[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