[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