Flood insurance program: Public entity insurers; pilot project,
[Federal Register: May 8, 2001 (Volume 66, Number 89)]
[Proposed Rules]
[Page 23200-23204]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08my01-25]
FEDERAL EMERGENCY MANAGEMENT AGENCY
44 CFR Part 62
RIN 3067-AD17
National Flood Insurance Program (NFIP); Pilot Project--Public Entity Insurers
AGENCY: Federal Emergency Management Agency (FEMA).
ACTION: Proposed rule.
SUMMARY: We (the Federal Insurance Administration of FEMA) are proposing to launch a three-year pilot project that would permit intergovernmental risk-
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sharing pools sponsored by State municipal leagues to sell flood insurance to public entities under the National Flood Insurance Program's Write Your Own (WYO) effort. We would limit the participants in this pilot effort to three such insurers that would be able to provide flood insurance only to public entities for their public buildings. The participants in this pilot effort would also have to comply with comparable eligibility criteria and performance standards for operations, reporting, and customer service that we require of private insurance companies that participate under the WYO program. This proposal includes the eligibility criteria for participation in the proposed pilot and an addendum to the WYO Arrangement that would construe the term ``the company'' used in the Arrangement to mean not only WYO companies but also the insurers selected for this proposed pilot.
DATES: Please submit any comments on this proposed rule by July 9, 2001.
FOR FURTHER INFORMATION CONTACT: Edward T. Pasterick, Federal Emergency Management Agency, Federal Insurance Administration, 500 C Street SW., Washington, DC 20472, 202-646-3443, (facsimile) 202-646-4335, or (email) Edward.Pasterick@fema.gov.
SUPPLEMENTARY INFORMATION:
The NFIP's Write Your Own Program: Successes
Since 1983, when we (FIA) established the WYO program, we have worked in close partnership with private insurance companies to serve a national goal: to protect more of the Nation's property owners against flood loss through insurance. The expertise of our private insurance industry partners, especially in marketing, underwriting, and claims adjustment, has been invaluable in helping us not only provide a high level of customer service to policyholders under the National Flood Insurance Program (NFIP) but also increase the number of property owners covered by flood insurance--a national objective. In fact, as the WYO program has grown so has the number of policyholders nationwide covered by flood insurance. Our flood insurance policy base has more than doubled since the WYO program's inception on October 1, 1983, with policies increasing from 1.9 million to more than 4.3 million policies in force today.
One of the inherent strengths of the WYO program, and one of the reasons for its success, is that private insurance companies, writing property insurance for other perils such as wind and fire, provide convenient access to flood insurance coverage for their customers in need of flood insurance protection. This model may also apply to the unique relationship that public entity insurers, especially State municipal league-sponsored or other intergovernmental risk-sharing pools, such as those sponsored by school districts and transit districts, enjoy with local governments. Such public entity insurers that already provide property insurance coverage to public entities for their public buildings may be in an ideal position to provide the same high level of customer service and easy access to local governments in need of flood insurance protection for their public buildings. This is an avenue that we would like to explore for the benefit of public entities in need of flood insurance protection.
Possible Expansion of the WYO Program
We believe that there may be considerable merit in expanding the framework of the WYO program to include not only our current participants--the property insurance companies that meet financial and operating standards--but also other insurers of public buildings, such as State municipal league-sponsored and other risk pools meeting comparable standards that can serve the specialized insurance market of public entities. By permitting State municipal league-sponsored and other intergovernmental risk-sharing pools to sell flood insurance, we would be providing public entities with the same kind of insurance channel that many use for their other property insurance needs.
This proposal then would add, on a pilot project basis, a new class of insurer to the WYO program. Specifically, we would add to Sec. 62.23 and Sec. 62.24 language that would authorize us to launch the pilot project and enter into an arrangement under the WYO program with up to three State municipal league-sponsored intergovernmental risk-sharing pools to sell flood insurance directly to municipalities provided these intergovernmental risk-sharing pools meet comparable eligibility, performance, and customer service standards as we have established for the private insurance companies. Our proposed revision to Sec. 62.24 includes the criteria that the participants in the pilot project would have to meet as a condition for participation.
We would limit the three-year proposed pilot to no more than three State municipal league-sponsored intergovernmental risk-sharing pools that meet the eligibility criteria that we include in the proposal. Should the pilot succeed in increasing the number of public buildings covered by flood insurance while maintaining the program's standards for customer service, we would be willing to broaden the effort permanently to include other intergovernmental risk-sharing pools, such as those sponsored by school districts and transit districts, that provide property insurance to public entities and that meet our eligibility criteria. Such a pilot would also furnish us with data and experience that would help us improve operations should State municipal league-sponsored and other intergovernmental risk-sharing pools become permanent adjuncts to the WYO program.
It is our hope that the proposed pilot project would provide local governments with an accessible and familiar channel to meet their flood insurance needs through State municipal league sponsored intergovernmental risk-sharing pools since these organizations meet and deal with local governments daily. Such intergovernmental risk-sharing pools already provide expertise in a number of areas such as risk management, and these entities would be in a position to better serve the needs of the localities by providing and servicing flood coverage to the locality for their public buildings. Such organizations bring with them risk management expertise and a unique insight into the needs of their customers--local public entities.
Scope of the Pilot Project
We propose, therefore, to launch a pilot project beginning with the 2001-2 Arrangement Year for the WYO program that begins October 1, 2001. The pilot project would enable up to three State municipal league-sponsored intergovernmental risk-sharing pools--to be nominated by the National League of Cities--to provide flood insurance to communities to cover their public buildings. Under the pilot project, the participating State municipal league-sponsored intergovernmental risk-sharing pools would provide flood insurance only to the buildings of public entities. Private buildings and private personal property would remain the exclusive marketing domain of the private insurance companies participating in the WYO program.
The proposed pilot project would be for a period of three years, but we would begin our analysis at the end of the second year to determine whether the pilot project is meeting our goals. Specifically, we would determine whether the participating State municipal league- sponsored
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intergovernmental risk-sharing pools had positioned themselves to write flood insurance on a large number of public buildings and whether they had maintained the same level of customer service and the same level of performance that we require of participating companies under the WYO program. The analysis at the end of the proposed pilot project would help us determine whether the pilot project should continue, and if so, whether we should expand the program beyond the limited participants of the pilot effort, and whether we need to modify or adjust the program based on project experience.
National Environmental Policy Act (NEPA)
NEPA imposes requirements for considering the environmental impacts of agency decisions. It requires that an agency prepare an Environmental Impact Statement (EIS) for ``major federal actions significantly affecting the quality of the human environment.'' If an action may or may not have a significant impact, the agency must prepare an environmental assessment (EA). If, as a result of this study, the agency makes a Finding of No Significant Impact (FONSI), no further action is necessary. If it will have a significant effect, then the agency uses the EA to develop an EIS.
Categorical Exclusions. Agencies can categorically identify actions (for example, repair of a building damaged by a disaster) that do not normally have a significant impact on the environment. The purpose of this proposed rule is to launch a three-year pilot project that would permit intergovernmental risk-sharing pools sponsored by State municipal leagues to sell flood insurance to public entities under the National Flood Insurance Program's WYO effort.
Accordingly, we have determined that this rule is excluded from the preparation of an environmental assessment or environmental impact statement under 44 CFR 10.8(d)(2)(ii), where the rule is related to actions that qualify for categorical exclusion under 44 CFR 10.8(d)(2)(i), which addresses the preparation, revision, and adoption of regulations, directives, and other guidance documents related to actions that qualify for categorical exclusions. We have not prepared an environmental assessment or environmental impact statement as defined by NEPA.
Executive Order 12866, Regulatory Planning and Review
We have prepared and reviewed this proposed rule under the provisions of E.O. 12866, Regulatory Planning and Review. Under Executive Order 12866, 58 FR 51735, October 4, 1993, a significant regulatory action is subject to OMB review and the requirements of the Executive Order. The Executive Order defines ``significant regulatory action'' as one that is likely to result in a rule that may:
(1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities;
(2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or
(4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.
For the reasons that follow we have concluded that the proposed rule is neither an economically significant nor a significant regulatory action under the Executive Order.
The proposed rule would accomplish one primary purpose: to determine the merit of permanently expanding the WYO program to permit State municipal league-sponsored intergovernmental risk-sharing pools to sell flood insurance to public entities to cover their buildings against flood loss. The proposed rule would permit us to analyze the three-year pilot project to determine the merit of permitting such insurers to be eligible to sell flood insurance permanently under the WYO program. There are no major economic impacts resulting from implementation of this proposal. Rather, the proposed rule would add a new marketing avenue for writing flood insurance for public buildings.
The Office of Management and Budget has not reviewed this proposed rule under the principles of Executive Order 12866.
Paperwork Reduction Act
In accordance with the provisions of the Paperwork Reduction Act of 1995, 44 U.S.C. 3501 et seq., the Office of Management and Budget (OMB) approved the following collections of information applicable to this proposed rule:
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Title: Write Your Own (WYO) Program.
OMB Number: 3067-0169 (expires March 31, 2002).
Affected Public: Business or Other For Profit and State, Local or Tribal Government.
Number of Respondents: 120. The pilot limits the number of additional participants to 3. Therefore, we do not anticipate that there will be an overall increase in the annual number of respondents for this collection.
Estimated Hour Burden: 33 minutes per respondent.
Estimated Total Annual Burden: 792 hours. We do not anticipate that there will be an overall increase in the annual burden hours for this collection.
Frequency of Response: Respondents are required to submit the information on a monthly basis.
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Title: Write Your Own (WYO) Company Participation Criteria; New Applicants.
OMB Number: 3067-0259 (expires April 30, 2002).
Affected Public: Business or Other For Profit and State, Local or Tribal Government.
Number of Respondents: 5. The pilot limits the number of additional participants to 3. Therefore, we do not anticipate that there will be an overall increase in the annual number of respondents for this collection.
Estimated Hour Burden: 7 hours per respondent.
Estimated Total Annual Burden: 35 hours. We do not anticipate that there will be an overall increase in the annual burden hours for this collection.
Frequency of Response: Respondents are required to submit the information one-time only.
The proposed rule will launch a 3-year pilot project that would add intergovernmental risk-sharing pools sponsored by State municipal leagues as a new category of insurer under the Write Your Own (WYO) program. For this pilot, the number of participants is limited to three such insurers that would be able to provide flood insurance only to public entities for their public buildings. The participants must also comply with comparable eligibility criteria and performance standards for operations, reporting, and customer service that we require of private insurance companies that participate in the WYO program. The OMB approval for these collections include the collections of information referenced in Sec. 62.23(a), titled ``Financial Assistance/ Subsidy Arrangement,'' appendix A, and contained in Sec. 62.24 of the proposed rule.
The requirements under the Financial Assistance/Subsidy Arrangement (appendix A to part 62) include standards for insurers participating in
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the Write Your Own program to complete transactions, claims, underwriting, customer service, reporting, marketing, and handling litigation to ensure adequate customer service and to safeguard the use of Federal funds drawn from the National Flood Insurance Fund. The requirements for financial control for insurers participating in the Write Your Own program (set forth in the Financial Control Plan, appendix B to part 62) include standards for: independent auditing, auditing of flood insurance financial statements, and monthly reporting, as well as requirements by FEMA's Office of Financial Management on Letter of Credit use.
Comments: We ask for your comments on our need for this information, the accuracy of our burden estimates, and any methods you can suggest for minimizing the burden on respondents, including automated collection techniques. Please send comments on the collections of information described above to the Office of Management and Budget, Office of Information and Regulatory Affairs; Attention: Desk Officer for FEMA, 725 17th Street, NW., Washington, DC 20503. Written comments should include the OMB number (3067-0259) and may be submitted up to July 9, 2001, but comments will be most useful if received by OMB within 30 days of the Federal Register publication date. We will also accept comments up to July 9, 2001. Written comments to us should be addressed to the Chief, Records Management Branch, Program Services Division, Operations Support Directorate, FEMA, 500 C Street, SW., Washington, DC 20472. We will respond to any OMB or public comments on the collections of information contained in the proposed rule.
For Additional Information Contact: You may obtain a copy of the approved OMB clearance packages for the collections of information by mail at FEMA, 500 C Street, SW., room 316, Washington, DC 20472, by e- mail at muriel.anderson@fema.gov, or by calling (202) 646-2625.
Regulatory Flexibility Act
Under the Regulatory Flexibility Act agencies must consider the impact of their rulemakings on ``small entities'' (small businesses, small organizations and local governments). When 5 U.S.C. 553 requires an agency to publish a notice of proposed rulemaking, the Act requires a regulatory flexibility analysis for both the proposed rule and the final rule if the rulemaking could ``have a significant economic impact on a substantial number of small entities.'' The Act also provides that if a regulatory flexibility analysis is not required, the agency must certify in the rulemaking document that the rulemaking will not ``have a significant economic impact on a substantial number of small entities.''
For the reasons that follow I certify that a regulatory flexibility analysis is not required for this rule because it would not have a significant economic impact on a substantial number of small entities. This proposed rule revises the National NFIP regulations to launch a three-year pilot project that would permit intergovernmental risk sharing pools sponsored by State municipal leagues to sell insurance to public entities under the NFIP's WYO Program. We would limit the participants to three such insurers that would be able to provide flood insurance only to public entities for public buildings. Participation in the pilot program is voluntary.
Executive Order 13132, Federalism
Executive Order 13132, Federalism, dated August 4, 1999, sets forth principles and criteria that agencies must adhere to in formulating and implementing policies that have federalism implications, that is, regulations that have substantial direct effects on the States, or on the distribution of power and responsibilities among the various levels of government. Federal agencies must closely examine the statutory authority supporting any action that would limit the policymaking discretion of the States, and to the extent practicable, must consult with State and local officials before implementing any such action.
We have reviewed this proposed rule under E.O. 13132 and have concluded that the rule does not have federalism implications as defined by the Executive Order. The rule is a proposal to add a new category of insurer under the WYO program--an insurer that would provide another marketing avenue to protect public buildings from flood loss. Inasmuch as the insurance benefits and requirements derive from a Federal statute and program exclusively administered by the Federal Government for the benefit of State, local and tribal governments, individuals, and not-for-profit organizations, the rule neither limits nor preempts any policymaking discretion of the State that the State might otherwise have. We have, nevertheless, consulted with local officials, with the National League of Cities, and with several State municipal leagues.
The Office of Management and Budget has reviewed this rule under the provisions of Executive Order 13132.
List of Subjects in 44 CFR Part 62
Flood insurance.
Accordingly, amend 44 CFR part 62 as follows:
PART 62--SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS
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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.
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Revise paragraphs (a) and (b) of Sec. 62.23 to read as follows:
Sec. 62.23 WYO Companies Authorized
(a) Pursuant to section 1345 of the Act, the Administrator may enter into arrangements with individual private sector property insurance companies or other insurers whereby such companies may offer flood insurance coverage under the program to eligible applicants for such insurance including policyholders insured by them under their own property business lines of insurance pursuant to their customary business practices including their usual arrangements with agents and producers, in any State in which such WYO companies are authorized to engage in the business of property insurance. Arrangements entered into by WYO Companies under this subpart must be in the form and substance of the standard arrangement, titled ``Financial Assistance/Subsidy Arrangement,'' a copy of which is included in appendix A of this part and made a part of these regulations.
(b) Any duly authorized insurer so engaged in the Program shall be a WYO Company. (The term ``WYO Company'' shall include the following kinds of insurers: an association of local governments, a State municipal league-sponsored and other intergovernmental risk-sharing pool for covering public entity structures.) * * * * *
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Revise Sec. 62.24 to read as follows:
Sec. 62.24 WYO Participation Criteria
New companies or organizations eligible for the pilot project we describe in paragraph (b) of this section that seek 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.
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(a) To demonstrate the ability to meet the financial requirements, a private insurance company wishing to enter or reenter 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 immediately 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) To demonstrate the ability to meet the financial requirements, an association of local governments, or a State municipal league- sponsored intergovernmental risk-sharing pool for covering public entity structures, wishing to enter the WYO pilot program commencing on October 1, 2001, must:
(1) Have authority by a State to provide property coverage to its members;
(2) Have a five (5) year history of writing property coverage;
(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; and
(4) Submit its most recent two annual audits from an independent accounting firm performed in compliance with generally accepted accounting principles that show no material negative findings; and submit, as data become available, information to indicate that the association or the pool meets or exceeds standards comparable to those of the NAIC for risk-based capital and surplus.
(c) An applicant for entry or reentry in the WYO program must also pass a test to determine the applicant'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 applicant'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.
(d) To satisfy the requirement for commitment to Program goals, including marketing of flood insurance policies, the applicant shall submit information concerning the company's plans for the WYO 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. Applicants shall also name, in addition to a Principal Coordinator, a corporate officer point of contact--an individual, e.g., at the level of 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. A private insurance company applying for participation in the WYO program shall also furnish its Best's Financial Size Category for the purpose of setting marketing goals.
Appendix A to Part 62 [Amended]
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Add the following ADDENDUM at the end of Appendix A to Part 62: * * * * *
Addendum to Appendix A to Part 62--Federal Emergency Management Agency, Federal Insurance Administration, Financial Assistance/Subsidy Arrangement
Note: This Addendum to Appendix A to Part 62 applies only to public entity insurers participating in the pilot project established in Sec. 62.24(b) that permits State municipal league- sponsored intergovernmental risk-sharing pools to provide flood insurance to public entities to cover public buildings.
``Company'' in the preceding Arrangement includes ``public entity insurer.''
The references to ``marketing guidelines'' in Article II-- Undertaking of the Company and to ``marketing goals'' in Article III--Loss Costs, Expenses, Expense Reimbursement, and Premium Refunds shall apply only to the private insurance companies participating in the WYO program.
(Catalog of Federal Domestic Assistance No. 83.100, ``Flood Insurance'')
Dated: May 1, 2001. Howard Leikin, Acting Administrator, Federal Insurance Administration.
[FR Doc. 01-11364Filed5-7-01; 8:45 am]
BILLING CODE 6718-03-P
