[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