address this

issue and will be sent to this WYO company and all other WYO companies.

This WYO company also inquired about the effective date should an agent

submit a request to increase limits for a residential structure to the

new $250,000 maximum before March 1. In setting forth its

understanding, the company correctly concluded that if the endorsement

(with appropriate premium, of course) is submitted before March 1,

1995, the endorsement would become effective after five days or on

March 1 (whichever is later) and that any endorsement (with appropriate

premium) submitted on or after March 1, 1995, would become effective

after a 30-day waiting period (unless one of the exceptions applied, of

course).

In commenting on the maximum amounts of coverage to be available

after March 1, 1995, the national trade association respondent urged

FEMA ``to work in conjunction with the bank regulatory agencies on a

state and federal level to coordinate the obligations of financial

institutions.'' This respondent pointed out that some existing federal

regulations require institutions to ``maintain coverage `for the term

of the loan' in an amount `at least equal to the outstanding principal

balance of the loan or the maximum coverage available with respect to

the particular type of property under the Act, whichever is less.'''

This respondent expressed the belief that compliance with those

regulations may require that additional insurance be purchased ``in

those instances where insurance must be maintained in the amount of the

maximum available under the flood insurance program'' and thus

questioned whether the current loan servicer is obligated to act

immediately to increase the amount of coverage or whether a reasonable

time period will be available for the purchase of additional insurance.

This respondent suggested that, given the complexities of present-day

loan [[Page 5585]] servicing, a significant period of time, such as 180

days following the date of availability of the increased coverage, be

provided to allow lenders/servicers sufficient time to arrange or cause

the borrower to obtain any required additional coverage.

This respondent pointed out that section 524 of the Reform Act

``specifies the notifications required for a property in a designated

flood plain `covered by such insurance in an amount less than the

amount required for the property''' and suggested that FEMA ``clarify

that these procedures are the same steps to be followed in the event

additional insurance is required.'' It was suggested that the

notification and standard hazard determination forms being promulgated

pursuant to sections 527 and 528 of the Reform Act ``include language

to alert the borrower to the potential requirement to purchase

additional insurance at a future date.'' This suggestion will be

considered as the notification and standard hazard determination forms

are being developed. The final authority regarding regulations relating

to the obligations of financial institutions rests with the various

federal entities for lending regulation. However, FEMA does have a

consulting/coordinating role with those federal entities and will pass

these comments along to those entities for their consideration.

National Environmental Policy Act

This final 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 final rule were

reviewed and a finding was made that no disproportionately high and

adverse effect on minority or low income populations result from this

final rule.

Executive Order 12866, Regulatory Planning and Review

This final rule is not a significant regulatory action within the

meaning of Section 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. Nevertheless, this final rule adheres to the regulatory

principles set forth in E.O. 12866.

Paperwork Reduction Act

This final rule does not contain a collection of information

requirement as described in section 3504(h) of the Paperwork Reduction

Act.

Executive Order 12612, Federalism

This final rule involves no policies that have federalism

implications under Executive Order 12612, Federalism, dated October 26,

1987.

Executive Order 12778, Civil Justice Reform

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

of Executive Order 12778.

List of Subjects in 44 CFR Part 61

Flood insurance, Reporting and recordkeeping requirements.

Accordingly, 44 CFR part 61 is amended as follows:

PART 61--INSURANCE COVERAGE AND RATES

1. The authority citation for Part 61 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. Section 61.6 is revised to read as follows:

Sec. 61.6 Maximum amounts of coverage available.

(a) Pursuant to section 1306 of the Act, the following are the

limits of coverage available under the emergency program and under the

regular program.

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Regular program

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Emergency Total

program\1\ Second amount

first layer layer available

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Single Family Residential

Except in Hawaii, Alaska, Guam,

U.S. Virgin Islands............. 35,000 215,000 250,000

In Hawaii, Alaska, Guam, U.S.

Virgin Islands.................. 50,000 200,000 250,000

Other Residential

Except in Hawaii, Alaska, Guam,

U.S. Virgin Islands............. 100,000 150,000 250,000

In Hawaii, Alaska, Guam, U.S.

Virgin Islands.................. 150,000 100,000 250,000

Nonresidential

Small business................... 100,000 400,000 500,000

Churches and other properties.... 100,000 400,000 500,000

Contents\2\

Residential...................... 10,000 90,000 100,000

Small business................... 100,000 400,000 500,000

Churches, other properties....... 100,000 400,000 500,000

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\1\Only first layer available under emergency program.

\2\Per unit.

(b) In the insuring of a residential condominium building in a

regular program community, the maximum limit of building coverage is

$250,000 times the number of units in the building (not to exceed the

building's replacement cost).

3. Section 61.11 is amended as follows:

a. By revising paragraphs (a), (b), and (c) to read as follows:

Sec. 61.11 Effective date and time of coverage under the Standard

Flood Insurance Policy--New Business Applications and Endorsements.

(a) During the 13-month period beginning on the effective date of a

revised Flood Hazard Boundary Map or Flood Insurance Rate Map for a

community, the effective date and time of any initial flood insurance

coverage shall be 12:01 a.m. (local time) on the first calendar day

after the application date and the presentment of payment of premium;

for example, a flood insurance policy applied for with the payment of

the premium on May 1 will [[Page 5586]] become effective at 12:01 a.m.

on May 2.

(b) Where the initial purchase of flood insurance is in connection

with the making, increasing, extension, or renewal of a loan, the

coverage with respect to the property which is the subject of the loan

shall be effective as of the time of the loan closing, provided the

written request for the coverage is received by the NFIP and the flood

insurance policy is applied for and the presentment of payment of

premium is made at or prior to the loan closing.

(c) Except as provided by paragraphs (a) and (b) of this section,

the effective date and time of any new policy or added coverage or

increase in the amount of coverage shall be 12:01 a.m. (local time) on

the 30th calendar day after the application date and the presentment of

payment of premium; for example, a flood insurance policy applied for

with the payment of the premium on May 1 will become effective at 12:01

a.m. on May 31.

* * * * *

b. In paragraph (e), by removing, in the second sentence, the

phrase ``(P.O. Box 459, Lanham, Maryland 20706)''.

c. By removing paragraphs (f) (1) and (2) and by redesignating

paragraph (f)(3) as paragraph (g).

d. In newly redesignated paragraph (g), by removing the word

``this'' and after ``(f)'' add ``of this section''.

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

Insurance'')

Dated: January 23, 1995.

Elaine A. McReynolds,

Administrator, Federal Insurance Administration.

[FR Doc. 95-2249 Filed 1-27-95; 8:45 am]

BILLING CODE 6718-05-P