[Federal Register Volume 60, Number 217 (Thursday, November 9, 1995)]
[Proposed Rules]
[Pages 56552-56553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27803]



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FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 61

RIN 3067-AC42


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 National Flood Insurance 
Program (NFIP) chargeable (subsidized) rates, which apply to all 
structures located in communities participating in the Emergency 
Program of the NFIP and to certain structures in communities in the 
Regular Program of the NFIP. The rule is proposed in order to bring 
subsidized premiums more in line with the risk. We intend the proposed 
rule to help the NFIP increase the capability to build reserves for 
catastrophic loss years.

DATES: Comments must be received on or before January 8, 1996.

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, Jr., 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 
increase its capability to build reserves for catastrophic loss years. 
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 of the NFIP.
    These rates 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 less than the expense and loss payments that 
can be expected on the flood insurance policies issued on that basis. 
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 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 very 
large 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 chargeable (subsidized) rates are 
significantly less than those that would be charged on a full risk 
basis.
    Using current subsidized rates and projected full risk loss costs 
at 1995 levels, it is expected that the average annual shortfall in the 
risk portion of premiums needed to fund loss expenses, including the 
catastrophic potential, is over $400.00 for each subsidized 
policyholder.
    The statutory mandate to establish 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 that minimizes cost and distributes burdens equitably among 
those who will be protected by flood insurance and the general public.
    In the past, appropriations were required to replenish the 
program's borrowing authority when income was not sufficient due to the 
subsidy. Since 1986, FEMA has not asked Congress to appropriate any 
taxpayer funds to pay for this subsidy. Recent years have been 
extremely high loss years starting with Hurricane Hugo in 1989, 
Hurricanes Andrew and Iniki in 1992, the great Midwest flooding of 
1993, and several other major flooding events in 1995. FEMA believes it 
is time for a reduction in the subsidy.
    Section 1308(e) of the National Flood Insurance Act of 1968, as 
amended, contains an annual rate increase limitation of 10 percent. The 
rates to accomplish the proposed increase are in the following table. 
It should be noted that the entire premium paid by the consumer 
consists of two components: a risk rate as well as an expense 
constant--a standard cost charged for each policy for administrative 
processing. Although the rates in the table, which are the risk rates 
for $100 worth of coverage, have been increased more than 10 percent, 
the actual premium paid by the consumer, which also includes the 
expense constant, would only increase by 10 percent.

------------------------------------------------------------------------
                                                    Rates per year per  
                                                     $100 coverage on   
                Type of structure                -----------------------
                                                   Structure   Contents 
------------------------------------------------------------------------
(1) Residential.................................       $0.68       $0.79
(2) All other (including hotels and motels with                         
 normal occupancy of less than 6 months in                              
 duration)......................................         .79        1.58
------------------------------------------------------------------------

    For comparison, the current subsidized rates are as follows:

                                                                        

[[Page 56553]]
------------------------------------------------------------------------
                                                    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
------------------------------------------------------------------------


    The proposed increase would be balanced between the need to 
decrease the subsidy and the objective of the statute for chargeable 
rates--rates that are less than actuarial rates--i.e., to make flood 
insurance available at reasonable rates so as to encourage prospective 
insureds to purchase flood insurance.
    The projected average annual premium for subsidized policies using 
the revised chargeable rates and purchasing 1995 amounts of insurance 
is $441.00, a $40.00 increase over the present average. Despite this 
increase, the new rates produce only an estimated 39 percent 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 
is conducting an environmental assessment of this proposed rule. If the 
assessment concludes that there will be a significant impact on the 
human environment as a result of the issuance of the proposed rule, 
then an Environmental Impact Statement will be prepared. Copies of the 
environmental assessment, when developed, will be available for 
inspection through the Rules Docket Clerk, Federal Emergency Management 
Agency, room 840, 500 C St. SW., Washington, DC 20472.

Executive Order 12866, Regulatory Planning and Review

    This proposed rule is not a significant regulatory action as 
defined under Executive Order 12866 of September 30, 1993, Regulatory 
Planning and Review, 58 FR 51735, October 4, 1993. To the extent 
possible, this rule adheres to the principles of regulation as set 
forth in Executive Order 12866. This proposed rule has not been 
reviewed by the Office of Management and Budget under the provisions of 
Executive Order 12866.

Paperwork Reduction Act

    This proposed rule does not contain a collection of information and 
is therefore not subject to the provisions of the Paperwork Reduction 
Act of 1995.

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 proposes 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.................................       $0.68       $0.79
(2) All other (including hotels and motels with                         
 normal occupancy of less than 6 months in                              
 duration.......................................         .79        1.58
------------------------------------------------------------------------

    (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'').

    Dated: November 2, 1995.
Elaine A. McReynolds,
Administrator, Federal Insurance Administration.
[FR Doc. 95-27803 Filed 11-8-95; 8:45 am]
BILLING CODE 6718-01-P