[Federal Register Volume 61, Number 43 (Monday, March 4, 1996)]
[Rules and Regulations]
[Pages 8222-8223]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4930]
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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: Final rule.
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SUMMARY: This final rule increases 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 promulgated in order to bring subsidized premiums
more in line with the risk. This rule will help the NFIP increase the
capability to build reserves for catastrophic loss years.
EFFECTIVE DATE: April 30, 1996.
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: FEMA published a proposed rule (60 FR 56552,
November 9, 1995) to increase the National Flood Insurance Program
(NFIP) chargeable (subsidized) rates. Comments were solicited from the
public with the comment period ending January 8, 1996. During this
period, no comments were received. As a result, this final rule
contains no changes from the proposed rule.
This rule increases the NFIP chargeable (subsidized) rates. The
increase results from 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
amendments in the rates will help the NFIP increase the 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, to which this rule applies, 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 a 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 remained self-
supporting since 1986 relying only on policyholder funding. 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, including the recent
flooding in Louisiana. The Louisiana flooding has resulted in the most
losses the Program has ever had and will result in the biggest payout
the Program has ever had from a single event. Because of this mounting
loss experience, we must reduce 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 increase are in the following table. It should
be noted that
[[Page 8223]]
although the rates in the table have been increased more than 10
percent, the entire premium, which also includes an expense constant,
increases only by 10 percent.
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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 subsidized rates being replaced by the
preceding rates are 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
------------------------------------------------------------------------
The increase is balanced between the provisions of the statute for
chargeable rates that are less than actuarial rates, consistent with
the objective of making flood insurance available at reasonable rates
so as to encourage prospective insureds to purchase flood insurance,
and the need to decrease the subsidy.
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
prepared an environmental assessment for this 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. This
final rule is not a major Federal action significantly affecting the
quality of the human environment. An Environmental Impact Statement has
not been prepared. Copies of the environmental assessment are available
for inspection through the Rules Docket Clerk, Federal Emergency
Management Agency, room 840, 500 C Street SW., Washington, DC 20472.
Executive Order 12866, Regulatory Planning and Review
This 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 rule has not been reviewed by the Office of Management and
Budget under the provisions of Executive Order 12866.
Paperwork Reduction Act
This 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 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, Civil Justice Reform.
List of Subjects in 44 CFR Part 61
Flood insurance.
Accordingly, 44 CFR part 61 is amended 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: February 27, 1996.
Elaine A. McReynolds,
Administrator, Federal Insurance Administration.
[FR Doc. 96-4930 Filed 3-1-96; 8:45 am]
BILLING CODE 6718-03-P
