[Federal Register Volume 59, Number 54 (Monday, March 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-6394]
[[Page Unknown]]
[Federal Register: March 21, 1994]
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FEDERAL EMERGENCY MANAGEMENT AGENCY
44 CFR Part 61
RIN 3067-AC24
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 chargeable (subsidized)
rates, which apply to all structures located in communities
participating in the Emergency Program of the National Flood Insurance
Program (NFIP) and apply to certain structures in communities in the
Regular Program. The rule is proposed because the NFIP's loss reserves
in the National Flood Insurance Fund require an increase in premium
income to meet expected short-term future demands. We intend the
proposed rule to help the NFIP satisfy the premium requirements for the
historical average loss year and to reduce the general taxpayer's
burden with a more equitable sharing of the costs of flood losses
between the general taxpayers and the insureds.
DATES: Comments must be received on or before May 5, 1994.
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, 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
satisfy the premium requirements for the historical average loss year
and to reduce the general taxpayer's burden with a more equitable
sharing of the costs of flood losses between the general taxpayers and
the insureds. 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.
They 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 somewhat loss than the expense and loss
payments incurred on the flood insurance policies issued on that basis.
The 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's
insurance written 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 catastrophic 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 current status of the
Program's loss reserves in the National Flood Insurance Fund requires
an increase in premium income relative to the expected short-term
future demands. Effective as of January 1, 1994, policyholders required
to pay actuarial rates had an average 9% increase in their premiums.
Using current subsidized rates and projecting full risk loss costs
to 1994 levels, it is expected that the average annual shortfall in
premiums needed to fund loss expenses for each subsidized policyholder
would be $419.00.
The statutory mandate to establish reasonable 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 which minimizes cost and distributes burdens equitably
among those who will be protected by flood insurance and the general
public. FEMA has examined the current chargeable rates and the amount
of subsidy required to supplement the inadequate premium income derived
from insurance policies to which these rates apply. Based on this
examination, FEMA has determined that it is necessary to bring NFIP
closer to a self-supporting basis and create a sounder financial basis
for the program. At this time, FEMA proposes an approximate 9% increase
in the chargeable or subsidized premiums as follows:
------------------------------------------------------------------------
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
------------------------------------------------------------------------
For comparison, the current subsidized rates are as follows:
------------------------------------------------------------------------
Rates per year per $100
coverage on
Type of structure -------------------------
Structure Contents
------------------------------------------------------------------------
(1) Residential............................... $0.55 $0.65
(2) All other (including hotels and motels
with normal occupancy of less than 6 months
in duration)................................. .65 1.30
------------------------------------------------------------------------
The proposed increase has been balanced between the statutory
requirement that the chargeable rates be consistent with the objective
of making flood insurance available where necessary at reasonable rates
so as to encourage prospective insureds to purchase flood insurance and
the need for decreasing the federal subsidy, thus more equitably
distributing the burden.
The projected average annual premium for subsidized policies using
the revised chargeable rates and purchasing estimated 1994 amounts of
insurance is $409.00, a $21.00 increase over the present average.
Despite this increase, it represents only an estimated 37% 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
has prepared an environmental assessment of this proposed rule. The
assessment concludes that there will be no significant impact on the
human environment as a result of the issuance of the proposed rule. It
is, therefore, found that the action does not constitute a major
Federal action significantly affecting the quality of the human
environment. On this basis, an Environmental Impact Statement will be
prepared. Copies of the environmental assessment are available for
inspection through the Rules Docket Clerk, Federal Emergency Management
Agency, room 840, 500 C St. SW., Washington, DC 20472.
Regulatory Flexibility Act
I certify that this proposed rule will not have a significant
economic impact on a substantial number of small entities in accordance
with the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., because the
increased rates proposed will average approximately $1.75 per month,
and the proposed rule is not expected: (1) To adversely affect the
availability of flood insurance to small entities, (2) to have
significant secondary or incidental effects on a substantial number of
small entities, nor (3) to create any additional burden on small
entities.
Paperwork Reduction Act
This proposed rule does not contain a collection of information
requirement as described in section 3504(h) of the Paperwork Reduction
Act.
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 proposed 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............................... $0.60 $0.70
(2) All other (including hotels and motels
with normal occupancy of less than 6 months
in duration.................................. .70 1.40
------------------------------------------------------------------------
(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'')
James L. Witt,
Director.
[FR Doc. 94-6394 Filed 3-18-94; 8:45 am]
BILLING CODE 6718-01-M
