[Federal Register Volume 60, Number 217 (Thursday, November 9, 1995)]
[Proposed Rules]
[Pages 56552-56553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27803]
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FEDERAL EMERGENCY MANAGEMENT AGENCY
44 CFR Part 61
RIN 3067-AC42
National Flood Insurance Program; Insurance Rates
AGENCY: Federal Insurance Administration, FEMA.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would increase the National Flood Insurance
Program (NFIP) chargeable (subsidized) rates, which apply to all
structures located in communities participating in the Emergency
Program of the NFIP and to certain structures in communities in the
Regular Program of the NFIP. The rule is proposed in order to bring
subsidized premiums more in line with the risk. We intend the proposed
rule to help the NFIP increase the capability to build reserves for
catastrophic loss years.
DATES: Comments must be received on or before January 8, 1996.
ADDRESSES: Please send comments to the Rules Docket Clerk, Office of
the General Counsel, Federal Emergency Management Agency, 500 C Street
SW., room 840, Washington, DC 20472, (fax) (202) 646-4536.
FOR FURTHER INFORMATION CONTACT: Charles M. Plaxico, Jr., Federal
Emergency Management Agency, Federal Insurance Administration, 500 C
Street SW., Washington, DC 20472, (202) 646-3422.
SUPPLEMENTARY INFORMATION: These proposed amendments, which would
increase the National Flood Insurance Program (NFIP) chargeable
(subsidized) rates, are the result of an ongoing review and reappraisal
of the NFIP and of continuing efforts to maintain a business-like
approach to its administration by emulating successful property
insurance programs in the private sector and, at the same time, to
achieve greater administrative and fiscal effectiveness in its
operations. The proposed amendments are intended to help the NFIP
increase its capability to build reserves for catastrophic loss years.
Coverage changes and optional deductibles, in addition to rate
increases, are part of the ongoing effort to achieve these goals.
The chargeable (subsidized) rates, for which an increase is being
proposed, are the rates applicable to structures located in communities
participating in the Emergency Program of the NFIP and to certain
structures in communities in the Regular Program of the NFIP.
These rates are countrywide rates for two broad building type
classifications which, when applied to the amount of insurance
purchased and added to the expense constant and Federal policy fee,
produce a premium income less than the expense and loss payments that
can be expected on the flood insurance policies issued on that basis.
Funds needed to supplement the inadequate premium income are provided
by the National Flood Insurance Fund. The subsidized rates are
promulgated by the Administrator for use under the Emergency Program
(added to the NFIP by the Congress in Section 408 of the Housing and
Urban Development Act of 1969) and for use in the Regular Program on
construction or substantial improvement started before the effective
date of the initial Flood Insurance Rate Map (FIRM) or on or before
December 31, 1974 (this additional grandfathering was added to the NFIP
by Congress in section 103 of the Flood Disaster Protection Act of
1973), whichever is later.
It should be noted that over the NFIP's history, the Program has
not been subjected to the truly catastrophic flood event. Thus, the
historical average is substantially less than could be expected over
the long term when the influence of the extremely infrequent, truly
catastrophic flood would result in a significant increase in the
average historical year's losses. It is because of these fortuitous
conditions, the lack of market penetration in areas suffering very
large floods, and relatively high market penetration in the
southeastern part of the United States, which has not suffered a
catastrophic flood event recently, that the Program has remained self-
supporting since 1986. However, the chargeable (subsidized) rates are
significantly less than those that would be charged on a full risk
basis.
Using current subsidized rates and projected full risk loss costs
at 1995 levels, it is expected that the average annual shortfall in the
risk portion of premiums needed to fund loss expenses, including the
catastrophic potential, is over $400.00 for each subsidized
policyholder.
The statutory mandate to establish chargeable rates requires the
Federal Emergency Management Agency (FEMA) to balance the need for
providing reasonable rates to encourage potential insureds to purchase
flood insurance with the requirement that the NFIP be a flexible
program that minimizes cost and distributes burdens equitably among
those who will be protected by flood insurance and the general public.
In the past, appropriations were required to replenish the
program's borrowing authority when income was not sufficient due to the
subsidy. Since 1986, FEMA has not asked Congress to appropriate any
taxpayer funds to pay for this subsidy. Recent years have been
extremely high loss years starting with Hurricane Hugo in 1989,
Hurricanes Andrew and Iniki in 1992, the great Midwest flooding of
1993, and several other major flooding events in 1995. FEMA believes it
is time for a reduction in the subsidy.
Section 1308(e) of the National Flood Insurance Act of 1968, as
amended, contains an annual rate increase limitation of 10 percent. The
rates to accomplish the proposed increase are in the following table.
It should be noted that the entire premium paid by the consumer
consists of two components: a risk rate as well as an expense
constant--a standard cost charged for each policy for administrative
processing. Although the rates in the table, which are the risk rates
for $100 worth of coverage, have been increased more than 10 percent,
the actual premium paid by the consumer, which also includes the
expense constant, would only increase by 10 percent.
------------------------------------------------------------------------
Rates per year per
$100 coverage on
Type of structure -----------------------
Structure Contents
------------------------------------------------------------------------
(1) Residential................................. $0.68 $0.79
(2) All other (including hotels and motels with
normal occupancy of less than 6 months in
duration)...................................... .79 1.58
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For comparison, the current subsidized rates are as follows:
[[Page 56553]]
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Rates per year per
$100 coverage on
Type of structure -----------------------
Structure Contents
------------------------------------------------------------------------
(1) Residential................................. $0.60 $0.70
(2) All other (including hotels and motels with
normal occupancy of less than 6 months in
duration)...................................... .70 1.40
------------------------------------------------------------------------
The proposed increase would be balanced between the need to
decrease the subsidy and the objective of the statute for chargeable
rates--rates that are less than actuarial rates--i.e., to make flood
insurance available at reasonable rates so as to encourage prospective
insureds to purchase flood insurance.
The projected average annual premium for subsidized policies using
the revised chargeable rates and purchasing 1995 amounts of insurance
is $441.00, a $40.00 increase over the present average. Despite this
increase, the new rates produce only an estimated 39 percent of the
premium that would have to be charged if these policies were
actuarially rated (i.e., not subsidized).
National Environmental Policy Act
Pursuant to section 102(2)(C) of the National Environmental Policy
Act of 1969, 42 U.S.C. 4371 et seq., and the implementing regulations
of the Council on Environmental Quality, 40 CFR parts 1500-1508, FEMA
is conducting an environmental assessment of this proposed rule. If the
assessment concludes that there will be a significant impact on the
human environment as a result of the issuance of the proposed rule,
then an Environmental Impact Statement will be prepared. Copies of the
environmental assessment, when developed, will be available for
inspection through the Rules Docket Clerk, Federal Emergency Management
Agency, room 840, 500 C St. SW., Washington, DC 20472.
Executive Order 12866, Regulatory Planning and Review
This proposed rule is not a significant regulatory action as
defined under Executive Order 12866 of September 30, 1993, Regulatory
Planning and Review, 58 FR 51735, October 4, 1993. To the extent
possible, this rule adheres to the principles of regulation as set
forth in Executive Order 12866. This proposed rule has not been
reviewed by the Office of Management and Budget under the provisions of
Executive Order 12866.
Paperwork Reduction Act
This proposed rule does not contain a collection of information and
is therefore not subject to the provisions of the Paperwork Reduction
Act of 1995.
Executive Order 12612, Federalism
This proposed rule involves no policies that have federalism
implications under Executive Order 12612, Federalism, dated October 26,
1987.
Executive Order 12778, Civil Justice Reform
This rule meets the applicable standards of section 2(b)(2) of
Executive Order 12778.
List of Subjects in 44 CFR Part 61
Flood Insurance.
Accordingly, FEMA proposes to amend 44 CFR part 61 as follows:
PART 61--INSURANCE COVERAGE AND RATES
1. The authority citation for Part 61 continues to read as follows:
Authority: 42 U.S.C. 4001 et seq.; Reorganization Plan No. 3 of
1978, 43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127 of Mar. 31,
1979, 44 FR 19367, 3 CFR, 1979 Comp., p. 376.
2. Section 61.9 is revised to read as follows:
Sec. 61.9 Establishment of chargeable rates.
(a) Pursuant to section 1308 of the Act, chargeable rates per year
per $100 of flood insurance are established as follows for all areas
designated by the Administrator under part 64 of this subchapter for
the offering of flood insurance.
Rates for New and Renewal Policies
------------------------------------------------------------------------
Rates per year per
$100 coverage on
Type of structure -----------------------
Structure Contents
------------------------------------------------------------------------
(1) Residential................................. $0.68 $0.79
(2) All other (including hotels and motels with
normal occupancy of less than 6 months in
duration....................................... .79 1.58
------------------------------------------------------------------------
(b) The contents rate shall be based upon the use of the individual
premises for which contents coverage is purchased.
(Catalog of Federal Domestic Assistance No. 83.100, ``Flood
Insurance'').
Dated: November 2, 1995.
Elaine A. McReynolds,
Administrator, Federal Insurance Administration.
[FR Doc. 95-27803 Filed 11-8-95; 8:45 am]
BILLING CODE 6718-01-P
