National Flood Insurance Program (NFIP); Insurance Coverage and Rates

FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 61

RIN 3067-AD02

National Flood Insurance Program (NFIP); Insurance Coverage and

Rates

AGENCY: Federal Emergency Management Agency (FEMA).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: We, FEMA, are proposing to apply full-risk premium rates under

the National Flood Insurance Program to structures that have suffered

multiple flood losses and whose owners decline an offer of funding to

eliminate or reduce future flood damage.

DATES: Please send your comments on the proposal on or before September

7, 1999.

ADDRESSES: Please send your 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,

or (email) [email protected].

FOR FURTHER INFORMATION CONTACT: Howard Leikin, Federal Emergency

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

Washington, DC 20472, 202-646-2784, (facsimile) 202-646-7970, (email)

Howard.L[email protected].

SUPPLEMENTARY INFORMATION:

Definition

One of our (FEMA's) highest priorities is to correct the problem of

multiple flood losses to older structures insured under the National

Flood Insurance Program (NFIP). For the purpose of this proposal, we

call a sub-category of these structures ``target repetitive loss''

buildings and define a ``target repetitive loss building'' as a

``building with four or more losses, or with two or more flood losses

cumulatively greater than the building's value.'' This definition is

more specific than the broader category of buildings with multiple

flood losses which many stakeholders of the NFIP may be more familiar

with and which we have used frequently in the past to describe this

national problem.

Scope of the Problem

The broader definition of a building with multiple losses, which we

commonly use in the NFIP, is a building that has suffered within a ten-

year period two or more losses, each resulting in at least a $1,000

claim payment. We know that there are about 87,000 such buildings in

the country, and the total amount of claims paid by the NFIP since its

inception for multiple loss buildings is $3.5 billion. Multiple loss

buildings have accounted for 36 percent of all claims dollars paid

under the program.

About half of those buildings, however, are no longer in the NFIP's

book of business for a variety of reasons. Some property owners have

dropped their policies because we have imposed limitations on flood

insurance coverage, such as not insuring personal property in

basements. FEMA's mitigation projects have reduced the flood risk of a

number of properties with repetitive losses through elevation or flood-

proofing. In addition, some of these properties are now protected by

flood control projects and storm water management projects. Also, the

enforcement by State and local governments of the NFIP's flood plain

management standards for elevating or flood-proofing substantially

damaged properties has had a positive effect in reducing the exposure

to flood loss of a number of these properties.

In spite of this, the NFIP still insures about 43,000 multiple loss

buildings. We have already paid $2 billion in flood insurance claims on

these currently insured buildings, and we estimate that the continuing

cost to the NFIP for these properties insured under the NFIP will

average $200 million each year.

Target Buildings

Of the 43,000 multiple loss buildings insured under the NFIP, about

8,800 have had four or more losses. In addition to these, there are

another 1,300 insured buildings that have had two or three losses that

cumulatively exceed the building's value. We have concluded from our

actuarial studies that employing mitigation strategies for these

roughly 10,000 buildings, such as relocating or elevating them, will be

cost effective. These buildings will be the ``target repetitive loss

buildings'' of this proposal.

Repetitive Loss Strategy: Objectives

We are aware that there are some multiple loss properties that

demand immediate attention where the residents are at a high personal

risk because of their exposure to flooding. There are other

properties--often celebrated in the media--where we have made claims

payments under the NFIP that exceed the value of the building, and

where it makes good business sense to reduce their exposure to loss. We

cannot merely shift the costs of the NFIP to other programs. So we must

adopt a comprehensive approach under the NFIP that uses both

mitigation, such as

[[Page 42633]]

relocating buildings out of harm's way or elevating above estimated

flood elevations, and insurance such as an adjustment of premium rates.

Insurance for Pre-FIRM Properties

The National Flood Insurance Act of 1968, as amended, authorizes us

to offer flood insurance at less than full-risk premiums for older

structures in return for a community's enforcement of flood plain

management requirements. Congress recognized that in authorizing the

flood insurance program there would be a trade-off: federally-backed

flood insurance would be available for structures at a high flood risk

built without the benefit of detailed flood risk information. In

return, the local government would adopt and enforce flood mitigation

standards that make future construction resistant to future flood loss.

To make such efforts effective, we have worked with more than 19,000

communities and their state governments to develop the kind of detailed

flood risk information needed for flood mitigation efforts.

Properties built before the publication of the Flood Insurance Rate

Map (FIRM) have been eligible for less than full risk premiums. (For

this proposed rule, we call buildings constructed before the effective

date of the FIRM ``pre-FIRM'' buildings.) Our actuarial studies show

that the owners of repetitively flooded buildings insured under the

NFIP do not pay premiums that truly reflect the risk. What that means

is that property owners who have collected claims payments have been

paying and continue to pay less than full-risk premiums.

Insurance Component of the Repetitive Loss Strategy

This proposed rule would apply full-risk premiums for flood

insurance coverage to the ``target repetitive loss buildings'' whose

owners declined an offer of mitigation funding authorized by FEMA.

Under this proposal, if the owner of a target repetitive flood loss

building declines such an offer of mitigation funding to relocate,

elevate, or flood-proof the structure, then that owner would upon the

next policy renewal have to pay full-risk premiums for flood insurance

coverage under the NFIP. To allow us to consistently track and to

minimize the burden on companies writing flood insurance under the

Write Your Own program, we plan for companies to begin referring on May

1, 2000, all renewals for coverage of target repetitive loss buildings

and new policy applications for such buildings to the NFIP Servicing

Facility. In this way, we can centralize the processing and data

collection needed to implement this strategy.

National Environmental Policy Act

Pursuant to section 102 (2) (C) of the National Environmental

Policy Act of 1969, 42 U.S.C. 4371 et seq., and the implementing

regulations of the Council on Environmental Quality, 40 CFR parts 1500-

150, FEMA is conducting an environmental assessment of this proposed

rule. This assessment will be available for inspection through the

Rules Docket Clerk, Federal Emergency Management Agency, room 840, 500

C St. SW., Washington, DC 20472.

Executive Order 12866, Regulatory Planning and Review

This proposed 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. Nevertheless, this proposed rule adheres to the regulatory

principles set forth in E.O. 12866.

Paperwork Reduction Act

This proposed rule does not contain a collection of information and

is therefore not subject to the provisions of the Paperwork Reduction

Act.

Executive Order 12612, Federalism

This proposed rule involves no policies that have federalism

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

1987.

Executive Order 12778, Civil Justice Reform

This proposed rule meets the applicable standards of section

2(b)(2) of Executive Order 12778.

List of Subjects in 44 CFR Part 61

Claims, Flood insurance.

Accordingly, we propose to amend 44 CFR part 61 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. In Sec. 61.8, paragraphs (b) and (c) are redesignated as

paragraphs (c) and (d), respectively, and a new paragraph (b) is added,

reading as follows:

Sec. 61.8 Applicability of risk premium rates.

* * * * *

(b) Any target repetitive loss building whose owner has declined an

offer of mitigation assistance authorized under any FEMA mitigation

program. (A target repetitive loss building is one that has had within

a ten-year period two or more losses, each resulting in at least a

$1,000 claim payment. In addition, the building has suffered four or

more insured flood losses or two insured flood losses cumulatively

greater than the building's value.)

* * * * *

Dated: July 27, 1999.

Jo Ann Howard,

Administrator, Federal Insurance Administration.

[FR Doc. 99-20171 Filed 8-4-99; 8:45 am]

BILLING CODE 6718-03-P