[Federal Register Volume 61, Number 43 (Monday, March 4, 1996)]
[Rules and Regulations]
[Pages 8222-8223]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4930]



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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: Final rule.

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SUMMARY: This final rule increases 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 promulgated in order to bring subsidized premiums 
more in line with the risk. This rule will help the NFIP increase the 
capability to build reserves for catastrophic loss years.

EFFECTIVE DATE: April 30, 1996.

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: FEMA published a proposed rule (60 FR 56552, 
November 9, 1995) to increase the National Flood Insurance Program 
(NFIP) chargeable (subsidized) rates. Comments were solicited from the 
public with the comment period ending January 8, 1996. During this 
period, no comments were received. As a result, this final rule 
contains no changes from the proposed rule.
    This rule increases the NFIP chargeable (subsidized) rates. The 
increase results from 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 
amendments in the rates will help the NFIP increase the 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, to which this rule applies, 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 a 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 remained self-
supporting since 1986 relying only on policyholder funding. 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, including the recent 
flooding in Louisiana. The Louisiana flooding has resulted in the most 
losses the Program has ever had and will result in the biggest payout 
the Program has ever had from a single event. Because of this mounting 
loss experience, we must reduce 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 increase are in the following table. It should 
be noted that 

[[Page 8223]]
although the rates in the table have been increased more than 10 
percent, the entire premium, which also includes an expense constant, 
increases only 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 subsidized rates being replaced by the 
preceding rates are 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
------------------------------------------------------------------------

    The increase is balanced between the provisions of the statute for 
chargeable rates that are less than actuarial rates, consistent with 
the objective of making flood insurance available at reasonable rates 
so as to encourage prospective insureds to purchase flood insurance, 
and the need to decrease the subsidy.
    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 
prepared an environmental assessment for this 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. This 
final rule is not a major Federal action significantly affecting the 
quality of the human environment. An Environmental Impact Statement has 
not been prepared. Copies of the environmental assessment are available 
for inspection through the Rules Docket Clerk, Federal Emergency 
Management Agency, room 840, 500 C Street SW., Washington, DC 20472.

Executive Order 12866, Regulatory Planning and Review

    This 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 rule has not been reviewed by the Office of Management and 
Budget under the provisions of Executive Order 12866.

Paperwork Reduction Act

    This 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 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, Civil Justice Reform.

List of Subjects in 44 CFR Part 61

    Flood insurance.

    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 61.9 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: February 27, 1996.
Elaine A. McReynolds,
Administrator, Federal Insurance Administration.
[FR Doc. 96-4930 Filed 3-1-96; 8:45 am]
BILLING CODE 6718-03-P