[Federal Register Volume 68, Number 22 (Monday, February 3, 2003)]
[Proposed Rules]
[Pages 5264-5266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-2453]


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FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 61

RIN 3067-AD34


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

AGENCY: Federal Emergency Management Agency (FEMA).

ACTION: Proposed Rule.

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SUMMARY: We (the Federal Insurance and Mitigation Administration of 
FEMA) propose to change the way premiums are calculated for 
policyholders who purchase flood insurance coverage under the NFIP for 
``Pre-FIRM'' buildings in Special Flood Hazard Areas (SFHAs). (The term 
``Pre-FIRM buildings'' means buildings whose construction began on or 
before December 31, 1974, or before the effective date of the 
community's Flood Insurance Rate Map (FIRM), whichever date is later. 
Most Pre-FIRM buildings and their contents are eligible for subsidized 
rates under the NFIP.)
    We are planning to increase flood insurance rates to be implemented 
in coordination with the elimination of the Expense Constant, a flat 
charge that the policyholder currently pays to defray certain expenses 
of the Federal Government related to flood insurance. As part of this 
planned increase in rates, we are proposing to increase Pre-FIRM 
subsidized rates. As a result of this change, the same amount of 
premium revenue will still be collected to cover those expenses 
currently generated by the Expense Constant; however, policyholders 
will pay for those expenses through premiums that vary by the amount of 
insurance that they purchase, instead of a flat charge per policy. The 
end result will be revenue neutral.

DATES: We invite comments on this proposed rule, which we should 
receive on or before March 5, 2003.

ADDRESSES: Please submit any written 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 (e-mail) [email protected].

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, or (e-mail) [email protected].

SUPPLEMENTARY INFORMATION: 

Background

    The Flood Disaster Protection Act of 1973 requires us to charge 
full-risk premiums for flood insurance coverage on buildings when their 
construction began after December 31, 1974, or on or after the 
effective date of the Flood Insurance Rate Map, if the second date is 
later. (We call such construction ``Post-FIRM'' construction.)
    The Flood Disaster Protection Act of 1973 also authorizes us to 
apply chargeable premiums to Pre-FIRM property and gives FEMA 
flexibility to set the flood insurance rates for such property. The 
legislation calls for us to balance the need to offer reasonable rates 
that encourage people to buy flood insurance with the statutory goal to 
distribute burdens fairly between all who will be protected by flood 
insurance and the general public.
    Through the years, FIMA has increased these rates five times with 
the latest being the final rule 67 FR 8902, published February 27, 
2002. Each of the prior changes has been implemented in order to 
distribute burdens fairly among all who will be protected by flood 
insurance and to reduce the burden on the general public.
    However, with this rule, the proposed rate increase will simply 
offset the revenue that the Program would otherwise forego through the 
elimination of the Expense Constant, as explained in the next section. 
This rule is revenue-neutral, whereas the previous rules resulted in 
premium increases for the class of Pre-FIRM SFHA policyholders.
    While this proposed change to offset the elimination of the Expense 
Constant will be premium-neutral for the class of Pre-FIRM SFHA 
policyholders, it will result in slightly different premiums for 
individual policyholders. For residential structures, the largest net 
premium increase for any policyholder will be $24, while policyholders 
that purchase either Contents-only (e.g., renters) or building-only 
coverage will see net premium decreases of at least $10. Non-
Residential policyholders will have slightly different results.
    Section 572 of the National Flood Insurance Reform Act of 1994, 
Pub. L. 103-325, 42 U.S.C. 4015, however, imposes the following annual 
limitation on rate increases under the NFIP:
    ``Notwithstanding any other provision of this title, the chargeable 
risk premium rates for flood insurance under this title for any 
properties within any single risk classification may not be increased 
by an amount that would result in the average of such rate increases 
for properties within the risk classification during any 12-month 
period exceeding 10 percent of the average of the risk premium rates 
for properties within the risk classification upon commencement of such 
12-month period.''
    This regulation complies with this statutory limitation on annual 
rate increase under the NFIP, since it will be revenue neutral.

Proposed Changes and Their Purposes

    We are proposing to increase the rates for Pre-FIRM SFHA policies 
to offset the revenue that the Program would otherwise forego through 
the elimination of the Expense Constant. The Expense Constant is a flat 
charge that the policyholder currently pays to defray certain expenses 
of the Federal Government related to flood insurance. This proposed 
change will be premium-neutral for the class of Pre-FIRM SFHA 
policyholders.
    FIMA believes that eliminating the Expense Constant will help us 
further the goals of the flood program, especially in regard to policy 
growth. Currently, policyholders see two flat charges on their flood 
insurance premium bills--$50 for the Expense Constant, and $30 for the 
Federal Policy Fee (a statutorily-mandated fee to cover certain 
administrative expenses of the National Flood Insurance Program that 
are not covered by the Expense Constant). Our marketing research has 
indicated that this is viewed very unfavorably by prospective insureds. 
They view it as having to pay $80 before they can even purchase any 
flood insurance coverage. By eliminating the expense constant, we can 
hopefully

[[Page 5265]]

overcome an objection at the point of sale, while still generating the 
same average revenue per policy. Although we are unable to quantify the 
expected impact of this proposal on future policy sales, we expect it 
to help the program generate a modest increase in policies in force.
    As an additional benefit, this will bring the NFIP in closer 
conformity with the insurance industry standard of practice for 
property insurance where expense constants are rarely used. This 
proposal will make the NFIP's premium calculation more like that for 
other property lines. As such, it should also make it more intuitive 
for insurance agents to process flood insurance.

Comparison of Proposed Rate Increases with Current Rates

    The following chart compares the current rates we charge for Pre-
FIRM SFHA properties with the proposed rate increases for Pre-FIRM, 
SFHA properties. Also these proposed 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 A zone \1\ rates      Proposed A zone \1\ rates per year per $100
                                        per year per $100                        coverage on--
                                          coverage on--      ---------------------------------------------------
                                   --------------------------               Structure
         Type of structure                                   ---------------------------------------
                                                                      RCBAP \2\                        Contents
                                     Structure     Contents  --------------------------  All other
                                                               High rise     Low rise
----------------------------------------------------------------------------------------------------------------
1. Residential:
    No Basement or Enclosure......          .68          .79          .85          .70          .76          .96
    With Basement or Enclosure....          .73          .79          .90          .75          .81          .96
2. All other including hotels and
 motels with normal occupancy of
 less than 6 months duration:
    No basement or Enclosure......          .79         1.58          N/A          N/A          .83         1.62
    With basement or Enclosure....          .84         1.58          N/A          N/A          .88        1.62
----------------------------------------------------------------------------------------------------------------
\1\ A zones are zones A1-A30, AE, AO, AH, and unnumbered A zones.
\2\ Residential Condominium Building Association Policies (RCBAP) are distinguished between High Rise (those
  structures that have 3 or more floors and 5 or more units) and Low Rise (those structures that have either
  less than 3 floors or less than 5 units).


----------------------------------------------------------------------------------------------------------------
                                    Current V zone \1\ rates      Proposed V zone \1\ rates per year per $100
                                        per year per $100                        coverage on--
                                          coverage on--      ---------------------------------------------------
                                   --------------------------               Structure
         Type of structure                                   ---------------------------------------
                                                                      RCBAP \2\                        Contents
                                     Structure     Contents  --------------------------  All other
                                                               High rise     Low rise
----------------------------------------------------------------------------------------------------------------
1. Residential:
    No Basement or Enclosure......          .91         1.06         1.08          .93          .99         1.23
    With Basement or Enclosure....          .98         1.06         1.15         1.00         1.06         1.23
2. All other including hotels and
 motels with normal occupancy of
 less than 6 months duration:
     No basement or Enclosure.....         1.06         2.10          N/A          N/A         1.10         2.14
    With basement or Enclosure....         1.12         2.10          N/A          N/A         1.16        2.14
----------------------------------------------------------------------------------------------------------------
\1\ V zones are zones V1-V30, VE, and unnumbered V zones.
\2\ Residential Condominium Building Association Policies (RCBAP) are distinguished between High Rise (those
  structures that have 3 or more floors and 5 or more units) and Low Rise (those structures that have either
  less than 3 floors or less than 5 units).

    Prior to this change, as shown in the Current A Zone and Current V 
Zone table, RCBAP policyholders were always charged the same building 
rates as everyone else. In order to accomplish the elimination of the 
Expense Constant in a revenue-neutral manner, it is now necessary to 
vary the rates as shown in the Proposed tables.

National Environmental Policy Act (NEPA)

    Pursuant to section 102(2) (C) of the National Environmental Policy 
Act (NEPA) of 1969, 42 U.S.C. 4317 et seq., we are conducting an 
environmental assessment of this proposed rule. The assessment will be 
available 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 proposed 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 proposed 
rule is

[[Page 5266]]

neither an economically significant nor a significant regulatory action 
under the Executive Order. The rule will be premium neutral for the 
National Flood Insurance Fund. The adjustment in premiums rates will be 
offset by the elimination of the Expense Constant. It would 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 would create no 
serious inconsistency or otherwise interfere with an action taken or 
planned by another agency. It would 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 proposed 
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 proposed 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 
buildings in Pre-FIRM Special Flood Hazard 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 propose to amend 44 CFR Part 61 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. 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.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Proposed A zone \1\ rates per year  per $100    Proposed V zone \2\ rates per year  per $100
                                                                           coverage on--                                   coverage on--
                                                         -----------------------------------------------------------------------------------------------
                                                                       Structure                                       Structure
                    Type of structure                    ------------------------------------            ------------------------------------
                                                                 RCBAP \3\                     Contents          RCBAP \3\                     Contents
                                                         ------------------------  All other             ------------------------  All other
                                                           High rise   Low rise                            High rise   Low Rise
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. Residential:
    No Basement or Enclosure............................         .85         .70         .76         .96        1.08         .93         .99        1.23
    With Basement or Enclosure..........................         .90         .75         .81         .96        1.15        1.00        1.06        1.23
2. All other including hotels and motels with normal
 occupancy of less than 6 months duration:
    No basement or Enclosure............................         N/A         N/A         .83        1.62         N/A         N/A        1.10        2.14
    With basement or Enclosure..........................         N/A         N/A         .88        1.62         N/A         N/A        1.16       2.14
--------------------------------------------------------------------------------------------------------------------------------------------------------
\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.
\3\ Residential Condominium Building Association Policies (RCBAP) are distinguished between High Rise (those structures that have 3 or more floors and 5
  or more units) and Low Rise (those structures that have either less than 3 floors or less than 5 units).

* * * * *

    Dated: January 23, 2003.
Anthony S. Lowe,
Administrator, Federal Insurance and Mitigation Administration.
[FR Doc. 03-2453 Filed 1-31-03; 8:45 am]
BILLING CODE 6718-03-P