[Federal Register Volume 66, Number 151 (Monday, August 6, 2001)]
[Rules and Regulations]
[Pages 40916-40918]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19406]



[[Page 40916]]

=======================================================================
-----------------------------------------------------------------------

FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 62

RIN 3067-AD23


National Flood Insurance Program; Assistance to Private Sector 
Property Insurers

AGENCY: Federal Emergency Management Agency (FEMA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: Based on recent cost information, we (FEMA) are adjusting the 
expense allowance under the Financial Assistance/Subsidy Arrangement 
between the Federal Insurance Administrator and the private sector 
insurers that sell and service flood insurance.

EFFECTIVE DATE: October 1, 2001.

FOR FURTHER INFORMATION CONTACT: Edward L. Connor, Federal Emergency 
Management Agency, Federal Insurance and Mitigation Administration, 500 
C Street SW., Washington, DC 20472, 202-646-3443, (facsimile) 202-646-
3445, (email) [email protected].

SUPPLEMENTARY INFORMATION: On May 10, 2001, we published at 66 FR 23874 
a rule proposing to increase the ``expense allowance'' under the 
Financial Assistance/Subsidy Arrangement between the Federal Insurance 
Administrator and the private sector insurers that sell and service 
flood insurance under the Write Your Own (WYO) program. (The ``expense 
allowance'' is a portion of the premiums charged for flood insurance 
policies that participating insurers sell under the WYO program.) The 
expense allowance is based on data for the property/casualty industry 
published, as of March 15 of the prior Arrangement year, in Part III of 
the Insurance Expense Exhibit in A.M. Best Company's Aggregates and 
Averages for five property coverages.
    Based on our analysis of recent expense information from the 
companies, we believe that we should increase the current expense 
allowance under the Arrangement.
    During the comment period, we received three sets of comments on 
the proposed rule. One respondent agreed with the rule as proposed. The 
other two respondents agreed with the proposed increase in the expense 
allowance. One of those however was disappointed that the proposed rule 
did not address marketing incentives, which are referred to in the 
Arrangement but not included in the Arrangement itself. The other 
recommended a change in the marketing incentives for larger WYO 
companies.
    As has been our practice, we consulted during the past year with 
WYO company representatives on the marketing incentives. We are 
planning to liberalize those incentives for the coming year. Since the 
marketing incentives are outside the Arrangement proper and therefore 
outside the scope of this rulemaking, we will not make any adjustment 
to the rule as proposed.
    One commenter also recommended that we consider increasing the 
unallocated loss adjustment expense allowance from its current 3.3%. 
That commenter also recommended that the expense allowance be linked 
directly to the individual WYO company's flood insurance expense as 
identified in the insurance expense exhibit of the annual statement. 
(The commenter recommended both these changes for the 2002-3 
Arrangement Year.) We plan to review the entire system for reimbursing 
WYO companies, and we will look at both of those recommendations as 
part of that review. We are prepared to propose any appropriate changes 
during the next rulemaking cycle.
    In summary, the rule increasing the expense allowance, as proposed, 
will be adopted as a final rule.
    During August 2001, we will send a copy of the offer for the 2001-
2002 Arrangement year, together with related materials and submission 
instructions, to all private insurance companies participating under 
the current 2000-2001 Arrangement. Any private insurance company not 
currently participating in the WYO program but wishing to consider 
FEMA's offer for 2001-2001 may request a copy by writing: Federal 
Emergency Management Agency, Deputy Administrator, Federal Insurance 
and Mitigation Administration, WYO Program, Washington, DC 20472.

National Environmental Policy Act (NEPA)

    NEPA imposes requirements for considering the environmental impacts 
of agency decisions. It requires that an agency prepare an 
Environmental Impact Statement (EIS) for ``major federal actions 
significantly affecting the quality of the human environment.'' If an 
action may or may not have a significant impact, the agency must 
prepare an environmental assessment (EA). If, as a result of this 
study, the agency makes a Finding of No Significant Impact (FONSI), no 
further action is necessary. If it will have a significant effect, then 
the agency uses the EA to develop an EIS.
    Categorical Exclusions. Agencies can categorically identify actions 
(for example, repair of a building damaged by a disaster) that do not 
normally have a significant impact on the environment. The purpose of 
this final rule is to adjust the expense allowance under the Financial 
Assistance/Subsidy Arrangement between the Federal Insurance 
Administrator and the private sector insurers that sell and service 
flood insurance.
    Accordingly, we have determined that this rule is excluded from the 
preparation of an environmental assessment or environmental impact 
statement under 44 CFR 10.8(d)(2)(ii), where the rule is related to 
actions that qualify for categorical exclusion under 44 CFR 
10.8(d)(2)(i), which addresses the preparation, revision, and adoption 
of regulations, directives, and other guidance documents related to 
actions that qualify for categorical exclusions. We have not prepared 
an environmental assessment or environmental impact statement as 
defined by NEPA.

Executive Order 12866, Regulatory Planning and Review

    We have prepared and reviewed this final rule under the provisions 
of E.O. 12866, Regulatory Planning and Review. Under Executive Order 
12866, 58 FR 51735, October 4, 1993, a significant regulatory action is 
subject to OMB review and the requirements of the Executive Order. The 
Executive Order defines ``significant regulatory action'' as one that 
is likely to result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
    (2) create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    For the reasons that follow we have concluded that the final rule 
is neither an economically significant nor a significant regulatory 
action under the Executive Order. The rule adjusts the expense 
allowance under the Financial Assistance/Subsidy Arrangement between 
the Federal Insurance Administrator and the private sector

[[Page 40917]]

insurers that sell and service flood insurance. The adjustment 
increases by approximately $14 million the expense allowance paid to 
the WYO private sector insurers. It does not have an annual effect on 
the economy of $100 million or more or adversely affect in a material 
way the economy, the insurance sector, competition, or other sectors of 
the economy. It creates no serious inconsistency or otherwise interfere 
with an action taken or planned by another agency. It does not 
materially alter the budgetary impact of entitlements, grants, user 
fees, or loan programs or the rights and obligations of recipients 
thereof. Nor does it raise novel legal or policy issues arising out of 
legal mandates, the President's priorities, or the principles set forth 
in the Executive Order.
    The Office of Management and Budget has not reviewed this final 
rule under the principles 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.

Regulatory Flexibility Act

    Under the Regulatory Flexibility Act agencies must consider the 
impact of their rulemakings on ``small entities'' (small businesses, 
small organizations and local governments). When 5 U.S.C. 553 requires 
an agency to publish a notice of proposed rulemaking, the Act requires 
a regulatory flexibility analysis for both the proposed rule and the 
final rule if the rulemaking could ``have a significant economic impact 
on a substantial number of small entities.'' The Act also provides that 
if a regulatory flexibility analysis is not required, the agency must 
certify in the rulemaking document that the rulemaking will not ``have 
a significant economic impact on a substantial number of small 
entities.''
    This final rule revises the NFIP regulations to adjust the expense 
allowance under the Financial Assistance/Subsidy Arrangement between 
the Federal Insurance Administrator and the private sector insurers 
that sell and service flood insurance. Therefore, I certify that a 
regulatory flexibility analysis is not required for this rule because 
it will not have a significant economic impact on a substantial number 
of small entities.

Executive Order 13132, Federalism

    Executive Order 13132 sets forth principles and criteria that 
agencies must adhere to in formulating and implementing policies that 
have federalism implications, that is, regulations that have 
substantial direct effects on the States, or on the distribution of 
power and responsibilities among the various levels of government. 
Federal agencies must closely examine the statutory authority 
supporting any action that would limit the policymaking discretion of 
the States, and to the extent practicable, must consult with State and 
local officials before implementing any such action.
    We have reviewed this final rule under E.O.13132 and have 
determined that the rule does not have federalism implications as 
defined by the Executive Order. The rule adjusts the expense allowance 
under the Financial Assistance/Subsidy Arrangement between the Federal 
Insurance Administrator and the private sector insurers that sell and 
service flood insurance. The rule in no way that we foresee affects the 
distribution of power and responsibilities among the various levels of 
government or limits the policymaking discretion of the States.

List of Subjects in 44 CFR Part 62

    Flood insurance.

    Accordingly, we 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. Revise the Effective Date and Article III. B of Appendix A to 
part 62 to read as follows:

Appendix A to Part 62--Federal Emergency Management Agency, Federal 
Insurance Administration, Financial Assistance/Subsidy Arrangement

* * * * *
    Effective Date: October 1, 2001.
* * * * *

ARTICLE III--LOSS COSTS, EXPENSES, EXPENSE REIMBURSEMENT, AND PREMIUM 
REFUNDS

* * * * *
    B. The Company may withhold as operating and administrative 
expenses, other than agents' or brokers' commissions, an amount from 
the Company's written premium on the policies covered by this 
Arrangement in reimbursement of all of the Company's marketing, 
operating, and administrative expenses, except for allocated and 
unallocated loss adjustment expenses described in C. of this 
article. This amount will equal the sum of the average of industry 
expense ratios for ``Other Acq.'', ``Gen. Exp.'', and ``Taxes'' 
calculated by aggregating premiums and expense amounts for each of 
five property coverages using direct premium and expense information 
to derive weighted average expense ratios. For this purpose, we (the 
Federal Insurance Administration) will use data for the property/
casualty industry published, as of March 15 of the prior Arrangement 
year, in Part III of the Insurance Expense Exhibit in A.M. Best 
Company's Aggregates and Averages for the following five property 
coverages: Fire, Allied Lines, Farmowners Multiple Peril, Homeowners 
Multiple Peril, and Commercial Multiple Peril (non-liability 
portion). In addition, this amount will be increased by one 
percentage point to reimburse expenses beyond regular property/
casualty expenses.
    The Company may retain fifteen percent (15%) of the Company's 
written premium on the policies covered by this Arrangement as the 
commission allowance to meet commissions or salaries of their 
insurance agents, brokers, or other entities producing qualified 
flood insurance applications and other related expenses.
    The amount of expense allowance retained by the Company may 
increase a maximum of two percentage points, depending on the extent 
to which the Company meets the marketing goals for the Arrangement 
year contained in marketing guidelines established pursuant to 
Article II.G. We will pay the company the amount of any increase 
after the end of the Arrangement year.
    The Company, with the consent of the Administrator as to terms 
and costs, may use the services of a national rating organization, 
licensed under state law, to help us undertake and carry out such 
studies and investigations on a community or individual risk basis, 
and to determine equitable and accurate estimates of flood insurance 
risk premium rates as authorized under the National Flood Insurance 
Act of 1968, as amended. We will reimburse the Company for the 
charges or fees for such services under the provisions of the WYO 
Accounting Procedures Manual.
* * * * *

(Catalog of Federal Domestic Assistance No. 83.100, ``Flood 
Insurance'')

    Dated: July 27, 2001.
Robert F. Shea,
Acting Administrator, Federal Insurance and Mitigation Administration.
[FR Doc. 01-19406 Filed 8-3-01; 8:45 am]
BILLING CODE 6718-03-P