National Flood Insurance Program (NFIP); Assistance to Private Sector Property Insurers, Notice of FY 2023 Arrangement

CourtFederal Emergency Management Agency
Published date22 March 2022
Record Number2022-05956
Federal Register, Volume 87 Issue 55 (Tuesday, March 22, 2022)
[Federal Register Volume 87, Number 55 (Tuesday, March 22, 2022)]
                [Notices]
                [Pages 16221-16228]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2022-05956]
                [[Page 16221]]
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                DEPARTMENT OF HOMELAND SECURITY
                Federal Emergency Management Agency
                [Docket ID FEMA-2022-0004]
                National Flood Insurance Program (NFIP); Assistance to Private
                Sector Property Insurers, Notice of FY 2023 Arrangement
                AGENCY: Federal Emergency Management Agency, Department of Homeland
                Security.
                ACTION: Notice.
                -----------------------------------------------------------------------
                SUMMARY: The Federal Emergency Management Agency announces the Fiscal
                Year 2023 Financial Assistance/Subsidy Arrangement for private property
                insurers interested in participating in the National Flood Insurance
                Program's Write Your Own Program.
                DATES: Interested insurers must submit intent to subscribe or re-
                subscribe to the Arrangement by June 21, 2022.
                FOR FURTHER INFORMATION CONTACT: Sarah Devaney Ice, Federal Insurance
                and Mitigation Administration, FEMA, 400 C St. SW, Washington, DC 20472
                (mail); (202) 320-5577 (phone); or [email protected]
                (email).
                SUPPLEMENTARY INFORMATION:
                I. Background
                 The National Flood Insurance Act of 1968 (NFIA) (42 U.S.C. 4001 et
                seq.) authorizes the Administrator of the Federal Emergency Management
                Agency (FEMA) to establish and carry out a National Flood Insurance
                Program (NFIP) to enable interested persons to purchase flood
                insurance. See 42 U.S.C. 4011(a). Under the NFIA, FEMA may use
                insurance companies and other insurers, insurance agents and brokers,
                and insurance adjustment organizations as fiscal agents of the United
                States to help it carry out the NFIP. See 42 U.S.C. 4071. To this end,
                FEMA may ``enter into any contracts, agreements, or other appropriate
                arrangements'' with private insurance companies to use their facilities
                and services in administering the NFIP on such terms and conditions as
                they agree upon. See 42 U.S.C. 4081(a).
                 Pursuant to this authority, FEMA enters into a standard Financial
                Assistance/Subsidy Arrangement (Arrangement) with private sector
                property insurers, also known as Write Your Own (WYO) companies, to
                sell NFIP flood insurance policies under their own names and adjust and
                pay claims arising under the Standard Flood Insurance Policy (SFIP).
                Each Arrangement entered into by a WYO company must be in the form and
                substance of the standard Arrangement, a copy of which is published in
                the Federal Register annually, at least 6 months prior to becoming
                effective. See 44 CFR 62.23(a). To learn more about FEMA's WYO Program,
                please visit https://nfipservices.floodsmart.gov/write-your-own-program.
                II. Notice of Availability
                 Insurers interested in participating in the WYO Program for Fiscal
                Year 2023 must contact Sarah Devaney Ice at [email protected] by June 21, 2022.
                 Prior participation in the WYO Program does not guarantee FEMA will
                approve continued participation. FEMA will evaluate requests to
                participate in light of publicly available information, industry
                performance data, and other criteria listed in 44 CFR 62.24 and the FY
                2023 Arrangement, copied below. FEMA encourages private insurance
                companies to supplement this information with customer satisfaction
                surveys, industry awards or recognition, or other objective performance
                data. In addition, private insurance companies should work with their
                vendors and subcontractors involved in servicing and delivering their
                insurance lines to ensure FEMA receives the information necessary to
                effectively evaluate the criteria set forth in its regulations.
                 FEMA will send a copy of the offer for the FY 2023 Arrangement,
                together with related materials and submission instructions, to all
                private insurance companies successfully evaluated by the NFIP. If
                FEMA, after conducting its evaluation, chooses not to renew a Company's
                participation, FEMA, at its option, may require the continued
                performance of all or selected elements of the FY 2022 Arrangement for
                a period required for orderly transfer or cessation of the business and
                settlement of accounts, not to exceed 18 months. See FY 2022
                Arrangement, Article II.C. All evaluations, whether successful or
                unsuccessful, will inform both an overall assessment of the WYO Program
                and any potential changes FEMA may consider regarding the Arrangement
                in future fiscal years.
                 Any private insurance company with questions may contact FEMA at:
                Sarah Devaney Ice, Federal Insurance and Mitigation Administration,
                FEMA, 400 C St. SW, Washington, DC 20472 (mail); (202) 320-5577
                (phone); or [email protected] (email).
                III. Fiscal Year 2023 Arrangement
                 Pursuant to 44 CFR 62.23(a), FEMA must publish the Arrangement at
                least six months prior to the Arrangement becoming effective. The FY
                2023 Arrangement provided below is substantially similar to the
                previous year's Arrangement, but includes the following substantive
                changes:
                 1. In Article II.C. (Commencement and Termination), FEMA is
                requiring applicants, who have never participated in the program, or
                who are returning after a period of non-participation to provide their
                operations plan at the time they submit their application to
                participate in the WYO Program.
                 2. In Article II.D. (Commencement and Termination), FEMA is
                providing additional guidance on the transfer of data and
                documentation.
                 3. In Article II.F. (Commencement and Termination), FEMA is
                providing additional guidance for companies and will require notice
                from any company that is assigned a financial strength rating that is
                downgraded by an independent financial rating company during the period
                of participation in the Arrangement, or is unable to operate as a
                result of a State department of insurance order or directive, including
                those companies that are in receivership or run-off status.
                Furthermore, FEMA has added an immediate notice requirement for such
                companies.
                 4. In Article III.A. (Undertakings of the Company), FEMA is
                requiring WYO companies to have a live customer service agent in order
                to be more accessible to policyholders.
                 5. Removal of Reimbursement for Services of a National Rating
                Organization from Article IV.B.4.
                 The Fiscal Year 2023 Arrangement reads as follows:
                Financial Assistance/Subsidy Arrangement
                Article I. General Provisions
                 A. Parties. The parties to the Financial Assistance/Subsidy
                Arrangement are the Federal Emergency Management Agency (FEMA) and the
                Company.
                 B. Purpose. The purpose of this Financial Assistance/Subsidy
                Arrangement is to authorize the Company to sell and service flood
                insurance policies made available through the National Flood Insurance
                Program (NFIP) and adjust and pay claims arising under such policies as
                fiscal agents of the Federal Government.
                 C. Authority. This Financial Assistance/Subsidy Arrangement is
                authorized under the National Flood Insurance Act of 1968 (NFIA) (42
                U.S.C. 4001 et seq.), and in particular, section
                [[Page 16222]]
                1345(a) of the NFIA (42 U.S.C. 4081(a)), as implemented by 44 CFR 62.23
                and 62.24.
                Article II. Commencement and Termination
                 A. The effective period of this Arrangement begins on October 1,
                2022 and terminates no earlier than September 30, 2023, subject to
                extension pursuant to Articles II.D and II.H. FEMA may provide
                financial assistance only for policy applications and endorsements
                accepted by the Company during this period pursuant to the Program's
                effective date, underwriting, and eligibility rules.
                 B. Pursuant to 44 CFR 62.23(a), FEMA will publish the Arrangement
                and the terms for subscription or re-subscription for Fiscal Year 2024
                in the Federal Register no later than April 1, 2023. Upon such
                publication, the Company must notify FEMA of its intent to re-subscribe
                or not re-subscribe to the WYO Program for the following term within
                ninety (90) calendar days.
                 C. Requesting Participation in WYO Program. Insurers interested in
                participating in the WYO Program, who have never participated in the
                program, or who are returning to the program after a period of non-
                participation, must submit a written request to participate.
                 1. Participation is then contingent on submission of both:
                 a. A completed application package, the requirements and contents
                of which FEMA will outline in its written response to the request to
                participate, and
                 b. A completed operations plan, whose requirements and contents are
                outlined at Article III.A.5 of this Arrangement.
                 2. Insurers who are already participating in the program must
                submit their operations plan within ninety (90) days as outlined in
                Article III.A.5 of this Arrangement.
                 D. In addition to the requirements of Article II.B, in order to
                ensure uninterrupted service to policyholders, the Company must notify
                FEMA within thirty (30) calendar days of when the Company elects not to
                re-subscribe to the WYO Program during the term of this Arrangement. If
                so notified, or if FEMA chooses not to renew the Company's
                participation, FEMA, at its option, may require the continued
                performance of all or selected elements of this Arrangement for the
                period required for orderly transfer or cessation of business and
                settlement of accounts, not to exceed eighteen (18) months after the
                end of this Arrangement (September 30, 2023), and may either require
                transfer of activities to FEMA under Article II.D.1 or allow transfer
                of activities to another WYO company under Article II.D.2:
                 1. FEMA may require the Company to transfer all activities under
                this Arrangement to FEMA. Within thirty (30) calendar days of FEMA's
                election of this option, the Company must deliver to FEMA the
                following:
                 a. A plan for the orderly transfer to FEMA of any continuing
                responsibilities in administering the policies issued by the Company
                under the Program including provisions for coordination assistance.
                 b. All data received, produced, and maintained through the life of
                the Company's participation in the Program, including certain data, as
                determined by FEMA, in a standard format and medium.
                 c. All claims and policy files, including those pertaining to
                receipts and disbursements that have occurred during the life of each
                policy. In the event of a transfer of the services provided, the
                Company must provide FEMA with a report showing, on a policy basis, any
                amounts due from or payable to policyholders, agents, brokers, and
                others as of the transition date.
                 d. All funds in its possession with respect to any policies
                transferred to FEMA for administration and the unearned expenses
                retained by the Company.
                 e. A point of contact within the Company responsible for addressing
                issues that may arise from the Company's previous participation under
                the WYO Program.
                 2. Within ninety (90) calendar days of receiving the Company's data
                and supporting documentation, FEMA will notify the Company of the date
                that FEMA will complete the transfer.
                 3. FEMA may allow the Company to transfer all activities under this
                Arrangement to one or more other WYO companies. Prior to commencing
                such transfer, the Company must submit, and FEMA must approve, a formal
                request. Such request must include the following:
                 a. An assurance of uninterrupted service to policyholders.
                 b. A detailed transfer plan providing for either: (1) The renewal
                of the Company's NFIP policies by one or more other WYO companies; or
                (2) the transfer of the Company's NFIP policies to one or more other
                WYO companies.
                 c. A description of who the responsible party will be for
                liabilities relating to losses incurred by the Company in this or
                preceding Arrangement years.
                 d. A point of contact within the Company responsible for addressing
                issues that may arise from the Company's previous participation under
                the WYO Program.
                 E. Cancellation by FEMA.
                 1. FEMA may cancel financial assistance under this Arrangement in
                its entirety upon thirty (30) calendar days written notice to the
                Company stating one or more of the following reasons for such
                cancellation:
                 a. Fraud or misrepresentation by the Company subsequent to the
                inception of the Arrangement; or
                 b. Nonpayment to FEMA of any amount due; or
                 c. Material failure to comply with the requirements of this
                Arrangement or with the written standards, procedures, or guidance
                issued by FEMA relating to the NFIP and applicable to the Company.
                 d. Failure to maintain compliance with WYO company participation
                criteria at 44 CFR 62.24.
                 e. Any other cause so serious or compelling a nature that affects
                the Company's present responsibility.
                 2. If FEMA cancels this Arrangement pursuant to Article II.E.1,
                FEMA may require the transfer of administrative responsibilities and
                the transfer of data and records as provided in Article II.D.1.a-d. If
                transfer is required, the Company must remit to FEMA the unearned
                expenses retained by the Company. In such event, FEMA will assume all
                obligations and liabilities owed to policyholders under such policies,
                arising before and after the date of transfer.
                 3. As an alternative to the transfer of the policies to FEMA
                pursuant to Article II.E.2, FEMA will consider a proposal, if it is
                made by the Company, for the assumption of responsibilities by another
                WYO company as provided in Article II.D.3.
                 F. In the event that the Company is unable or otherwise fails to
                carry out its obligations under this Arrangement by reason of any order
                or directive duly issued by the Department of Insurance of any
                jurisdiction to which the Company is subject, including but not limited
                to being placed in receivership or run-off status by a State Department
                of Insurance, the Company agrees to transfer, and FEMA will accept, any
                and all WYO policies issued by the Company and in force as of the date
                of such inability or failure to perform. In such event FEMA will assume
                all obligations and liabilities within the scope of the Arrangement
                owed to policyholders arising before and after the date of transfer,
                and the Company will immediately transfer to FEMA all
                [[Page 16223]]
                needed records and data and all funds in its possession with respect to
                all such policies transferred and the unearned expenses retained by the
                Company. As an alternative to the transfer of the policies to FEMA,
                FEMA will consider a proposal, if it is made by the Company, for the
                assumption of responsibilities by another WYO company as provided by
                Article II.D.2. The Company shall immediately notify FEMA if:
                 1. An independent financial rating company downgrades its financial
                strength during its period of performance under this Arrangement; or
                 2. It receives a State department of insurance order or directive
                making it unable to carry out its obligations under this Arrangement,
                including but not limited to being placed in receivership or run-off
                status by a State department of insurance.
                 G. In the event the Act is amended, repealed, expires, or if FEMA
                is otherwise without authority to continue the Program, FEMA may cancel
                financial assistance under this Arrangement for any new or renewal
                business, but the Arrangement will continue for policies in force that
                shall be allowed to run their term under the Arrangement.
                 H. If FEMA does not publish the Fiscal Year 2024 Arrangement in the
                Federal Register on or before April 1, 2023, then FEMA may require the
                continued performance of all or selected elements of this Arrangement
                through December 31, 2024, but such extension may not exceed the
                expiration of the six (6) month period following publication of the
                Fiscal Year 2024 Arrangement in the Federal Register.
                Article III. Undertakings of the Company
                 A. Responsibilities of the Company.
                 1. Policy Issuance and Maintenance. The Company must meet all
                requirements of the Financial Control Plan and any guidance issued by
                FEMA. The Company is responsible for the following:
                 a. Compliance with Rating Procedures.
                 b. Eligibility Determinations.
                 c. Policy Issuances.
                 d. Policy Endorsements.
                 e. Policy Cancellations.
                 f. Policy Correspondence.
                 g. Payment of Agents' Commissions.
                 h. Fund Management, including the receipt, recording, disbursement,
                and timely deposit of NFIP funds.
                 2. The Company must provide a live customer service agent that (1)
                is accessible to all policyholders via telephone during business days,
                and (2) can resolve commonplace customer service issues.
                 3. Claims Processing.
                 a. In general. The Company must process all claims consistent with
                the Standard Flood Insurance Policy, Financial Control Plan, Claims
                Manual, other guidance adopted by FEMA, and as much as possible, with
                the Company's standard business practices for its non-NFIP policies.
                 b. Adjuster registration. The Company may not use an independent
                adjuster to adjust a claim unless the independent adjuster:
                 i. Holds a valid Flood Control Number issued by FEMA; or
                 ii. Participates in the Flood Adjuster Capacity Program.
                 c. Claim reinspections. The Company must cooperate with any claim
                reinspection by FEMA.
                 4. Reports. The Company must certify its business under the WYO
                Program through monthly financial reports in accordance with the
                requirements of the Pivot Use Procedures. The Company must follow the
                Financial Control Plan and the WYO Accounting Procedures Manual. FEMA
                will validate and audit, in detail, these data and compare the results
                against Company reports.
                 5. Operations Plan. Within ninety (90) calendar days of the
                commencement of this Arrangement, the Company must submit a written
                Operations Plan to FEMA describing its efforts to perform under this
                Arrangement. The plan must include the following:
                 a. Private Flood Insurance Separation Plan. If applicable, a
                description of the Company's policies, procedures, and practices
                separating their NFIP flood insurance lines of business from their non-
                NFIP flood insurance lines of business, including its implementation of
                Article III.E.
                 b. Marketing Plan. A marketing plan describing the Company's
                forecasted growth, efforts to achieve that growth, and ability to
                comply with any marketing guidelines provided by FEMA.
                 c. Customer Service Plan. A description of overall customer service
                practices, including ongoing and planned improvement efforts.
                 d. Distribution Plan. A description of the Company's NFIP flood
                insurance distribution network, including anticipated numbers of
                agents, efforts to train those agents, and an average rate of
                commissions paid to producers by state.
                 e. Catastrophic Claims Handling Plan. A catastrophic claims
                handling plan describing how the Company will respond and maintain
                service standards in catastrophic flood events, including:
                 i. Deploying mobile or temporary claims centers to provide
                immediate policyholder assistance, including submission of notice of
                loss and claim status information.
                 ii. Preparing people, processes, and tools for claims processing in
                remote work scenarios.
                 iii. Preparing communications in advance for readiness throughout
                the year including a suite of printed and digital materials (e.g.,
                advertisements, educational materials, social media messaging, website
                blogs and announcements) that provide key messaging to stakeholders,
                including policyholders, agents, and the public following a
                catastrophic flood event.
                 iv. Identifying the core areas of information technology that need
                to be scaled pre-event or are scalable post-event.
                 f. Business Continuity Plan. A business continuity plan identifying
                threats and risks facing the Company's NFIP-related operations and how
                the Company will maintain operations in the event of a disaster
                affecting its operational capabilities.
                 g. Privacy Protection Plan. A privacy protection plan that
                describes the Company's standards for using and maintaining personally
                identifiable information.
                 h. System Security Plan. A system security plan that describes
                system boundaries, system environments of operation, how security
                requirements are implemented, and the relationships with or connections
                to other systems, including plans of action that describe how
                unimplemented security requirements will be met and how any planned
                mitigations will be implemented, prepared in accordance with either:
                 i. National Institute of Standards and Technology (NIST) Special
                Publication (SP) 800-171 ``Protecting Controlled Unclassified
                Information in Nonfederal Information Systems and Organizations'',
                Revision 2, https://csrc.nist.gov/publications/detail/sp/800-171/rev-2/final; or
                 ii. Another comparable standard deemed acceptable by FEMA.
                 B. Time Standards. WYO companies must meet the time standards
                provided below. Time will be measured from the date of receipt through
                the date the task is completed. In addition to the standards set forth
                below, all functions performed by the Company must be in accordance
                with the highest reasonably attainable quality standards generally used
                in the insurance and data processing field. Applicable time standards
                are:
                [[Page 16224]]
                 1. Application Processing--fifteen (15) business days (Note: if the
                policy cannot be sent due to insufficient or erroneous information or
                insufficient funds, the Company must send a request for correction or
                added moneys within ten (10) businessdays).
                 2. Renewal processing--seven (7) business days.
                 3. Endorsement processing--fifteen (15) business days.
                 4. Cancellation processing--fifteen (15) business days.
                 5. File examination--seven (7) business days from the day the
                Company receives the final report.
                 6. Claims draft processing--seven (7) business days from completion
                of file examination.
                 7. Claims adjustment--forty-five (45) calendar days average from
                the receipt of Notice of Loss (or equivalent) through completion of
                examination.
                 8. Upload transactions to Pivot--one (1) business day.
                 C. Policy Issuance.
                 1. The flood insurance subject to this Arrangement must be only
                that insurance written by the Company in its own name pursuant to the
                Act.
                 2. The Company must issue policies under the regulations prescribed
                by FEMA, in accordance with the Act, on a form approved by FEMA.
                 3. The Company must issue all policies 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 FEMA and only where the
                Company is licensed by State law to engage in the property insurance
                business.
                 D. Lapse of Authority or Appropriation. FEMA may require the
                Company to discontinue issuing policies subject to this Arrangement
                immediately in the event Congressional authorization or appropriation
                for the NFIP is withdrawn.
                 E. Separation of Finances and Other Lines of Flood Insurance.
                 1. The Company must separate Federal flood insurance funds from all
                other Company accounts, at a bank or banks of its choosing for the
                collection, retention and disbursement of Federal funds relating to its
                obligation under this Arrangement, less the Company's expenses as set
                forth in Article IV. The Company must remit all funds not required to
                meet current expenditures to the United States Treasury, in accordance
                with the provisions of the WYO Accounting Procedures Manual.
                 2. Other Undertakings of the Company.
                 a. Clear communication. If the Company also offers insurance
                policies covering the peril of flood outside of the NFIP in any
                geographic area in which Program authorizes the purchase of flood
                insurance, the Company must ensure that all public communications
                (whether written, recorded, electronic, or other) regarding non-NFIP
                insurance lines would not lead a reasonable person to believe that the
                NFIP, FEMA, or the Federal Government in any way endorses, sponsors,
                oversees, regulates, or otherwise has any connection with the non-NFIP
                insurance line. The Company may assure compliance with this requirement
                by prominently including in such communications the following
                statement: ``This insurance product is not affiliated with the National
                Flood Insurance Program.''
                 b. Data protection. The company may not use non-public data,
                information, or resources obtained in course of executing this
                Arrangement to further or support any activities outside the scope of
                this Arrangement.
                 F. Claims. The Company must investigate, adjust, settle, and defend
                all claims or losses arising from policies issued under this
                Arrangement. Payment of flood insurance claims by the Company bind
                FEMA, subject to appeal.
                 G. Compliance with Agency Standards and Guidelines.
                 1. The Company must comply with the Act, regulations, written
                standards, procedures, and guidance issued by FEMA relating to the NFIP
                and applicable to the Company, including, but not limited to the
                following:
                 a. WYO Program Financial Control Plan.
                 b. Pivot Use Procedures.
                 c. NFIP Flood Insurance Manual.
                 d. NFIP Claims Manual.
                 e. NFIP Litigation Manual.
                 f. WYO Accounting Procedures Manual.
                 g. WYO Bulletins.
                 2. The Company must market flood insurance policies in a manner
                consistent with marketing guidelines established by FEMA.
                 3. FEMA may require the Company to collect customer service
                information to monitor and improve their program delivery.
                 4. The Company must notify its agents of the requirement to comply
                with State regulations regarding flood insurance agent education,
                notify agents of flood insurance training opportunities, and assist
                FEMA in periodic assessment of agent training needs.
                 H. Compliance with Appeals Process.
                 1. In general. FEMA will notify the Company when a policyholder
                files an appeal. After notification, the Company must provide FEMA the
                following information:
                 a. All records created or maintained pursuant to this Arrangement
                requested by FEMA; and
                 b. A comprehensive claim file synopsis, redacted of personally
                identifiable information, that includes a summary of the appeal issues,
                the Company's position on each issue, and any additional relevant
                information. If, in the process of writing the synopsis, the Company
                determines that it can address the issue raised by the policyholder on
                appeal without further direction, it must notify FEMA. The Company will
                then work directly with the policyholder to achieve resolution and
                update FEMA upon completion. The Company may have a claims examiner
                review the file who is independent from the original decision and who
                possesses the authority to overturn the original decision if the facts
                support it.
                 2. Cooperation. The Company must cooperate with FEMA throughout the
                appeal process until final resolution. This includes adhering to any
                written appeals guidance issued by FEMA.
                 3. Resolution of Appeals. FEMA will close an appeal when:
                 a. FEMA upholds the denial by the Company;
                 b. FEMA overturns the denial by the Company and all necessary
                actions that follow are completed;
                 c. The Company independently resolves the issue raised by the
                policyholder without further direction;
                 d. The policyholder voluntarily withdraws the appeal; or
                 e. The policyholder files litigation.
                 4. Processing of Additional Payments from Appeal. The Company must
                follow established NFIP adjusting practices and claim handling
                procedures for appeals that result in additional payment to a
                policyholder when FEMA does not explicitly direct such payment during
                the review of the appeal.
                 5. Time Standards.
                 a. Provide FEMA with requested files pursuant to Article
                III.H.1.a--ten (10) business days after request.
                 b. Provide FEMA with comprehensive claim file synopsis pursuant to
                Article III.H.1.b--ten (10) business days after request.
                 c. Responding to inquiries from FEMA regarding an appeal--ten (10)
                business days after inquiry.
                 d. Inform FEMA of any litigation filed by a policyholder with a
                current appeal--ten (10) business days of notice.
                 I. Subrogation.
                 1. In general. Consistent with Federal law and guidance, the
                Company must use its customary business practices when pursuing
                subrogation.
                [[Page 16225]]
                 2. Referral to FEMA. Pursuant to 44 CFR 62.23(i)(8), in lieu of the
                Company pursuing a subrogation claim, WYO companies may refer such
                claims to FEMA.
                 3. Notification. No more than ten (10) calendar days after either
                the Company identifies a possible subrogation claim or FEMA notifies
                the Company of a possible subrogation claim, the Company must notify
                FEMA of its intent to pursue the claim or refer the claim to FEMA.
                 4. Cooperation. Pursuant to 44 CFR 62.23(i)(11), the Company must
                extend reasonable cooperation to FEMA's Office of the Chief Counsel on
                matters related to subrogation.
                 J. Access to Records. The Company must furnish to FEMA such
                summaries and analysis of information including claim file information
                and property address, location, and/or site information in its records
                as may be necessary to carry out the purposes of the Act, in such form
                as FEMA, in cooperation with the Company, will prescribe.
                 K. System for Award Management (SAM). The Company must be
                registered in the System for Award Management. Such registration must
                have an active status during the period of performance under this
                Arrangement. The Company must ensure that its SAM registration is
                accurate and up to date.
                 L. Cybersecurity.
                 1. In general. Unless the Company uses a compliance alternative
                pursuant to Article III.L.2, the Company must implement the security
                requirements specified by National Institute of Standards and
                Technology (NIST) Special Publication (SP) 800-171 ``Protecting
                Controlled Unclassified Information in Nonfederal Information Systems
                and Organizations'', Revision 2 (https://csrc.nist.gov/publications/detail/sp/800-171/rev-2/final) for any system that processes, stores,
                or transmits information that requires safeguarding or dissemination
                controls pursuant to and consistent with law, regulations, this
                Arrangement, or other applicable requirements, including information
                protected pursuant to Article XII.C and personally identifiable
                information of NFIP applicants and policyholders. Such implementation
                must be validated by a third-party assessment organization.
                 2. Compliance alternatives. In lieu of compliance with Article
                IV.L.1, the Company may either:
                 a. Provide FEMA with documentation that the Company is securing the
                systems subject to the requirements of Article III.L.1 with either:
                 i. ISO/IEC 27001, https://www.iso.org/isoiec-27001-information-security.html;
                 ii. NIST Cybersecurity Framework, https://csrc.nist.gov/publications/detail/sp/800-171/rev-2/final;
                 iii. Cybersecurity Maturity Model Certification (CMMC 2.0), https://www.acq.osd.mil/cmmc/;
                 iv. Service and Organization Controls (SOC) 2, https://www.aicpa.org/interestareas/frc/assuranceadvisoryservices/sorhome.html;
                or
                 v. Another comparable standard deemed acceptable by FEMA;
                 b. Provide a plan of action that describes how unimplemented
                security requirements of NIST SP 800-171, rev. 2, (https://csrc.nist.gov/publications/detail/sp/800-171/rev-2/final) will be met
                and how any planned mitigations will be implemented as part of the
                system security plan required under Article III.A.4.h.
                Article IV. Loss Costs, Expenses, Expense Reimbursement, and Premium
                Refunds
                 A. The Company is liable for operating, administrative, and
                production expenses, including any State premium taxes, dividends,
                agents' commissions or any other expense of whatever nature incurred by
                the Company in the performance of its obligations under this
                Arrangement but excluding other taxes or fees, such as municipal or
                county premium taxes, surcharges on flood insurance premium, and
                guaranty fund assessments.
                 B. Payment for Selling and Servicing Policies.
                 1. Operating and Administrative Expenses. The Company may withhold,
                as operating and administrative expenses, other than 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 Article
                IV.C. This amount will equal the sum of the average industry expenses
                ratios for ``Other Act.'', ``Gen. Exp.'' And ``Taxes'' calculated by
                aggregating premiums and expense amounts for each of five property
                coverages using direct premium and expense information to derive
                weighted average expense ratios. For this purpose, FEMA will use data
                for the property/casualty industry published, as of March 15 of the
                prior Arrangement year, in Part III of the Insurance Expense Exhibit in
                A.M. Best Company's Aggregates and Averages for the following five
                property coverages: Fire, Allied Lines, Farmowners Multiple Peril,
                Homeowners Multiple Peril, and Commercial Multiple Peril (non-liability
                portion).
                 2. Agent Compensation. The Company may retain fifteen (15) percent
                of the Company's written premium on the policies covered by this
                Arrangement as the commission allowance to meet the commissions or
                salaries of insurance agents, brokers, or other entities producing
                qualified flood insurance applications and other related expenses.
                 3. Growth Bonus. FEMA may increase the amount of expense allowance
                retained by the Company depending on the extent to which the Company
                meets the marketing goals for the Arrangement year contained in
                marketing guidelines established pursuant to Article III.G.2. The total
                growth bonuses paid to companies pursuant to this Arrangement may not
                exceed two (2) percent of the aggregate net written premium collected
                by all WYO companies. FEMA will pay the Company the amount of any
                increase after the end of the Arrangement year.
                 C. FEMA will reimburse Loss Adjustment Expenses as follows:
                 1. FEMA will reimburse unallocated loss adjustment expenses to the
                Company pursuant to a ``ULAE Schedule'' coordinated with the Company
                and provided by FEMA.
                 2. FEMA will reimburse allocated loss adjustment expenses to the
                Company pursuant to a ``Fee Schedule'' coordinated with the Company and
                provided by FEMA. To ensure the availability of qualified insurance
                adjusters during catastrophic flood events, FEMA may, in its sole
                discretion, temporarily authorize the use of an alternative Fee
                Schedule with increased amounts during the term of this Arrangement for
                losses incurred during a time frame and geographic area established by
                FEMA.
                 3. FEMA will reimburse special allocated loss expenses and
                subrogation expenses reimbursable under 44 CFR 62.23(i)(8) to the
                Company in accordance with guidelines issued by FEMA.
                 D. Loss Payments.
                 1. The Company must make loss payments for flood insurance policies
                from federal funds retained in the bank account(s) established under
                Article III.E.1 and, if such funds are depleted, from Federal funds
                withdrawn from the National Flood Insurance Fund pursuant to Article V.
                 2. Loss payments include payments because of litigation that arises
                under the scope of this Arrangement, and the Authorities set forth
                herein. All such
                [[Page 16226]]
                loss payments and related expenses must meet the documentation
                requirements of the Financial Control Plan and of this Arrangement, and
                the Company must comply with the litigation documentation and
                notification requirements established by FEMA. Failure to meet these
                requirements may result in FEMA's decision not to provide
                reimbursement.
                 3. Oversight of Litigation.
                 a. Any litigation resulting from, related to, or arising from the
                Company's compliance with the written standards, procedures, and
                guidance issued by FEMA arises under the National Flood Insurance Act
                of 1968 or regulations, and such legal issues raise a Federal question.
                 b. The Company must conduct litigation arising out of the Company's
                participation in the NFIP in accordance with the National Flood
                Insurance Program Litigation Manual.
                 c. FEMA will not reimburse the Company for any award or judgment
                for damages and any costs to defend litigation that is either:
                 i. Grounded in actions by the Company that are significantly
                outside the scope of this Arrangement; or
                 ii. Involves issues of agent negligence.
                 d. Customary Business Practices. Unless otherwise directed by FEMA,
                the Company must oversee litigation arising under this Arrangement
                using its customary business practices for the oversight of litigation
                arising under the Company's property and casualty lines of insurance
                not sold under this Arrangement, including billing rates and standards.
                 E. Refunds. The Company must make premium refunds required by FEMA
                to applicants and policyholders from Federal flood insurance funds
                referred to in Article III.E.1, and, if such funds are depleted, from
                funds derived by withdrawing from the National Flood Insurance Fund
                pursuant to Article V. The Company may not refund any premium to
                applicants or policyholders in any manner other than as specified by
                FEMA since flood insurance premiums are funds of the Federal
                Government.
                 F. Suspension and Debarment.
                 1. In general. The Company may not contract with or employ any
                person who is suspended or debarred from participating in federal
                transactions pursuant to 2 CFR part 180 (covering federal
                nonprocurement transactions) or 48 CFR part 9, subpart 9.4 (covering
                federal procurement transactions) in relation to this Arrangement.
                 2. Reimbursement. FEMA will not reimburse the company for any
                expenses incurred in violation of Article IV.F.1.
                 3. Compliance. The Company may ensure compliance with Article
                IV.F.1 by:
                 a. Checking the System for Awards Management at sam.gov;
                 b. Collecting a certification from that person; or
                 c. Adding a clause or condition to the transaction with that
                person.
                Article V. Undertakings of the Government
                 A. FEMA must enable the Company to withdraw funds from the National
                Flood Insurance Fund daily, if needed, pursuant to prescribed
                procedures implemented by FEMA. FEMA will increase the amounts of the
                authorizations as necessary to meet the obligations of the Company
                under Article IV.C-E. The Company may only request funds when net
                premium income has been depleted. The timing and amount of cash
                advances must be as close as is administratively feasible to the actual
                disbursements by the recipient organization for allowable expenses.
                Request for payment may not ordinarily be drawn more frequently than
                daily. The Company may withdraw funds from the National Flood Insurance
                Fund for any of the following reasons:
                 1. Payment of claims, as described in Article IV.D;
                 2. Refunds to applicants and policyholders for insurance premium
                overpayment, or if the application for insurance is rejected or when
                cancellation or endorsement of a policy results in a premium refund, as
                described in Article IV.E; and
                 3. Allocated and unallocated loss adjustment expenses, as described
                in Article IV.C.
                 B. FEMA must provide technical assistance to the Company as
                follows:
                 1. NFIP policy and history.
                 2. Clarification of underwriting, coverage, and claims handling.
                 3. Other assistance as needed.
                 C. FEMA must provide the Company with a copy of all formal written
                appeal decisions conducted in accordance with Section 205 of the
                Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004, Public
                Law 108-264 and 44 CFR 62.20.
                 D. Prior to the end of the Arrangement period, FEMA may provide the
                Company a statistical summary of their performance during the signed
                Arrangement period. This summary will detail the Company's performance
                individually, as well as compare the Company's performance to the
                aggregate performance of all WYO companies and the NFIP Direct
                Servicing Agent.
                Article VI. Cash Management and Accounting
                 A. FEMA must make available to the Company during the entire term
                of this Arrangement the ability to withdraw funds from the National
                Flood Insurance Fund provided for in Article V. The Company may
                withdraw funds from the National Flood Insurance Fund for reimbursement
                of its expenses as set forth in Article V.A that exceed net written
                premiums collected by the Company from the effective date of this
                Arrangement or continuation period to the date of the draw. In the
                event that adequate funding is not available to meet current Company
                obligations for flood policy claim payments issued, FEMA must direct
                the Company to immediately suspend the issuance of loss payments until
                such time as adequate funds are available. The Company is not required
                to pay claims from their own funds in the event of such suspension.
                 B. The Company must remit all funds, including interest, not
                required to meet current expenditures to the United States Treasury, in
                accordance with the provisions of the WYO Accounting Procedures Manual
                or procedures approved in writing by FEMA.
                 C. In the event the Company elects not to participate in the
                Program in this or any subsequent fiscal year, or is otherwise unable
                or not permitted to participate, the Company and FEMA must make a
                provisional settlement of all amounts due or owing within three (3)
                months of the expiration or termination of this Arrangement. This
                settlement must include net premiums collected, funds withdrawn from
                the National Flood Insurance Fund, and reserves for outstanding claims.
                The Company and FEMA agree to make a final settlement, subject to
                audit, of accounts for all obligations arising from this Arrangement
                within eighteen (18) months of its expiration or termination, except
                for contingent liabilities that must be listed by the Company. At the
                time of final settlement, the balance, if any, due FEMA or the Company
                must be remitted by the other immediately and the operating year under
                this Arrangement must be closed.
                 D. Upon FEMA's request, the Company must provide FEMA with a true
                and correct copy of the Company's Fire and Casualty Annual Statement,
                and Insurance Expense Exhibit or amendments thereof as filed with the
                State Insurance Authority of the Company's domiciliary State.
                [[Page 16227]]
                 E. The Company must comply with the requirements of the False
                Claims Act (41 U.S.C. 3729-3733), which prohibits submission of false
                or fraudulent claims for payment to the Federal Government.
                Article VII. Arbitration
                 If any misunderstanding or dispute arises between the Company and
                FEMA with reference to any factual issue under any provisions of this
                Arrangement or with respect to FEMA's nonrenewal of the Company's
                participation, other than as to legal liability under or interpretation
                of the Standard Flood Insurance Policy, such misunderstanding or
                dispute may be submitted to arbitration for a determination that will
                be binding upon approval by FEMA. The Company and FEMA may agree on and
                appoint an arbitrator who will investigate the subject of the
                misunderstanding or dispute and make a determination. If the Company
                and FEMA cannot agree on the appointment of an arbitrator, then two
                arbitrators will be appointed, one to be chosen by the Company and one
                by FEMA.
                 The two arbitrators so chosen, if they are unable to reach an
                agreement, must select a third arbitrator who must act as umpire, and
                such umpire's determination will become final only upon approval by
                FEMA. The Company and FEMA shall bear in equal shares all expenses of
                the arbitration. Findings, proposed awards, and determinations
                resulting from arbitration proceedings carried out under this section,
                upon objection by FEMA or the Company, shall be inadmissible as
                evidence in any subsequent proceedings in any court of competent
                jurisdiction.
                 This Article shall indefinitely succeed the term of this
                Arrangement.
                Article VIII. Errors and Omissions
                 A. In the event of negligence by the Company that has not resulted
                in litigation but has resulted in a claim against the Company, FEMA
                will not consider reimbursement of the Company for costs incurred due
                to that negligence unless the Company takes all reasonable actions to
                rectify the negligence and to mitigate any such costs as soon as
                possible after discovery of the negligence. The Company may choose not
                to seek reimbursement from FEMA.
                 B. If the Company has made a claim payment to an insured without
                including a mortgagee (or trustee) of which the Company had actual
                notice prior to making payment, and subsequently determines that the
                mortgagee (or trustee) is also entitled to any part of said claim
                payment, any additional payment may not be paid by the Company from any
                portion of the premium and any funds derived from any Federal funds
                deposited in the bank account described in Article III.E.1. In
                addition, the Company agrees to hold the Federal Government harmless
                against any claim asserted against the Federal Government by any such
                mortgagee (or trustee), as described in the preceding sentence, by
                reason of any claim payment made to any insured under the circumstances
                described above.
                Article IX. Officials Not To Benefit
                 No Member or Delegate to Congress, or Resident Commissioner, may be
                admitted to any share or part of this Arrangement, or to any benefit
                that may arise therefrom; but this provision may not be construed to
                extend to this Arrangement if made with a corporation for its general
                benefit.
                Article X. Offset
                 At the settlement of accounts, the Company and FEMA have, and may
                exercise, the right to offset any balance or balances, whether on
                account of premiums, commissions, losses, loss adjustment expenses,
                salvage, or otherwise due one party to the other, its successors or
                assigns, hereunder or under any other Arrangements heretofore or
                hereafter entered into between the Company and FEMA. This right of
                offset shall not be affected or diminished because of insolvency of the
                Company.
                 All debts or credits of the same class, whether liquidated or
                unliquidated, in favor of or against either party to this Arrangement
                on the date of entry, or any order of conservation, receivership, or
                liquidation, shall be deemed to be mutual debts and credits and shall
                be offset with the balance only to be allowed or paid. No offset shall
                be allowed where a conservator, receiver, or liquidator has been
                appointed and where an obligation was purchased by or transferred to a
                party hereunder to be used as an offset.
                 Although a claim on the part of either party against the other may
                be unliquidated or undetermined in amount on the date of the entry of
                the order, such claim will be regarded as being in existence as of the
                date of such order and any credits or claims of the same class then in
                existence and held by the other party may be offset against it.
                Article XI. Equal Opportunity
                 A. Age Discrimination Act of 1975. The Company must comply with the
                requirements of the Age Discrimination Act of 1975, Public Law 94-135
                (42 U.S.C. 6101 et seq.) which prohibits discrimination on the basis of
                age in any program or activity receiving federal financial assistance.
                 B. Americans with Disabilities Act. The Company must comply with
                the requirements of Titles I, II, and III of the Americans with
                Disabilities Act, Public Law 101-336 (42 U.S.C. 12101-12213), which
                prohibits recipients from discriminating on the basis of disability in
                the operation of public entities, public and private transportation
                systems, places of public accommodation, and certain testing entities.
                 C. Civil Rights Act of 1964--Title VI. The Company must comply with
                the requirements of Title VI of the Civil Rights Act of 1964 (42 U.S.C.
                2000d et seq.), which provides that no person in the United States
                will, on the grounds of race, color, or national origin, be excluded
                from participation in, be denied the benefits of, or be subjected to
                discrimination under any program or activity receiving federal
                financial assistance. Department of Homeland Security implementing
                regulations for the Act are found at 6 CFR part 21 and 44 CFR part 7.
                 D. Civil Rights Act of 1968. The Company must comply with Title
                VIII of the Civil Rights Act of 1968, which prohibits recipients from
                discriminating in the sale, rental, financing, and advertising of
                dwellings, or in the provision of services in connection therewith, on
                the basis of race, color, national origin, religion, disability,
                familial status, and sex as implemented by the U.S. Department of
                Housing and Urban Development at 24 CFR part 100.
                 E. Rehabilitation Act of 1973. The Company must comply with the
                requirements of Section 504 of the Rehabilitation Act of 1973 (29
                U.S.C. 794), which provides that no otherwise qualified handicapped
                individuals in the United States will, solely by reason of the
                handicap, be excluded from participation in, be denied the benefits of,
                or be subjected to discrimination under any program or activity
                receiving federal financial assistance.
                Article XII. Access to Books and Records
                 A. Audits. FEMA, the Department of Homeland Security, and the
                Comptroller General of the United States, or their duly authorized
                representatives, for the purpose of investigation, audit, and
                examination shall have access to any books, documents, papers and
                records of the Company that are pertinent to this Arrangement. The
                Company shall keep records that fully disclose all matters
                [[Page 16228]]
                pertinent to this Arrangement, including premiums and claims paid or
                payable under policies issued pursuant to this Arrangement. Records of
                accounts and records relating to financial assistance shall be retained
                and available for three (3) years after final settlement of accounts,
                and to financial assistance, three (3) years after final adjustment of
                such claims. FEMA shall have access to policyholder and claim records
                at all times for purposes of the review, defense, examination,
                adjustment, or investigation of any claim under a flood insurance
                policy subject to this Arrangement.
                 B. Nondisclosure by FEMA. FEMA, to the extent permitted by law and
                regulation, will safeguard and treat information submitted or made
                available by the Company pursuant to this Arrangement as confidential
                where the information has been marked ``confidential'' by the Company
                and the Company customarily keeps such information private or closely-
                held. To the extent permitted by law and regulation, FEMA will not
                release such information to the public pursuant to a Freedom of
                Information Act (FOIA) request, 5 U.S.C. 552, without prior
                notification to the Company. FEMA may transfer documents provided by
                the Company to any department or agency within the Executive Branch or
                to either house of Congress if the information relates to matters
                within the organization's jurisdiction. FEMA may also release the
                information submitted pursuant to a judicial order from a court of
                competent jurisdiction.
                 C. Nondisclosure by Company.
                 1. In general. The Company, to the extent permitted by law, must
                safeguard and treat information submitted or made available by FEMA
                pursuant to this Arrangement as confidential where the information has
                been marked or identified as ``confidential'' by FEMA and FEMA
                customarily keeps such information private or closely-held. The Company
                may not disclose such confidential information to a third-party without
                the express written consent of FEMA or as otherwise required by law.
                 2. Other protections. Article XII.C.1 shall not be construed as to
                limit the effect of any other requirement on the Company to protect
                information from disclosure, including a joint defense agreement or
                under the Privacy Act.
                Article XIII. Compliance With Act and Regulations
                 This Arrangement and all policies of insurance issued pursuant
                thereto are subject to Federal law and regulations.
                Article XIV. Relationship Between the Parties 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, that is, to ensure that any taxpayer funds
                are accounted for and appropriately expended. The Company is a fiscal
                agent of the Federal Government, but is not a general agent of the
                Federal Government. The Company is solely responsible for its
                obligations to its insured under any policy issued pursuant hereto,
                such that the Federal Government is not a proper party to any lawsuit
                arising out of such policies.
                 Authority: 42 U.S.C. 4071, 4081; 44 CFR 62.23.
                David I. Maurstad,
                Deputy Associate Administrator for Insurance and Mitigation, Federal
                Emergency Management Agency.
                [FR Doc. 2022-05956 Filed 3-21-22; 8:45 am]
                BILLING CODE 9111-52-P
                

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