[Federal Register Volume 64, Number 200 (Monday, October 18, 1999)]
[Rules and Regulations]
[Pages 56174-56177]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27009]
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FEDERAL EMERGENCY MANAGEMENT AGENCY
44 CFR Part 62
RIN 3067-AC95
National Flood Insurance Program (NFIP); Assistance to Private
Sector Property Insurers
AGENCY: Federal Emergency Management Agency (FEMA).
ACTION: Final rule.
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SUMMARY: We (the Federal Insurance Administration of FEMA) are changing
the Financial Control Plan (Appendix B of 44 CFR Part 62) that sets
standards for evaluating the performance of private insurance companies
participating in the Write Your Own program. These
[[Page 56175]]
changes are to streamline and simplify the regulations of the National
Flood Insurance Program. This rule is part of an agency-wide initiative
by the Federal Emergency Management Agency to simplify regulations for
easier use by our customers. The changes are also be consistent with
the approach we adopted several years ago to streamline the arrangement
for the WYO program and to place operational details in a technical
operations manual rather than in the agreement itself between the
Government and WYO companies.
EFFECTIVE DATE: December 1, 1999.
FOR FURTHER INFORMATION CONTACT: Edward L. Connor, Federal Emergency
Management Agency, Federal Insurance Administration, 500 C Street SW.,
Washington, DC 20472, 202-646-3429, (facsimile) 202-646-3445, (email)
Edward.Connor@fema.gov.
SUPPLEMENTARY INFORMATION: On August 5, 1999, we proposed a rule at 64
FR 42633 that would streamline and simplify the Financial Control Plan
that private insurance companies must follow as part of their financial
assistance arrangement with FEMA under the Write Your Own component of
the National Flood Insurance Program. The proposed streamlining
involved eliminating operational details from the text of the Financial
Control Plan. This gives the Government and its industry partners the
flexibility to make operational adjustments and corrections more
efficiently and more quickly while retaining the broad framework
necessary for sound financial controls.
Comments
We received one set of comments during the comment period from a
company currently participating in the Write Your Own program. The
company generally supports the proposed changes to the Financial
Control Plan but asked for clarification on several points.
Consolidated Financial Statements Audit
The company offered ``conditional support'' for the changes on the
understanding that we would eliminate the Consolidated Financial
Statements Audit. The company concluded that ``if that audit is
continued, then the rule is overly burdensome and the system of reviews
is redundant.''
The Consolidated Financial Statements Audit and the planned
operation reviews are independent of each other and serve separate
needs. The Consolidated Financial Statements Audit is a financial audit
for the program conducted by FEMA's Inspector General (IG) and required
by the Chief Financial Officers Act of 1990, as amended by the
Government Management Reform Act of 1994. The scope of this
independent, mandatory audit includes a company's financial management
and its controls for receiving and disposing of money connected with a
Federal program. The overall goal of this audit is to prevent fraud,
waste, and abuse. The Consolidated Financial Statements Audit is not an
optional audit, and it has a specific financial management and
statutory purpose. The operation reviews that we conduct for
participating Write Your Own companies on the other hand focus on a
company's performance in specific areas of the Write Your Own program,
namely, claims, underwriting, marketing, and customer service.
In summary, the Consolidated Financial Statements Audit, the FEMA
IG's audit, and our program reviews are both appropriate, do not
duplicate each other, and serve separate needs.
Reports to the Standards Committee
The company expressed concern about confidentiality and the
protection of trade secrets when we file a report of an operation
review to the Standards Committee since the Standards Committee
consists of competitors of the Write Your Company which is the subject
of the report. The commenter recommended that ``auditors should only
file reports on those companies failing the Operation Review. In
addition, the auditors should not include in the report any information
which is of a proprietary nature or trade secret.'' We agree with this
recommendation.
We will present reports of operation reviews in summary form to the
Standards Committee. These summary reports will identify trends but not
companies by name. Instead, we will identify common or typical errors
that we discovered during operation reviews and coordinate the
appropriate remedy with the Standards Committee, such as improved
training or guidance materials. We will, however, identify for the
Standards Committee companies that fail the operation review and that
will be the subject of an audit for cause. In these cases, we will
continue to rely, as we have since the program's inception, on the
ethics and professional standards of the members of the Standards
Committee to safeguard the confidentiality of and any proprietary
information about a company that has failed an operation review.
Penalties for Poor Performance
The commenter also expressed concern that the ``penalties are
undefined'' for companies that fail the operation review. The purpose
of operation reviews is for us to provide technical assistance to
individual companies so that they may improve their underwriting,
claims, marketing, and customer service operations. We will present to
the Standards Committee summaries of common errors and trends that
surface during the operation reviews so that we may select the most
appropriate program-wide remedy, for example, training, guidance, etc.
If we find that a company's performance warrants it, however, we will
recommend an audit for cause and the deficient company would be subject
to any penalties that are appropriate from that separate and
independent mechanism.
Opportunity for Further Review and Comment
The commenter stated that it was important for participating
companies to know ``how the Operation Review will be conducted and the
benchmarks for passage or failure of the review.'' We agree that
companies need to have more specific information about the operation
reviews, which are included in a companion document titled ``The Write
Your Own Program Financial Control Plan Requirements and Procedures.''
We will distribute during the first quarter of the 1999-2000
Arrangement year a draft version of this document for review and
comment to all companies participating in the Write Your Own program.
We have postponed the effective date of this rule until December 1,
1999 to allow us to consider all comments on the companion document for
this rule before either one becomes final. Until that date, we will
operate under the existing Financial Control Plan found at 44 CFR Part
62, Appendix B.
National Environmental Policy Act
This rule is categorically excluded from the requirements of 44 CFR
Part 10, Environmental Consideration. We have not prepared an
environmental assessment.
Executive Order 12866, Regulatory Planning and Review
This rule is not a significant regulatory action within the meaning
of Sec. 2(f) of E.O. 12866 of September 30, 1993, 58 FR 51735, and the
Office of Management and Budget has not reviewed it. Nevertheless, this
rule adheres to the regulatory principles set forth in E.O. 12866.
[[Page 56176]]
Paperwork Reduction Act
In accordance with the provisions of the Paperwork Reduction Act of
1995, 44 U.S.C. 3501 et seq., we have submitted to the Office of
Management and Budget (OMB) the collections of information in this
final rule, and OMB has approved them. To request additional
information or copies of the OMB submissions, contact the FEMA
Information Collections Officer, Muriel B. Anderson, by calling (202)
646-2625, or by writing to FEMA, 500 C Street SW., Washington, DC
20472. The approved collections of information are:
OMB Number 3067-0169, Write Your Own (WYO) Program (expires March
31, 2002). To maintain adequate financial control over Federal funds,
the National Flood Insurance Program requires each WYO company to meet
the requirements of the WYO Transaction record Reporting and Processing
Plan and to submit monthly financial and statistical reports as
required in FEMA regulation 44CFR, part 62, Appendix B. The number of
respondents is estimated at 105. The burden estimates per respondent
are as follows: Reconciliation Report, 30 minutes: Biennial Audit
Administrative Review Checklist, 1 hour; Monthly Financial and
Statistical Reconciliation Reports Certification Statement, 3 minutes;
and Monthly Statistical Transaction Reports Certification Statement, 3
minutes.
Executive Order 12612, Federalism
This rule involves no policies that have federalism implications
under Executive Order 12612, Federalism, dated October 26, 1987.
Executive Order 12778, Civil Justice Reform
This rule meets the applicable standards of section 2(b)(2) of
Executive Order 12778.
List of Subjects in 44 CFR Part 62
Claims, Flood insurance.
Accordingly, we 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. We amend Sec. 62.23 by redesignating paragraphs (j)(2) through
(j)(6) as paragraphs (j)(3) through (j)(7), and by revising paragraph
(j)(1) and adding new paragraph (j)(2) to read as follows:
Sec. 62.23 WYO Companies authorized.
* * * * *
(j) * * *
(1) Have a biennial audit of the flood insurance financial
statements conducted by an independent Certified Public Accountant
(CPA) firm at the Company's expense to ensure that the financial data
reported to us accurately represents the flood insurance activities of
the Company. The CPA firm must conduct its audits in accordance with
the generally accepted auditing standards (GAAS) and Government
Auditing Standards issued by the Comptroller General of the United
States (commonly known as ``yellow book'' requirements). The Company
must file with us (the Federal Insurance Administration) a report of
the CPA firm's detailed biennial audit, and, after our review of the
audit report, we will convey our determination to the Standards
Committee.
(2) Participate in a WYO Company/FIA Operation review. We will
conduct a review of the WYO Company's flood insurance claims,
underwriting, customer service, marketing, and litigation activities at
least once every three (3) years. As part of these reviews, we will
reconcile specific files with a listing of transactions submitted by
the Company under the Transaction Record Reporting and Processing
(TRPP) Plan (Part 5). We will file a report of the Operation Review
with the Standards Committee.
* * * * *
3. We revise Appendix B to Part 62--National Flood Insurance
Program to read as follows:
Appendix B to Part 62--National Flood Insurance Program
A Plan to Maintain Financial Control for Business Written Under
the Write Your Own Program.
(a) In general. Under the Write Your Own (WYO) Program, we (the
Federal Insurance Administration (FIA), Federal Emergency Management
Agency (FEMA)) may enter into an arrangement with individual private
sector insurance companies licensed to engage in the business of
property insurance. The arrangement allows these companies--using
their customary business practices--to offer flood insurance
coverage to eligible property owners. To assist companies in
marketing flood insurance coverage, the Federal Government will be a
guarantor of flood insurance coverage for WYO policies issued under
the WYO Arrangement. To account for and ensure appropriate spending
of any taxpayer funds, the WYO companies and we will implement this
Financial Control Plan (Plan). Only the Administrator may approve
any departures from the requirements of this Plan.
(b) Financial Control Plan. (1) The WYO Companies are subject to
audit, examination, and regulatory controls of the various States.
Additionally, the operating department of an insurance company is
customarily subject to examinations and audits performed by the
company's internal audit or quality control departments, or both,
and independent Certified Public Accountant (CPA) firms. This Plan
will use to the extent possible the findings of these examinations
and audits as they pertain to business written under the WYO
Program.
(2) This Plan contains several checks and balances that can, if
properly implemented by the WYO Company, significantly reduce the
need for extensive on-site reviews of the Company's files by us or
our designee. Furthermore, we believe that this process is
consistent with customary reinsurance practices and avoids
duplication of examinations performed under the auspices of
individual State Insurance Departments, NAIC Zone examinations, and
independent CPA firms.
(c) Standards Committee established. (1) We establish in this
Plan a Standards Committee for the WYO Program to oversee the
performance of WYO companies under this Plan and to recommend
appropriate remedial actions to the Administrator. The Standards
Committee will review and recommend to the Administrator remedies
for any adverse action arising from the implementation of the
Financial Control Plan. Adverse actions include, but are not limited
to, not renewing a particular company's WYO Arrangement.
(2) The Administrator appoints the members of the Standards
Committee, which consists of five (5) members from FIA, one (1)
member from FEMA's Office of Financial Management, and one (1)
member from each of the six (6) designated WYO Companies, pools, or
other entities.
(3) A WYO company must--
(A) Have a biennial audit of the flood insurance financial
statements conducted by a CPA firm at the Company's expense to
ensure that the financial data reported to us accurately represents
the flood insurance activities of the Company. The CPA firm must
conduct its audits in accordance with generally accepted auditing
standards (GAAS) and the Government Auditing Standards issued by the
Comptroller General of the United States (commonly known as ``yellow
book'' requirements). The Company must file with us a report of the
CPA firm's detailed biennial audit, and, after our review of the
audit report, we will convey our determination to the Standards
Committee.
(B) Participate in a WYO Company/FIA Operation review. We will
conduct a review of the WYO Company's flood insurance claims,
underwriting, customer service, marketing, and litigation activities
at least once every three (3) years. As part of these reviews, we
will reconcile specific files with a listing of transactions
submitted by the Company under the Transaction Record Reporting and
Processing Plan (Part 5). We will file a report of the Operation
Review with the Standards Committee (Part 7).
(C) Meet the recording and reporting requirements of the WYO
Transaction Record Reporting and Processing (TRRP) Plan and the WYO
Accounting Procedures Manual.
[[Page 56177]]
The National Flood Insurance Program's (NFIP) Bureau and Statistical
Agent will analyze the transactions reported under the TRRP Plan and
submit a monthly report to the WYO company and to us. The analysis
will cover the timeliness of the WYO submissions, the disposition of
transactions that do not pass systems edits, and the reconciliation
of the totals generated from transaction reports with those
submitted on the WYO Company's reports. (Parts 2 and 6).
(D) Cooperate with FEMA's Office of Financial Management on
Letter of Credit matters.
(E) Cooperate with us in the implementation of a claims
reinspection program (Part 3).
(F) Cooperate with us in the verification of risk rating
information.
(G) Cooperate with FEMA's Office of Inspector General on matters
pertaining to fraud.
(d) This Plan incorporates by reference a separate document,
``The Write Your Own Program Financial Control Plan Requirements and
Procedures,'' that contains the following parts, each of which is
incorporated by reference into and is applicable to the Financial
Control Plan:
(1) Part 1--Financial Audits, Audits for Cause, and State
Insurance Department Audits;
(2) Part 2--Transaction Record Reporting and Processing Plan
Reconciliation Procedures;
(3) Part 3--Claims Reinspection Program;
(4) Part 4--Report Certifications and Signature Authorization;
(5) Part 5--Transaction Record Reporting and Processing Plan;
(6) Part 6--Write Your Own (WYO) Accounting Procedures Manual;
and
(7) Part 7--Operation Review Procedures.
(e) Interested members of the public may obtain a copy of ``The
Write Your Own Program Financial Control Plan Requirements and
Procedures'' by contacting the FEMA Distribution Center, P.O. Box
2012, Jessup, MD 20794.''
(Catalog of Federal Domestic Assistance No. 83.100, ``Flood
Insurance'')
Dated: October 12, 1999.
Edward T. Pasterick,
Acting Administrator, Federal Insurance Administration.
[FR Doc. 99-27009 Filed 10-15-99; 8:45 am]
BILLING CODE 6718-03-P
