[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] ----------------------------------------------------------------------- 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. ----------------------------------------------------------------------- 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