[Federal Register Volume 64, Number 150 (Thursday, August 5, 1999)]
[Proposed Rules]
[Pages 42633-42635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19764]


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FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 62

RIN 3067-AC95


National Flood Insurance Program (NFIP); Assistance to Private 
Sector Property Insurers

AGENCY: Federal Emergency Management Agency (FEMA).

ACTION: Proposed rule.

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SUMMARY: We (the Federal Insurance Administration of FEMA) are 
proposing changes to the Financial Control Plan (Appendix B of 44 CFR 
Part 62) that sets standards for evaluating the performance of private 
insurance companies participating in the Write Your Own program. These 
changes are to streamline and simplify the regulations of the National 
Flood Insurance Program. This proposal is part of an agency-wide 
initiative by the Federal Emergency Management Agency to simplify 
regulations for easier use by our customers. The proposed changes would 
also be consistent with the approach we adopted several years ago to 
streamline the arrangement for the WYO program and to place operational 
details in a technical operations manual rather than in the agreement 
itself between the Government and WYO companies.

DATES: Please send your comments on the proposal on or before September 
7, 1999.

ADDRESSES: Please send your comments to the Rules Docket Clerk, Office 
of the General Counsel, Federal Emergency Management Agency, 500 C 
Street SW., room 840, Washington, DC 20472, (facsimile) 202-646-4536, 
or (email) [email protected].


[[Page 42634]]


FOR FURTHER INFORMATION CONTACT: Edward L. Connor, Federal Emergency 
Management Agency, Federal Insurance Administration, 500 C Street SW., 
Washington, DC 20472, 202-646-3429, (facsimile) 202-646-3445, (email) 
Edward.C[email protected].

SUPPLEMENTARY INFORMATION: FEMA is streamlining and simplifying the 
materials used by the customers of each of its programs. As part of 
that initiative, we (the Federal Insurance Administration) believe that 
we can serve our customers and partners better by producing and 
revising the guidance documents and regulations of the National Flood 
Insurance Program so that they are easier to read and easier to use. 
The effort involves rendering any new rule--proposed and final--in 
plain language and eliminating sections or parts of our regulations 
that fit better in guidance documents and technical manuals, which we 
reference in the regulations.
    This proposed rule would streamline the Financial Control Plan that 
private insurance companies must follow as part of their financial 
assistance arrangement under the Write Your Own component of the 
National Flood Insurance Program. The proposed streamlining involves 
eliminating operational details from the text of the Financial Control 
Plan. This would allow the Government and its industry partners the 
flexibility to make operational adjustments and corrections more 
efficiently and more quickly while retaining the broad framework 
necessary for sound financial controls.

National Environmental Policy Act

    This proposed rule is categorically excluded from the requirements 
of 44 CFR part 10, Environmental Consideration. We have not prepared an 
environmental assessment.

Executive Order 12866, Regulatory Planning and Review

    This proposed 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 the Office of Management and Budget has not reviewed it. 
Nevertheless, this proposed rule adheres to the regulatory principles 
set forth in E.O. 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.

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 proposed rule meets the applicable standards of section 
2(b)(2) of Executive Order 12778.

List of Subjects in 44 CFR Part 62

    Claims, Flood insurance.

    Accordingly, we propose to amend 44 CFR Part 62 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. We amend Sec. 62.23(j) by redesignating paragraphs (j)(2) 
through (j)(6) as paragraphs (j)(3) through (j)(7), and by revising 
paragraph (j)(1) and adding new paragraph (j)(2) to read as follows:


Sec. 62.23  WYO Companies authorized.

* * * * *
    (j) * * *
    (1) Have a biennial audit of the flood insurance financial 
statements conducted by an independent Certified Public Accountant 
(CPA) firm at the Company's expense to ensure that the financial data 
reported to us accurately represents the flood insurance activities of 
the Company. The CPA firm must conduct its audits in accordance with 
the generally accepted auditing standards (GAAS) and Government 
Auditing Standards issued by the Comptroller General of the United 
States (commonly known as ``yellow book'' requirements). The Company 
must file with us (the Federal Insurance Administration) a report of 
the CPA firm's detailed biennial audit, and, after our review of the 
audit report, we will convey our determination to the Standards 
Committee.
    (2) Participate in a WYO Company/FIA Operation review. We will 
conduct a review of the WYO Company's flood insurance claims, 
underwriting, customer service, marketing, and litigation activities at 
least once every three (3) years. As part of these reviews, we will 
reconcile specific files with a listing of transactions submitted by 
the Company under the Transaction Record Reporting and Processing 
(TRPP) Plan (Part 5). We will file a report of the Operation Review 
with the Standards Committee.
* * * * *
    3. We revise Appendix B to Part 62--National Flood Insurance 
Program to read as follows:

Appendix B to Part 62--National Flood Insurance Program

A Plan To Maintain Financial Control for Business Written Under the 
Write Your Own Program

    (a) In general. Under the Write Your Own (WYO) Program, we (the 
Federal Insurance Administration (FIA), Federal Emergency Management 
Agency (FEMA)) may enter into an arrangement with individual private 
sector insurance companies licensed to engage in the business of 
property insurance. The arrangement allows these companies--using 
their customary business practices--to offer flood insurance 
coverage to eligible property owners. To assist companies in 
marketing flood insurance coverage, the Federal Government will be a 
guarantor of flood insurance coverage for WYO policies issued under 
the WYO Arrangement. To account for and ensure appropriate spending 
of any taxpayer funds, the WYO companies and we will implement this 
Financial Control Plan (Plan). Only the Administrator may approve 
any departures from the requirements of this Plan.
    (b) Financial Control Plan. 1. The WYO Companies are subject to 
audit, examination, and regulatory controls of the various States. 
Additionally, the operating department of an insurance company is 
customarily subject to examinations and audits performed by the 
company's internal audit or quality control departments, or both, 
and independent Certified Public Accountant (CPA) firms. This Plan 
will use to the extent possible the findings of these examinations 
and audits as they pertain to business written under the WYO Program
    2. This Plan contains several checks and balances that can, if 
properly implemented by the WYO Company, significantly reduce the 
need for extensive on-site reviews of the Company's files by us or 
our designee. Furthermore, we believe that this process is 
consistent with customary reinsurance practices and avoids 
duplication of examinations performed under the auspices of 
individual State Insurance Departments, NAIC Zone examinations, and 
independent CPA firms.
    (c) Standards Committee established. 1. We establish in this 
Plan a Standards Committee for the WYO Program to oversee the 
performance of WYO companies under this Plan and to recommend 
appropriate remedial actions to the Administrator. The Standards 
Committee will review and recommend to the Administrator remedies 
for any adverse action arising from the implementation of the 
Financial Control Plan. Adverse actions include, but are not limited 
to, not renewing a particular company's WYO Arrangement.
    2. The Administrator appoints the members of the Standards 
Committee, which consists of five (5) members from FIA, one (1) 
member from FEMA's Office of Financial Management, and one (1) 
member from each

[[Page 42635]]

of the six (6) designated WYO Companies, pools, or other entities.
    3. A WYO company must--
    A. Have a biennial audit of the flood insurance financial 
statements conducted by a CPA firm at the Company's expense to 
ensure that the financial data reported to us accurately represents 
the flood insurance activities of the Company. The CPA firm must 
conduct its audits in accordance with generally accepted auditing 
standards (GAAS) and the Government Auditing Standards issued by the 
Comptroller General of the United States (commonly known as ``yellow 
book'' requirements). The Company must file with us a report of the 
CPA firm's detailed biennial audit, and, after our review of the 
audit report, we will convey our determination to the Standards 
Committee.
    B. Participate in a WYO Company/FIA Operation review. We will 
conduct a review of the WYO Company's flood insurance claims, 
underwriting, customer service, marketing, and litigation activities 
at least once every three (3) years. As part of these reviews, we 
will reconcile specific files with a listing of transactions 
submitted by the Company under the Transaction Record Reporting and 
Processing Plan (Part 5). We will file a report of the Operation 
Review with the Standards Committee (Part 7).
    C. Meet the recording and reporting requirements of the WYO 
Transaction Record Reporting and Processing (TRRP) Plan and the WYO 
Accounting Procedures Manual. The National Flood Insurance Program's 
(NFIP) Bureau and Statistical Agent will analyze the transactions 
reported under the TRRP Plan and submit a monthly report to the WYO 
company and to us. The analysis will cover the timeliness of the WYO 
submissions, the disposition of transactions that do not pass 
systems edits, and the reconciliation of the totals generated from 
transaction reports with those submitted on the WYO Company's 
reports. (Parts 2 and 6).
    D. Cooperate with FEMA's Office of Financial Management on 
Letter of Credit matters.
    E. Cooperate with us in the implementation of a claims 
reinspection program (Part 3).
    F. Cooperate with us in the verification of risk rating 
information.
    G. Cooperate with FEMA's Office of Inspector General on matters 
pertaining to fraud.
    (d) This Plan references a separate document, ``The Write Your 
Own Program Financial Control Plan Requirements and Procedures,'' 
that contains the following parts and is applicable to the Financial 
Control Plan:
    1. Part 1--Financial Audits, Audits for Cause, and State 
Insurance Department Audits;
    2. Part 2--Transaction Record Reporting and Processing Plan 
Reconciliation Procedures;
    3. Part 3--Claims Reinspection Program;
    4. Part 4--Report Certifications and Signature Authorization;
    5. Part 5--Transaction Record Reporting and Processing Plan;
    6. Part 6--Write Your Own (WYO) Accounting Procedures Manual; 
and
    7. Part 7--Operation Review Procedures.
    (e) We will distribute copies of the ``The Write Your Own 
Program Financial Control Plan Requirements and Procedures'' to 
companies participating in the Write Your Own Program by October 1st 
of the Arrangement year. Interested members of the public may obtain 
a copy by contacting the FEMA Distribution Center, P.O. Box 2012, 
Jessup, MD 20794.
* * * * *
(Catalog of Federal Domestic Assistance No. 83.100, ``Flood 
Insurance'')

    Dated: July 9, 1999.
Jo Ann Howard,
Administrator, Federal Insurance Administration.
[FR Doc. 99-19764 Filed 8-4-99; 8:45 am]
BILLING CODE 6718-03-P