94-18425. National Flood Insurance Program; Assistance to Private Sector Property Insurers  

  • [Federal Register Volume 59, Number 145 (Friday, July 29, 1994)]
    [Unknown Section]
    [Page 0]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 94-18425]
    
    
    [[Page Unknown]]
    
    [Federal Register: July 29, 1994]
    
    
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    FEDERAL EMERGENCY MANAGEMENT AGENCY
    
    44 CFR Part 62
    
    RIN 3067-AC26
    
     
    
    National Flood Insurance Program; Assistance to Private Sector 
    Property Insurers
    
    AGENCY: Federal Insurance Administration, FEMA.
    
    ACTION: Interim rule.
    
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    SUMMARY: This interim rule amends the interim rule published in the 
    Federal Register on May 25, 1994, to require Write Your Own (WYO) 
    Companies to participate in a National Flood Insurance Program (NFIP)-
    approved Single Adjuster Program to handle any combined wind and flood 
    loss during catastrophic events, e.g., hurricanes, and to change the 
    basis for calculating the amount of collected premium to be retained 
    for operating expenses by the WYO Companies.
    
    DATES: Effective date: This interim rule and this modification to the 
    offer are effective as of May 25, 1994. The revised Financial 
    Assistance/Subsidy Arrangement remains applicable with respect to flood 
    insurance policies written under the Arrangement with an effective date 
    of October 1, 1994, and later. Comment Date: September 12, 1994.
    
    ADDRESSES: Comments are requested and should be sent 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: On May 25, 1994, FEMA published in the 
    Federal Register (59 FR 26965-26970) an interim rule that amended the 
    National Flood Insurance Program (NFIP) regulations for the ``Write 
    Your Own'' (WYO) Program relating to the marketing of flood insurance 
    policies.
        This new action amends two sections of that May 25, 1994 interim 
    rule as it relates to the Arrangement offered by the Federal Insurance 
    Administrator to companies wishing to participate in the WYO Program. 
    The first change amends the section dealing with the adjustment of 
    claims, at Article II--Undertakings of the Company, paragraph C. of the 
    Arrangement, by requiring a WYO Company to participate in an NFIP-
    approved Single Adjuster Program to handle any combined wind and water 
    losses during catastrophic events, such as hurricanes. The second 
    change amends the section establishing the amount of written premium 
    which may be retained as operating and administrative expenses at 
    Article III--Loss Costs, Expenses, Expense Reimbursement, and Premium 
    Refunds, Section B. of the Arrangement, by stating the exact percentage 
    of premium that may be retained for Arrangement year 1994-1995 (which 
    is the same percentage as that calculated for the 1993-1994 Arrangement 
    year by the formula that is being replaced by this change) and by 
    providing for an increase or decrease in that exact percentage 
    depending on the extent that the WYO Company meets marketing goals.
        For the reasons cited in the May 25, 1994 interim rule, FEMA has 
    determined that sufficient cause exists for making this rule effective 
    immediately and that delaying the effective date until after a comment 
    period would be impracticable and contrary to the public interest. 
    However, comments are requested and will be considered before further 
    regulations are issued.
    
    National Environmental Policy Act
    
        This rule is categorically excluded from the requirements of 44 CFR 
    Part 10, Environmental Consideration. No environmental impact 
    assessment has been prepared.
    
    Executive Order 12898, Environmental Justice
    
        The socioeconomic conditions relating to this interim rule were 
    reviewed and a finding was made that no disproportionately high and 
    adverse effect on minority or low income populations result from this 
    interim rule.
    
    Executive Order 12866, Regulatory Planning and Review
    
        This interim 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 has not been reviewed by the Office of Management and Budget (OMB). 
    Nevertheless, this interim rule adheres to the regulatory principles 
    set forth in E.O. 12866.
    
    Paperwork Reduction Act
    
        The information collection requirements set forth in this interim 
    rule will be submitted for approval to the OMB under the Paperwork 
    Reduction Act of 1980, 44 U.S.C. 3501 et seq.
        FEMA is particularly interested in getting comments on the 
    estimated burden, i.e., the amount of time and resources required of 
    the WYO companies to comply with application, testing, and reporting 
    requirements contained in this interim rule. Submit comments on these 
    estimates to the Office of Management and Budget, 3235 New Executive 
    Office Building, Washington, D.C., 20503 marked ``Attention: Donald 
    Arbuckle'' and to the FEMA Clearance Officer, 500 C Street, SW, 
    Washington, DC 20472. This final rule will respond to any OMB or public 
    comments on the information collections requirements.
    
    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
    
        Flood insurance.
    
        Accordingly, 44 CFR part 62 is amended 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. The table of contents for subpart C of Part 62 is revised to 
    read as follows:
    * * * * *
    
    Subpart C--Write Your Own (WYO) Companies
    
    62.23  WYO Companies authorized.
    62.24  WYO Company participation criteria: new applicants.
    * * * * *
        3. Part 62 is amended by adding a new Sec. 62.24 to read as 
    follows:
    
    Subpart C--Write Your Own (WYO) Companies
    
    
    Sec. 62.24   WYO Company participation criteria: new applicants.
    
        New companies seeking 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.
        (a) To demonstrate the ability to meet the financial requirements, 
    an applicant for entry or reentry into 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 immediate 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) An applicant for entry or reentry into the WYO Program must 
    also pass a test to determine the company'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 company'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.
        (c) To satisfy the requirement for commitment to Program goals, 
    including marketing of flood insurance policies, the company shall 
    submit information concerning the company's plans for the Write Your 
    Own 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. Applicant companies shall also 
    name, in addition to a Principal Coordinator, a corporate officer point 
    of contact-- an individual, e.g., at the level of a 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, and the company's Best's 
    Financial Size Category for the purpose of setting marketing goals.
    
    Appendix A to Part 62 [Amended]
    
        4. Appendix A to Part 62, is amended by revising Section B., item 
    1.9, and section C. in Article II and section B. in Article III to read 
    as follows:
    * * * * *
    
    Article II--Undertakings of the Company
    
    * * * * *
        B. * * *
        1.9 For the elements of work enumerated above, the elapsed time 
    shown is from the date of receipt through the date of mail out. Days 
    means working, not calendar days.
        In addition to the standards for timely performance set forth 
    above, all functions performed by the Company shall be in accordance 
    with the highest reasonably attainable quality standards generally 
    utilized in the insurance and data processing industries.
        These standards are for guidance. Although no immediate remedy 
    for failure to meet them is provided under this Arrangement, 
    nevertheless, performance under these standards and the marketing 
    guidelines provided for in Section G. below can be a factor 
    considered by the Federal Insurance Administrator (the 
    Administrator) in requiring corrective action by the Company, in 
    determining the continuing participation of the Company in the 
    Program, or in taking other action, e.g., limiting the Company's 
    authority to write new business.
        C. To ensure maximum responsiveness to the National Flood 
    Insurance Program's (NFIP) policyholders following a catastrophic 
    event, e.g., a hurricane, involving insured wind and flood damage to 
    policyholders, the Company shall agree to the adjustment of the 
    combined flood and wind losses utilizing one adjuster under an NFIP-
    approved Single Adjuster Program in the following cases and under 
    procedures issued by the Administrator:
        1.0  Where the flood and wind coverage is provided by the 
    Company;
        2.0  Where the flood coverage is provided by the Company and the 
    wind coverage is provided by a participating State Property 
    Insurance Plan, Windpool Association, Beach Plan, Joint Underwriting 
    Association, FAIR Plan, or similar property insurance mechanism;
        3.0  Where the flood coverage is provided by the Company and the 
    wind coverage is provided by another WYO Company and the necessary 
    information on the dual coverage is part of the Claims Coordinating 
    Office (CCO) system; and
        4.0  Where the flood coverage is provided by the Company and the 
    wind coverage is provided by another property insurer and the State 
    Insurance Regulator has determined that such property insurer shall, 
    in the interest of consumers, facilitate the adjustment of its wind 
    loss by the adjuster engaged to adjust the flood loss of the 
    Company.
        The Government shall provide for the direct business flood 
    losses to be adjusted by a single adjuster where the wind damage 
    coverage is insured by a state market mechanism described in 2.0, 
    above, or by a WYO Company as described is 3.0 above, or by a 
    property insurer, as described in 4.0 above.
        Except for 1.0, above, the Company shall submit its flood losses 
    that are reasonably believed to involve wind damage to the Single 
    Adjuster Program's Stationary CCO in Lanham, Maryland at the 
    following address: National Flood Insurance Program, Stationary 
    Claims Coordinating Office, 10115 Senate Drive, Lanham, Maryland 
    20706.
        Such flood losses shall be reported on the ACORD Notice of Loss 
    form, ``ACORD 1 (1/93),'' or a like form calling for the reporting 
    of losses involving both flood and wind damage arising out of a 
    single hurricane event under the following procedures:
         Where flood losses reasonably believed to involve wind 
    damage are reported by property insurance agents or brokers, the 
    Company shall instruct its agents or brokers to mail or preferably 
    send by facsimile the ACORD Notice of Loss form, with complete 
    details regarding flood and, if available, wind insurance policies 
    covering the property, to the Single Adjuster Program Stationary CCO 
    for assignment to a single adjuster. The Stationary CCO will also 
    accept loss information directly from the agent by modem in CCO 
    format where the Company has arranged for its agents to provide the 
    information in this fashion.
         Where flood losses reasonably believed to involve wind 
    damage are reported directly to the Company by its policyholders or 
    agents, by telephone, the Company shall report the flood loss, with 
    the wind property insurer information, if available, to the Single 
    Adjuster Program Stationary CCO, by modem transfer in CCO format as 
    such flood losses are reported to the Company. Transfer by facsimile 
    from the Company can also be arranged where circumstances warrant 
    it.
        Upon receipt of the Notice of Loss, the Stationary CCO shall 
    effect immediate entry of all relevant data into the stand-alone CCO 
    System (i.e., not part of the NFIP mainframe computer system) for 
    instantaneous relay to the Catastrophe CCO established in the field. 
    At the Catastrophe CCO, which will be sited and fully operational 
    within 24 hours of landfall, in coordination with the State 
    Insurance Regulator, a qualified loss adjustment organization shall 
    be promptly selected for each loss, and participating insurers shall 
    be promptly advised of the selection for their assignment of the 
    loss to that organization.
        In respect to the foregoing, the Administrator will continue to 
    implement existing and future CCO Arrangements with State Insurance 
    Regulators and their State Property Insurance Plans, Windpool 
    Associations, Beach Plans, Joint Underwriting Associations, FAIR 
    Plans, or similar property insurance mechanisms, for example, as has 
    been done with the Insurance Department of the State of South 
    Carolina.
    * * * * *
    
    Article III--Loss Costs, Expenses, Expense Reimbursement, and 
    Premium Refunds
    
    * * * * *
        B. The Company shall be entitled to withhold, on a provisional 
    basis, as operating and administrative expenses, including agents' 
    or brokers' commissions, an amount from the Company's written 
    premium on the policies covered by this Arrangement in reimbursement 
    of all of the Company's marketing, operating and administrative 
    expenses, except for allocated and unallocated loss adjustment 
    expenses described in C. of this Article, which amount shall be 
    32.6% of the Company's written premium on the policies covered by 
    this Arrangement. The final amount retained by the Company shall be 
    determined by an increase or decrease depending on the extent to 
    which the Company meets the marketing goals for the combined 1994-
    1995 and 1995-1996 Arrangement years contained in marketing 
    guidelines established pursuant to Article II. G.
        The decrease or increase in the amount retained by the Company 
    shall be made after the end of the 1995-1996 Arrangement year. Any 
    decrease from 32.6% made as a result of a Company not meeting its 
    marketing goals shall be directly related to the extent to which the 
    Company's goal was not achieved, but shall not exceed two (2) 
    percentage points (providing for a minimum of 30.6%). The amount of 
    any decrease shall be calculated for each month, and each month's 
    decrease shall be subject to interest compounded at rates provided 
    for by 31 U.S.C. 3717(a)(1). Upon notice of the cumulative monthly 
    decreases and interest, the Company agrees to promptly remit to the 
    Government the total amount due.
        The increase, which shall be distributed among the Companies 
    exceeding their marketing goals, shall be drawn from a pool composed 
    of the difference between 32.6% of all WYO Companies' written 
    premium in Arrangement years 1994-1995 and 1995-1996, and the total 
    amount, prior to the increase, provided to the Companies on the 
    basis of the extent to which they have met their marketing goals. A 
    distribution formula will be developed and distributed to WYO 
    Companies which will consider the extent to which the Company has 
    exceeded its goal and the size of the Company's book of business in 
    relation to the total number of WYO policies. The amount of any 
    increase shall be paid promptly to the Company after the end of the 
    1995-1996 Arrangement year.
        If the Company does not enter into the Arrangement for 1995-
    1996, the extent to which the Company met its goals shall be based 
    upon its Arrangement year 1994-1995 performance, and the final 
    amount retained shall be determined after the end of the 1994-1995 
    Arrangement year, but the Company shall not be entitled to any 
    increase above the provisional amount.
        Premium income net of provisional reimbursement (net premium 
    income) and Federal Policy Fee shall be deposited in a special 
    account for the payment of losses and loss adjustment expenses (see 
    Article II, Section E).
        The Company, with the consent of the Administrator as to terms 
    and costs, shall be entitled to utilize the services of a national 
    rating organization, licensed under state law, to assist the FIA in 
    undertaking and carrying out such studies and investigations on a 
    community or individual risk basis, and in determining more 
    equitable and accurate estimates of flood insurance risk premium 
    rates as authorized under the National Flood Insurance Act of 1968, 
    as amended. The Company shall be reimbursed in accordance with the 
    provisions of the WYO Accounting Procedures Manual for the charges 
    or fees for such services.
    * * * * *
    (Catalog of Federal Domestic Assistance No. 83.100, ``Flood 
    Insurance'')
    
        Dated: July 21, 1994.
    Elaine A. McReynolds,
    Administrator, Federal Insurance Administration.
    [FR Doc. 94-18425 Filed 7-28-94; 8:45 am]
    BILLING CODE 6718-05-P
    
    
    

Document Information

Effective Date:
5/25/1994
Published:
07/29/1994
Department:
Federal Emergency Management Agency
Entry Type:
Uncategorized Document
Action:
Interim rule.
Document Number:
94-18425
Dates:
Effective date: This interim rule and this modification to the offer are effective as of May 25, 1994. The revised Financial Assistance/Subsidy Arrangement remains applicable with respect to flood insurance policies written under the Arrangement with an effective date of October 1, 1994, and later. Comment Date: September 12, 1994.
Pages:
0-0 (1 pages)
Docket Numbers:
Federal Register: July 29, 1994
RINs:
3067-AC26
CFR: (1)
44 CFR 62.24