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: Proposed Rule.

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SUMMARY: This proposed rule would amend the National Flood Insurance

Program (NFIP) regulations establishing the Financial Assistance/

Subsidy Arrangement that may be entered into by and between the

Administrator and private sector insurers under the Write Your Own

(WYO) program. The proposed amendments would: (1) Simplify the

Arrangement by streamlining the format; (2) reflect recent policy

changes regarding loss adjustment and financial operation of the

private insurers in the WYO program; and (3) delete references to

obsolete operating manuals and handbooks. The proposed amendments would

also improve the flexibility of the Arrangement and would provide

information to permit WYO participants to discharge their

responsibilities for underwriting, claims adjustment, and financial

control procedures established by the Federal Insurance Administration

(FIA).

DATES: All comments received on or before May 20, 1996 will be

considered before final action is taken on the proposed rule.

ADDRESSES: Please submit any written comments to the Rules Docket

Clerk, Office of the General Counsel, Federal Emergency Management

Agency, 500 C Street SW., room 840, Washington, DC 20472, (facsimile)

202-646-4536.

FOR FURTHER INFORMATION CONTACT: Edward T. Pasterick, Federal Emergency

Management Agency, Federal Insurance Administration, 500 C Street SW.,

Washington, DC 20472, (202) 646-3443.

SUPPLEMENTARY INFORMATION: The WYO program has operated for thirteen

years. The program's operating documents reflect program experience as

well as the FIA's ongoing dialogue with private insurers that have

participated in the WYO program, insurance company executives, FEMA's

Office of Financial Management, and FEMA's Office of Inspector General.

Under the WYO Program, insurers signatory to the Financial Assistance/

Subsidy Arrangement may issue in their own names the Standard Flood

Insurance Policy, the form and substance of which is approved by the

Administrator. Insurers are responsible for all aspects of service,

including policy issuance to new policyholders and to their

policyholders insured under other lines of property insurance;

endorsement and renewals of policies; and the adjustment of claims

brought under the policies. The insurers pay losses and loss adjustment

expenses, as well as the commissions of agents, out of written

premiums. In return for discharging these responsibilities under the

Arrangement, insurers retain a set portion of the written premium. The

amount of retained written premium by an insurer is based in part on

the insurer's performance in achieving marketing goals during the

Arrangement year.

The proposed changes to the regulations are intended therefore to

simplify the terms and conditions of the WYO Arrangement itself in

order to make it easier for private insurers to participate in the WYO

program and thereby serve an underlying Congressional intent to carry

out the NFIP ``to the maximum extent practicable by the private

insurance industry,'' as called for in the Declaration of Purpose for

the National Flood Insurance Act of 1968, Pub. L. 90-448, 42 U.S.C.

4001.

The proposed changes would offer a more flexible framework than now

for private insurers participating in the WYO program to operate while

maintaining the operational and financial controls and standards

necessary to preserve program integrity and accountability--both for

the Government and for the participating private insurers. For example,

the adjuster's fee schedule needs to be revised to reflect program

changes prompted by the National Flood Insurance Reform Act (NFIRA) of

1994. Those revisions could be made, more appropriately, in a parallel

effort and published in operating manuals rather than encumbering the

Arrangement. Operating processes relating to the single adjuster

program may be better handled differently from the Arrangement. Also,

references to many documents should be deleted so that the Arrangement

is not encumbered with details about publications that may be scheduled

for revision during the course of the Arrangement year. Consistent with

the proposed changes to the WYO Financial Control Plan, Appendix B to

44 CFR Part 62 published in the Federal Register on February 1, 1996,

61 FR 3635-3644, this proposed rule would discontinue the self-audit

requirement for private insurers participating in the WYO program.

In sum, the proposed changes to the regulations would produce a WYO

Arrangement that would clearly specify the responsibilities and duties

of the Government and the private insurers participating in the WYO

program without burdening the Arrangement with unnecessary detail or

references that may become obsolete before the Arrangement year

expires.

National Environmental Policy Act. This proposed rule would be

[[Page 14710]]

categorically excluded from the requirements of 44 CFR Part 10,

Environmental Consideration. No environmental impact assessment has

been prepared.

Executive Order 12866, Regulatory Planning and Review. This

proposed rule would not be a significant regulatory action as defined

under Executive Order 12866 of September 30, 1993, Regulatory Planning

and Review, 58 FR 51735, October 4, 1993. To the extent possible, this

rule adheres to the principles of regulation set forth in Executive

Order 12866. This rule has not been reviewed by the Office of

Management and Budget under the provisions of Executive Order 12866.

Paperwork Reduction Act. This proposed rule would not contain a

collection of information and is therefore not subject to the

provisions of the Paperwork Reduction Act of 1995.

Executive Order 12612, Federalism. This proposed rule would involve

no policies that have federalism implications under Executive Order

12612, Federalism, dated October 26, 1987.

Executive Order 12778, Civil Justice Reform. This proposed rule

would meet the applicable standards of section 2(b)(2) of Executive

Order 12778.

List of Subjects in 44 CFR Part 62

Claims, Flood Insurance.

We use certain conventions in this proposed rule to highlight the

proposed revisions. New language is shown inside boldfaced arrows >>> October 1, 1996.> enable any interested qualified insurer> Other technical and policy material

published by FEMA and FIA will also provide guidance to the Company. > 15 days; > 1.4 > 1.5 > 1.6 Where flood losses reasonably believed to involve wind

damage are reported by property insurance agents of 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.]

D. Policy Issuance

1.0 The flood insurance subject to this Arrangement shall be only

that insurance written by the Company in its own name pursuant to the

Act.

2.0 The Company shall issue policies under the regulations

prescribed by the Administrator in accordance with the Act;

3.0 All such policies of insurance shall conform to the

regulations prescribed by the Administrator pursuant to the Act, and be

issued on a form approved by the Administrator;

4.0 All policies shall be issued in consideration of such premiums

and upon such terms and conditions and in such States or areas or

subdivisions thereof as may be designated by the Administrator and only

where the Company is licensed by State law to engage in the property

insurance business;

5.0 The Administrator may require the Company to immediately

discontinue issuing policies subject to

[[Page 14712]]

this Arrangement in the event Congressional authorization or

appropriation for the National Flood Insurance Program is withdrawn.

E. The Company shall [establish a bank account,] separate >>

Federal flood insurance funds >> [and apart] from all other Company

accounts, at a bank >> or banks > Federal > State premium > adjustment > 1996-

1997 > 1996-1997 > 1996-1997

> a fee

schedule established by FIA. > in accordance with

guidelines issued by the Administrator. > Administrator > a period

not to exceed > In such event the Government will assume all

obligations and liabilities owed to policyholders under such policies

arising before and after the date of transfer. > FEMA > including claim file information > including interest, > the National Flood Insurance Reform Act of 1994,

<< and Regulations issued pursuant thereto and all Regulations

affecting the work that are issued pursuant thereto, during the term

hereof.

Article XVI--Relationship Between the Parties (Federal Government and

Company) and the Insured

Inasmuch as the Federal Government is a guarantor hereunder, the

primary relationship between the Company and the Federal Government is

one of a fiduciary nature, i.e., to assure that any taxpayer funds are

accounted for and appropriately expended.

The Company is not the agent of the Federal Government. The Company

is solely responsible for its obligations to its insured under any

flood policy issued pursuant hereto.

[In witness whereof, the parties hereto have accepted this

Arrangement on this ________ day of ________, 1993.]

________________________

[Company]

[by ________________________]

[(Title) ________________________]

[The United States of America]

[Federal Emergency Management Agency]

[by ________________________]

[(Title) ________________________]

[Exhibit A]

[FEE SCHEDULE]

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[Range (by covered loss) Fee]

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[Erroneous Assignment...................................... $40.00]

[Closed Without Payment.................................... 125.00]

[Minimum for Upton-Jones Claims............................ 800.00]

[$0.01 to $600.00.......................................... 150.00]

[$600.01 to $1,000.00...................................... 175.00]

[$1,000.01 to $2,000.00.................................... 225.00]

[$2,000.01 to $3,500.00.................................... 275.00]

[$3,500.01 to $5,000.00.................................... 350.00]

[$5,000.01 to $7,000.00.................................... 425.00]

[$7,000.01 to $10,000.00................................... 500.00]

[$10,000.01 to $15,000.00.................................. 550.00]

[$15,000.01 to $25,000.00.................................. 600.00]

[$25,000.01 to $35,000.00.................................. 675.00]

[$35,000.01 to $50,000.00.................................. 750.00]

[$50,000.01 to $100,000.00................................. 1,000.00]

[$100,000.01 to $150,000.00................................ 1,300.00]

[$150,000.01 to $200,000.00................................ 1,600.00]

[$200,000.01 to limits..................................... 2,000.00]

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[Allocated fee schedule entry value is the covered loss under the

policy based on the standard deductibles ($500 and $500) and limited to

the amount of insurance purchased.]

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

Insurance'')

Dated: March 26, 1996.

Harvey G. Ryland,

Deputy Director.

[FR Doc. 96-8127 Filed 4-2-96; 8:45 am]

BILLING CODE 6718-03-P