National Flood Insurance Program (NFIP); Pilot Project--Public Entity Insurers

Note: EPA no longer updates this information, but it may be useful as a reference or resource.
 [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]                         

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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.

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SUMMARY: We (the Federal Insurance Administration of FEMA) are 
proposing to launch a three-year pilot project that would permit 
intergovernmental risk-

[[Page 23201]]

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

[[Page 23202]]

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:
    1. 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.
    2. 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

[[Page 23203]]

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

    1. 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.

    2. 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.)
* * * * *
    3. 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.

[[Page 23204]]

    (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]

    3. 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. 01-11364 Filed 5-7-01; 8:45 am]
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