[Federal Register Volume 67, Number 39 (Wednesday, February 27, 2002)]
[Rules and Regulations]
[Pages 8902-8905]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-4389]


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

FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 61

RIN 3067-AD27


National Flood Insurance Program (NFIP); Increased Rates for 
Flood Coverage

AGENCY: Federal Emergency Management Agency (FEMA).

ACTION: Final rule.

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

[[Page 8903]]

SUMMARY: We (the Federal Insurance and Mitigation Administration of 
FEMA) are increasing the amount of premium policyholders pay for flood 
insurance coverage under the NFIP for ``pre-FIRM'' buildings in coastal 
areas subject to high velocity waters, such as storm surges and wind-
driven waves (i.e., ``V'' zones). (The term ``pre-FIRM buildings'' 
means buildings whose construction began on or before December 31, 
1974, or the effective date of the community's Flood Insurance Rate Map 
(FIRM), whichever date is later. Pre-FIRM buildings and their contents 
are eligible for subsidized rates under the NFIP.) This rate increase 
brings the premiums we charge for pre-FIRM, V-zone properties more in 
line with their actual risk.

EFFECTIVE DATE: May 1, 2002.

FOR FURTHER INFORMATION CONTACT: Thomas Hayes, Federal Emergency 
Management Agency, Federal Insurance and Mitigation Administration, 500 
C Street SW., Washington, DC 20472, 202-646-3419, (facsimile) 202-646-
7970, (email) [email protected].

SUPPLEMENTARY INFORMATION:

Summary of Comments

    On December 3, 2001, we published at 66 FR 60176 a proposed rule to 
increase the rates we charge under the NFIP for flood insurance 
coverage for pre-FIRM properties located in V-zone areas.
    During the comment period, we received four sets of comments. Two 
writers supported the proposal; two opposed it.
    The two supporting the proposal represent insurance companies 
participating in the NFIP's Write Your Own program. The two opposing 
the rate changes are a State Coordinator for the NFIP and the Insurance 
Committee of the Association of State Floodplain Managers, a national 
association promoting sound floodplain management and flood hazard 
mitigation as well as flood preparedness, warning and recovery.

Lower Rates in Non-SFHAs

    One of the insurance companies supporting the proposed rate 
increase suggested that there should also be a decrease in rates for 
``very low risk exposures in non-SFHA zones.'' (``SFHA'' zones are 
``special flood hazard areas'' shown on FEMA's flood maps.)
    We are already doing this. The NFIP currently offers lower rates 
for flood coverage under the Preferred Risk Policy (PRP), available 
only to properties in Zones B, C, and X. (These zones are areas of 
moderate or minimal flood hazards from the primary water source.) One 
may buy a PRP totaling $30,000 worth of building coverage and $8,000 
worth of contents coverage for a building without a basement or 
enclosure for $131--well below the premium for comparable coverage in 
an A-zone area or a V-zone area. The lower premium we charge for PRPs 
is consistent with the commenter's recommendation.

Opposition to the Rate Increase

    The two opponents of the rate change raised questions about the 
need for a comprehensive approach to reduce flood losses, the amount of 
the rate increase, the accuracy of the maps used for ratemaking, and 
erosion mapping. We will address their issues under the headings below.

Need for a Comprehensive Approach

    The Insurance Committee of the Association of State Floodplain 
Managers (ASFPM) contended ``that any rate increase must be part of an 
overall effort to evaluate all measures to reduce flood losses, and 
such measures must not be based solely on increasing income by 
increasing the cost of flood insurance, but need to focus on mitigation 
measures to reduce claims against the NFIP.''
    We agree with this recommendation. This rate increase is part of a 
comprehensive approach we are currently pursuing to reduce the subsidy 
for the NFIP. We have also developed strategies for addressing the 
costliest drain on the NFIP--repetitive loss properties insured under 
the NFIP. Ten thousand of those properties currently insured under the 
NFIP have had four or more flood losses, or two or three losses that 
cumulatively exceed the value of the building. Within the scope of our 
budget authority for fiscal year 2002, we will target the riskiest 
flood-prone properties, especially the repetitive flood loss 
structures, for mitigation activities, such as relocation, elevation, 
floodproofing, and other mitigation measures through mitigation grants 
with the States.
    This rate increase is only one incremental step in a much larger 
campaign to reduce the exposure of property to flood damages, insure 
more of the Nation's property owners against flood loss, and mitigate 
future flood losses so that we can continue to operate the NFIP on a 
financially sound basis.
    Taking this step--a modest rate increase for the first layer of 
coverage for pre-FIRM, V-zone properties--is not at odds with nor does 
it prevent us from proceeding in other areas such as mitigating 
repetitive flood loss properties, reducing the subsidy for the NFIP, 
and promoting the sale of flood insurance. We will also continue to use 
every opportunity, such as this modest rate increase, to reduce the 
NFIP's subsidy and mitigate future flood damage.

Amount of Rate Increase

    The Insurance Committee of the ASFPM, which opposes the rate 
increase, also said that the rate increases ``range from 10% to 11.5% 
in rates for pre-FIRM Velocity Zone structures.'' This is inaccurate. 
As we said in the proposed rule, ``these proposed increases apply only 
to the rates for the ``first layer'' of flood insurance coverage.'' It 
is estimated that the average total premium for all pre-FIRM, V-zone 
policyholders will increase to $936, an increase of 6.3% over their 
current average premium.
    This rate increase, therefore, falls within the statutory limit for 
rate increases imposed by Section 572 of the National Flood Insurance 
Reform Act of 1994, Pub. L. 103-325, 42 U.S.C. 4015. The corresponding 
rate increases for other classes of property affected by this rule also 
fall under this statutory limit.

Exposure to Loss for V-Zone Properties

    One opponent of the rate increase argued that we should not 
increase rates for pre-FIRM, V-zone properties since pre-FIRM, V-zone 
policyholders in the State of Alaska are already paying ``far beyond 
what the already high premiums have paid out in claims.'' This opponent 
also pointed out that a review of the total claims paid for pre-FIRM, 
V-zone properties in Alaska ``does not support the FEMA assertion that 
pre-FIRM, V-zone properties are `a particularly risky class of 
properties.' ''
    The H. John Heinz III Center for Science, Economics and the 
Environment, which conducted for FEMA a Congressionally-mandated study 
evaluating erosion hazards, disagrees with this position. The Heinz 
Center's report characterizes the ``V zone'' as the ``most hazardous 
coastal flood risk zone.'' (See page 39 of Evaluation of Erosion 
Hazards, April 2000). The report, which can be found on FEMA's web site 
at: http://www.fema.gov/library/erosion.pdf, also points out that 
current insurance rates under the NFIP ``do not reflect the magnitude 
of the erosion risk faced by any individual policyholder.'' Since V-
zone areas--the areas affected by this rule--contain areas subject to 
erosion, this rate increase will help close the gap somewhat for this 
rate insufficiency

[[Page 8904]]

under the existing mapping authority FEMA has.
    We would also point out that there are 4.3 million policies 
currently in force under the NFIP nationwide; 2,260 flood insurance 
polices are currently in force in Alaska. Of Alaska's 2,260 flood 
insurance policies, only eleven (11) are written on properties located 
in V-zone areas. Those eleven policies for V-zone properties in Alaska 
do not represent a credible group on which to make ratemaking decisions 
for pre-FIRM, V-zone properties across the entire country. We need a 
much larger population of risks to make ratemaking decisions--decisions 
that will affect similar classes of risks for a national program. We 
estimate that the proposed rates for first layer V-zone coverage are 
less than 20% of the full-risk actuarial rate for that layer. We have 
based this rate increase on the loss experience and loss expectations 
for all-pre-FIRM, V-zone properties under the NFIP.
    Also, we would argue that the limited losses experienced by V-zone 
properties in Alaska does not result from their lower exposure to loss 
but rather from the low number of flood insurance policies (eleven) 
written on properties in Alaska's V-zone areas and the resulting 
extended time periods needed for the true exposure to emerge.

The Issue of Erosion

    The commenter says, ``A much riskier class of properties appears to 
be structures subject to the threat of coastal erosion where a large 
percentage--at least in Alaska--are paying Preferred Risk Premium Rates 
but probably are subject to catastrophic loss or substantial damage and 
not located within a mapped flood zone.''
    The Heinz Center study for FEMA concluded that the risk to 
properties in coastal areas is increasing, that the premium rates for 
flood insurance in coastal areas will in the future be too low, and 
that Congress should give FEMA the funds and mandate to map areas 
subject to coastal erosion--about \1/3\ of the properties along the 
coast. Lacking the authority at present to isolate properties in V-zone 
areas that are subject to erosion risks, this modest rate increase for 
V-zone properties is a step toward bringing premiums in line with a 
risk that the Heinz Center study demonstrates is worsening.

Comparison of May 1, 2002 Rate Increases With Current Rates

    The following chart compares the current rates we charge for pre-
FIRM, V-zone properties with the rate increases for pre-FIRM, V-zone 
properties to go into effect May 1, 2002. The rates for pre-FIRM, A-
zone properties are unaffected by this change. Also these increases 
apply only to the rates charged for the ``first layer'' of flood 
insurance coverage set by Congress in Section 1306 of the National 
Flood Insurance Act of 1968, as amended (Pub.L. 90-448):

----------------------------------------------------------------------------------------------------------------
                                                                Current V zone1 rates     To take effect May 1,
                                                                  per year per $100      2002: V zone rates per
                                                                    coverage on:         year per $100 coverage
                      Type of structure                      --------------------------            on:
                                                                                       -------------------------
                                                               Structure     Contents    Structure     Contents
----------------------------------------------------------------------------------------------------------------
1. Residential:
    No Basement or Enclosure................................          .82          .95          .91         1.06
    With Basement or Enclosure..............................          .88          .95          .98         1.06
2. All other including hotels and motels with normal
 occupancy of less than 6 months duration:
    No basement or Enclosure................................          .95         1.90         1.06         2.10
    With basement or Enclosure..............................         1.01         1.90         1.12        2.10
----------------------------------------------------------------------------------------------------------------
1 V zones are zones V1-V30, VE, and unnumbered V zones.

Adequacy of FEMA's V-zone Maps

    The opponents of the rate increase also argued that V-zone maps 
need to be updated, and that, until such updating is made and 
inaccuracies corrected, the rate increase is inappropriate. We 
recognize that flood maps need to be updated periodically--especially 
those containing erosion-prone areas where the flood hazard is 
increasing. That is why we are committed to a multi-million dollar map 
modernization effort for this fiscal year and beyond; however, to delay 
needed rate adjustments for a national program on the basis of specific 
disputed maps or studies would be an overreaction. There are procedures 
in place for restudying and remapping flood-prone areas; we also have 
regulatory procedures in place for appealing flood elevations derived 
from our studies and for correcting or amending published maps by 
letter. We will refer the expressions of concern about our V-zone maps 
in general, as well as the specific examples of Alaska's V-zone maps, 
for consideration and appropriate action within the Federal Insurance 
and Mitigation Administration.

Request for an Extension of the Comment Period

    The two opponents of the rule also pointed out that the 30-day 
comment period fell within the holiday season, and they asked us to 
consider an extension beyond January 2, 2002. We contacted the 
Association of State Floodplain Managers to let them know that, while 
we will not extend the comment period, we would wait until January 14, 
2002--an additional two weeks--to assure them that we would consider 
any comments that may have been in transit at the close of the comment 
period. We also pointed out that the proposed rule also offered the 
public the options to submit comments by email and facsimile. The FEMA 
Rules Docket Clerk reported that no additional comments were received 
between January 2, 2002--the official end of the comment period--and 
January 14, 2002, the last day we would accept any outstanding comments 
or comments that may have been in the mail at the end of the comment 
period. In line with the Association's suggestion during that telephone 
conversation, we will do our best to ensure that any future proposed 
rate increase will be published well before the holiday season to avoid 
any potential inconvenience to the public or interested stakeholders.

National Environmental Policy Act of 1969

    Under section 102(2) (C) of the National Environmental Policy Act 
(NEPA) of 1969, 42 U.S.C. 4317 et seq., the implementing regulations of 
the Council on Environmental Quality, 40 CFR parts 1500-1508, and 
FEMA's regulations on Environmental Considerations, 44 CFR part 10, we

[[Page 8905]]

conducted an environmental assessment of this rule. The assessment 
concludes that there will be no significant impact on the human 
environment as a result of the issuance of this final rule, and no 
Environmental Impact Statement will be prepared. Copies of the 
environmental assessment and Finding of No Significant Impact are on 
file 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

    We have prepared and reviewed this 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 rule is 
neither an economically significant nor a significant regulatory action 
under the Executive Order. The rule would result in a modest increase 
in premiums for V-zone, pre-FIRM buildings and their contents. The 
adjustment in premiums rates will increase by slightly less than $3 
million the amount of premium collected and deposited in the National 
Flood Insurance Fund each year. It will 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 will create no serious inconsistency or otherwise 
interfere with an action taken or planned by another agency. It will 
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 rule 
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.

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 rule under E.O.13132 and have determined that 
the rule does not have federalism implications as defined by the 
Executive Order. The rule would adjust the premiums for pre-FIRM 
buildings in V-zone areas. 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 61

    Flood insurance.


    Accordingly, we amend 44 CFR Part 61 as follows:

PART 61--INSURANCE COVERAGE AND RATES

    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 Sec. 61.9(a) to read as follows:


Sec. 61.9  Establishment of chargeable rates.

    (a) Under section 1308 of the Act, we are establishing annual 
chargeable rates for each $100 of flood insurance coverage as follows 
for pre-FIRM, A zone properties, pre-FIRM, V-zone properties, and 
emergency program properties.

----------------------------------------------------------------------------------------------------------------
                                                                A zone rates \1\ per      V zone rates \2\ per
                                                               year per $100 coverage    year per $100 coverage
                      Type of structure                      -----------on------------------------on------------
                                                               Structure     Contents    Structure     Contents
----------------------------------------------------------------------------------------------------------------
1. Residential:
    No Basement or Enclosure................................          .68          .79          .91         1.06
    With Basement or Enclosure..............................          .73          .79          .98         1.06
2. All other including hotels and motels with normal
 occupancy of less than 6 months duration:
    No Basement or Enclosure................................          .79         1.58         1.06         2.10
    With Basement or Enclosure..............................          .84         1.58         1.12        2.10
----------------------------------------------------------------------------------------------------------------
\1\ A zones are zones A1-A30, AE, AO, AH, and unnumbered A zones.
\2\ V zones are zones V1-V30, VE, and unnumbered V zones.


[[Page 8906]]

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

    Dated: January 31, 2002.
Robert F. Shea,
Acting Administrator, Federal Insurance and Mitigation Administration.
[FR Doc. 02-4389 Filed 2-26-02; 8:45 am]
BILLING CODE 6718-03-P