[Federal Register Volume 60, Number 19 (Monday, January 30, 1995)]
[Rules and Regulations]
[Pages 5583-5586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2249]
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FEDERAL EMERGENCY MANAGEMENT AGENCY
44 CFR Part 61
RIN 3067-AC29
National Flood Insurance Program; Insurance Coverage and Rates
AGENCY: Federal Insurance Administration, FEMA.
ACTION: Final rule.
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SUMMARY: This final rule amends the National Flood Insurance Program
(NFIP) regulations to increase the waiting period before which flood
insurance coverage becomes effective under the Standard Flood Insurance
Policy and to increase the limits of coverage available under the NFIP.
This final rule is necessary to comply with the waiting period
requirement and maximum flood insurance coverage amounts established by
the National Flood Insurance Reform Act of 1994. The intent of this
final rule is to establish a 30-day waiting period, with certain
exceptions, before flood insurance coverage becomes effective under the
Standard Flood Insurance Policy and to provide higher limits of flood
insurance coverage to current and new policyholders.
EFFECTIVE DATE: March 1, 1995.
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: As part of the implementation of the
National Flood Insurance Reform Act of 1994 (the Reform Act), on
November 15, 1994, the Federal Emergency Management Agency (FEMA)
published in the Federal Register (Vol. 59, page 58808) a proposed rule
to increase the waiting period from five days to 30 days before flood
insurance coverage becomes effective under the Standard Flood Insurance
Policy and to increase the limits of coverage available under the
National Flood Insurance Program.
The Reform Act provided for two exceptions to the 30-day waiting
period, i.e., (1) when the initial purchase of flood insurance is in
connection with the making, increasing, extension, or renewal of a loan
and (2) when the initial purchase of flood insurance occurs during the
one-year period following notice of the issuance of a revised flood map
for a community.
A 45-day period was provided for review and comment on the proposed
changes. FEMA received comments on the proposed changes from five
respondents. The tally of comments included representatives from three
private insurance companies participating in the NFIP Write Your Own
(WYO) Program, one bank, and a national trade association representing
savings and community financial institutions.
All five respondents commented on the waiting period.
One WYO company respondent commented that imposing a longer waiting
period before coverage becomes effective ``will have a potential
negative impact on efforts to market flood insurance'' and that
imposing a longer waiting period will also result ``in an increase in
disaster assistance payments since, at the time of a flood, people not
yet flooded will be less inclined to buy flood insurance.'' Whatever
the validity of these points may be, the longer waiting period must be
implemented since, as the respondent pointed out, the Reform Act
mandates such action.
Another WYO company respondent noted that the waiting period does
not apply to the initial purchase of flood insurance in connection with
the making, increasing, extension, or renewal of a loan and inquired
whether this exception extends to transactions related to refinancing
and home equity loans. The exception extends to such transactions so
long as the purchase of flood insurance is the initial purchase of such
insurance. The regulations currently provide for no waiting period in
the case of a title transfer, so long as the policy is applied for and
the premium is paid at or prior to the title transfer. It is important
to point out that the Reform Act does not provide for this exception
and, therefore, the current provision related to title transfers will
not apply on and after March 1, 1995. This provision has, in essence,
been replaced by the loan closing exception which, in most cases, has
the same result.
The national trade association respondent commented on the
exception to the waiting period in connection with the purchase of new
flood insurance coverage for one year after notice of a remapping or
redesignation of a flood zone. That respondent noted that the
``provision presupposes that the servicer of the loan has an obligation
to require purchase by a borrower within a specific period of time
following the publication of a notice of remapping or redesignation''
and further commented that ``it is not clear under either the statute
or the proposal just what the nature of the servicer's obligation is as
it relates to this form of purchase obligation. The Conference
Committee Report refers to `tripwires' and suggests that the obligation
to require purchase by the borrower may only arise when a lender is
`making, increasing, extending or renewing' a loan.''
Based on its interpretation, this respondent commented that ``it
would be inappropriate to include the one-year limitation * * * because
the purchase obligation could arise at any time, not just within one
year of publication of map amendments.'' This respondent further
commented that the specific one-year limitation is not included in the
language of the statute and suggested that, ``Until the issue of timing
of the purchase requirement can be resolved'', FEMA should eliminate
the one-year limitation and replace the opening phrase with the
following language: ``At any time following the issuance of a
revised''.
FEMA is not clear about the respondent's concern and points out
that the specific one-year period related to map revisions is indeed
included in the statute (sec. 579 of the Reform Act) which revises
section 1306 of the National Flood Insurance Act of 1968 to add
subsection (c). The specific reference to the one-year period is in
section 1306(c)(2)(B).
As pointed out in the Supplementary Information section of the
proposed rule, the Reform Act provides that the [[Page 5584]] one-year
period starts on the date of publication of the notice of the revision
and requires that the notice be published not later than 30 days after
the effective date of the map revision. Since agents using flood maps
automatically get copies of revised maps with the effective date of the
revision shown on the map but may not see the new notice that is
required, FEMA is interpreting the period for this exception to be the
13-month period beginning on the effective date of the map revision.
Due to a technical oversight, this 13-month interpretation was not
included in the regulatory text of the proposed rule. This oversight
has been corrected and the exception to the waiting period in
connection with the purchase of new flood insurance coverage made
pursuant to a remapping or redesignation of a flood zone is revised in
this final rule to reflect the 13-month period.
A WYO company respondent made reference to the current procedure
for allowing for the renewal of policies with the same policy number
after the 30-day grace period but within 90 days of the policy
expiration. In such an instance, current procedures require that the 5-
day waiting period be calculated from the date the renewal premium
payment is received. In those instances where the policy has lapsed for
more than 90 days, a new application is required. This respondent has
expressed concern that ``using the 30-day waiting period would require
a new application on any renewal payments received sixty (60) or more
days after expiration, as the addition of the waiting period would
extend the lapsed coverage to ninety (90) days or more.''
This concern indicates a misunderstanding of one of the FEMA rules
regarding policy renewal when the renewal payment is received after the
30-day grace period. The respondent mistakenly believes that the
premium has to be received early enough so that the 30-day waiting
period is over and the coverage is in force by the 90th day. However,
in that situation, in order not to be required to submit a new
application, it is sufficient that the premium be received within 90
days after expiration. If the renewal notice and premium are received
on day 90, the policy bearing the former policy number may be placed in
force 30 days following receipt, without a new application.
That respondent and another WYO company respondent expressed
concern as to the impact the 30-day waiting period will have on
policies issued through the Mortgage Portfolio Protection Program
(MPPP). Both of these respondents pointed out that, since the MPPP
guidelines require a 45-day notification letter cycle prior to
application for force-place flood insurance coverage, imposing the 30-
day waiting period for policies issued under the MPPP will result in a
minimum of 75 days before coverage could be in effect. The other WYO
company respondent further commented that, in accordance with the
provisions of the Reform Act, ``if the lender and borrower dispute the
flood zone in writing to the Director and the Director does not respond
for 45 days, the collateral is still listed as being in a flood zone,
and the customer does not purchase the required insurance, collateral
could potentially be uninsured for an additional 45 days increasing the
total to 120 days.'' Based on their concerns, these respondents urged
that the 30-day waiting period not be applicable in those instances
where the lender is purchasing the flood insurance coverage for the
borrower, even though the cost of the policy will be passed on to the
borrower.
While FEMA appreciates their concerns, the statute is quite
specific concerning the exceptions to the 30-day waiting period and,
since the examples cited by these respondents do not fall within those
exceptions, FEMA cannot waive the 30-day waiting period for these
situations. Therefore, the revisions to the waiting period are
incorporated into the final rule as originally proposed, except for the
change related to the 13-month period in connection with the remapping
or redesignation of a flood zone as discussed above.
As pointed out in the proposed rule, however, the Reform Act
requires FEMA to conduct a study to determine the appropriateness of
existing requirements regarding the effective date and time of coverage
under flood insurance contracts obtained through the national flood
insurance program. Congress stipulated that, in conducting the study,
the Director shall determine whether any delay between the time of
purchase of flood insurance coverage and the time of initial
effectiveness of the coverage should differ for various classes of
properties or for various circumstances under which such insurance was
purchased. The comments received from the respondents will be
considered as FEMA conducts this study.
Two of the respondents commented on the proposal to increase the
limits of coverage under the NFIP.
A WYO company inquired whether a primary single family residence
that is currently insured in the maximum amount of coverage and thus
qualifies for replacement cost coverage would still be entitled to
replacement cost should a loss occur between the time the increased
limits of coverage take effect and the time the policy is due for
renewal. The company questioned whether, in such an instance, the loss
would be settled on a replacement cost or actual cash value basis. The
company also inquired regarding the same scenario when the insured has
a three-year policy and in the case of a condominium building which is
insured under the Residential Condominium Building Association Policy.
FEMA will be issuing implementing instructions which will address this
issue and will be sent to this WYO company and all other WYO companies.
This WYO company also inquired about the effective date should an agent
submit a request to increase limits for a residential structure to the
new $250,000 maximum before March 1. In setting forth its
understanding, the company correctly concluded that if the endorsement
(with appropriate premium, of course) is submitted before March 1,
1995, the endorsement would become effective after five days or on
March 1 (whichever is later) and that any endorsement (with appropriate
premium) submitted on or after March 1, 1995, would become effective
after a 30-day waiting period (unless one of the exceptions applied, of
course).
In commenting on the maximum amounts of coverage to be available
after March 1, 1995, the national trade association respondent urged
FEMA ``to work in conjunction with the bank regulatory agencies on a
state and federal level to coordinate the obligations of financial
institutions.'' This respondent pointed out that some existing federal
regulations require institutions to ``maintain coverage `for the term
of the loan' in an amount `at least equal to the outstanding principal
balance of the loan or the maximum coverage available with respect to
the particular type of property under the Act, whichever is less.'''
This respondent expressed the belief that compliance with those
regulations may require that additional insurance be purchased ``in
those instances where insurance must be maintained in the amount of the
maximum available under the flood insurance program'' and thus
questioned whether the current loan servicer is obligated to act
immediately to increase the amount of coverage or whether a reasonable
time period will be available for the purchase of additional insurance.
This respondent suggested that, given the complexities of present-day
loan [[Page 5585]] servicing, a significant period of time, such as 180
days following the date of availability of the increased coverage, be
provided to allow lenders/servicers sufficient time to arrange or cause
the borrower to obtain any required additional coverage.
This respondent pointed out that section 524 of the Reform Act
``specifies the notifications required for a property in a designated
flood plain `covered by such insurance in an amount less than the
amount required for the property''' and suggested that FEMA ``clarify
that these procedures are the same steps to be followed in the event
additional insurance is required.'' It was suggested that the
notification and standard hazard determination forms being promulgated
pursuant to sections 527 and 528 of the Reform Act ``include language
to alert the borrower to the potential requirement to purchase
additional insurance at a future date.'' This suggestion will be
considered as the notification and standard hazard determination forms
are being developed. The final authority regarding regulations relating
to the obligations of financial institutions rests with the various
federal entities for lending regulation. However, FEMA does have a
consulting/coordinating role with those federal entities and will pass
these comments along to those entities for their consideration.
National Environmental Policy Act
This final 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 final rule were
reviewed and a finding was made that no disproportionately high and
adverse effect on minority or low income populations result from this
final rule.
Executive Order 12866, Regulatory Planning and Review
This final rule is not a significant regulatory action within the
meaning of Section 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. Nevertheless, this final rule adheres to the regulatory
principles set forth in E.O. 12866.
Paperwork Reduction Act
This final 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 final rule involves no policies that have federalism
implications under Executive Order 12612, Federalism, dated October 26,
1987.
Executive Order 12778, Civil Justice Reform
This final rule meets the applicable standards of section 2(b)(2)
of Executive Order 12778.
List of Subjects in 44 CFR Part 61
Flood insurance, Reporting and recordkeeping requirements.
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 61.6 is revised to read as follows:
Sec. 61.6 Maximum amounts of coverage available.
(a) Pursuant to section 1306 of the Act, the following are the
limits of coverage available under the emergency program and under the
regular program.
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Regular program
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Emergency Total
program\1\ Second amount
first layer layer available
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Single Family Residential
Except in Hawaii, Alaska, Guam,
U.S. Virgin Islands............. 35,000 215,000 250,000
In Hawaii, Alaska, Guam, U.S.
Virgin Islands.................. 50,000 200,000 250,000
Other Residential
Except in Hawaii, Alaska, Guam,
U.S. Virgin Islands............. 100,000 150,000 250,000
In Hawaii, Alaska, Guam, U.S.
Virgin Islands.................. 150,000 100,000 250,000
Nonresidential
Small business................... 100,000 400,000 500,000
Churches and other properties.... 100,000 400,000 500,000
Contents\2\
Residential...................... 10,000 90,000 100,000
Small business................... 100,000 400,000 500,000
Churches, other properties....... 100,000 400,000 500,000
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\1\Only first layer available under emergency program.
\2\Per unit.
(b) In the insuring of a residential condominium building in a
regular program community, the maximum limit of building coverage is
$250,000 times the number of units in the building (not to exceed the
building's replacement cost).
3. Section 61.11 is amended as follows:
a. By revising paragraphs (a), (b), and (c) to read as follows:
Sec. 61.11 Effective date and time of coverage under the Standard
Flood Insurance Policy--New Business Applications and Endorsements.
(a) During the 13-month period beginning on the effective date of a
revised Flood Hazard Boundary Map or Flood Insurance Rate Map for a
community, the effective date and time of any initial flood insurance
coverage shall be 12:01 a.m. (local time) on the first calendar day
after the application date and the presentment of payment of premium;
for example, a flood insurance policy applied for with the payment of
the premium on May 1 will [[Page 5586]] become effective at 12:01 a.m.
on May 2.
(b) Where the initial purchase of flood insurance is in connection
with the making, increasing, extension, or renewal of a loan, the
coverage with respect to the property which is the subject of the loan
shall be effective as of the time of the loan closing, provided the
written request for the coverage is received by the NFIP and the flood
insurance policy is applied for and the presentment of payment of
premium is made at or prior to the loan closing.
(c) Except as provided by paragraphs (a) and (b) of this section,
the effective date and time of any new policy or added coverage or
increase in the amount of coverage shall be 12:01 a.m. (local time) on
the 30th calendar day after the application date and the presentment of
payment of premium; for example, a flood insurance policy applied for
with the payment of the premium on May 1 will become effective at 12:01
a.m. on May 31.
* * * * *
b. In paragraph (e), by removing, in the second sentence, the
phrase ``(P.O. Box 459, Lanham, Maryland 20706)''.
c. By removing paragraphs (f) (1) and (2) and by redesignating
paragraph (f)(3) as paragraph (g).
d. In newly redesignated paragraph (g), by removing the word
``this'' and after ``(f)'' add ``of this section''.
(Catalog of Federal Domestic Assistance No. 83.100, ``Flood
Insurance'')
Dated: January 23, 1995.
Elaine A. McReynolds,
Administrator, Federal Insurance Administration.
[FR Doc. 95-2249 Filed 1-27-95; 8:45 am]
BILLING CODE 6718-05-P