Federal Register, Volume 81 Issue 99 (Monday, May 23, 2016)

[Federal Register Volume 81, Number 99 (Monday, May 23, 2016)]
[Proposed Rules]
[Pages 32261-32268]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-11701]

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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

44 CFR Part 62

[Docket ID: FEMA-2016-0012]
RIN 1660-AA86

National Flood Insurance Program (NFIP): Financial Assistance/
Subsidy Arrangement

AGENCY: Federal Emergency Management Agency, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Emergency Management Agency (FEMA) is proposing to
remove the copy of the Financial Assistance/Subsidy Arrangement and the
summary of the Financial Control Plan from the appendices of its
National Flood Insurance Program regulations, as it is no longer
necessary or appropriate to retain a contract, agreement, or any other
arrangement between FEMA and private insurance companies in the Code of
Federal Regulations.

DATES: Comments are due on or before July 22, 2016.

ADDRESSES: You may submit comments, identified by Docket ID: FEMA-2016-
0012, by one of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov. Follow the
instructions for submitting comments.
Mail/Hand Delivery/Courier: Regulatory Affairs Division, Office of
Chief Counsel, Federal Emergency Management Agency, Room 8NE, 500 C
Street SW., Washington, DC 20472-3100.
To avoid duplication, please use only one of these methods. All
comments received will be posted without change to http://www.regulations.gov, including any personal information provided. For
instructions on submitting comments, see the Public Participation
portion of the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Claudia Murphy, Director, Policyholder
Services Division, Federal Insurance and Mitigation Administration,
Federal Emergency Management Agency, 400 C Street SW., Washington, DC
20472, (202) 646-2775.

SUPPLEMENTARY INFORMATION:

I. Public Participation

We encourage you to participate in this rulemaking by submitting
comments and related materials. We will consider all comments and
material received during the comment period.
If you submit a comment, identify the agency name and the docket ID
for this rulemaking, indicate the specific section of this document to
which each comment applies, and give the reason for each comment. You
may submit your comments and material by electronic means, mail, or
delivery to the address under the ADDRESSES section. Please submit your
comments and material by only one means.
Regardless of the method used for submitting comments or material,
all submissions will be posted, without change, to the Federal e-
Rulemaking Portal at http://www.regulations.gov, and will include any
personal information you provide. Therefore, submitting this
information makes it public. You may wish to read the Privacy Act
notice that is available via a link on the homepage of http://www.regulations.gov.
Viewing comments and documents: For access to the docket to read
background documents or comments received, go to the Federal e-
Rulemaking Portal at http://www.regulations.gov. Background documents
and submitted comments may also be inspected at FEMA, Office of Chief
Counsel, Room 8NE, 500 C Street SW., Washington, DC 20472-3100.

II. Background

The National Flood Insurance Act of 1968 (NFIA), as amended (42
U.S.C. 4001 et seq.), authorizes the Administrator of the Federal
Emergency Management Agency (FEMA) to establish and carry out a
National Flood Insurance Program (NFIP) to enable interested persons to
purchase insurance against loss resulting from physical damage to or
loss of real or personal property arising from flood in the United
States. See 42 U.S.C. 4011(a). The NFIA states the NFIP is intended to
be ``a program of flood insurance with large-scale participation of the
Federal Government and carried out to the maximum extent practicable by
the private insurance industry.'' See 42 U.S.C. 4001(b). Under the
NFIA, FEMA has the authority to carry out the NFIP through the
facilities of the Federal government, utilizing, for the purposes of
providing flood insurance coverage, insurance companies and other
insurers, insurance agents and brokers, and insurance adjustment
organizations, as fiscal agents of the United States. See 42 U.S.C.
4071.
Pursuant to this authority, FEMA works closely with the insurance
industry to facilitate the sale and servicing of flood insurance
policies. An NFIP flood insurance policy, also known as the Standard
Flood Insurance Policy (SFIP), can be purchased: (1) Directly from the
Federal government through a direct servicing agent, or (2) from a
participating Write Your Own (WYO) insurance company through the WYO
Program. The SFIPs set out the terms and conditions of insurance. See
44 CFR part 61, Appendix A. FEMA establishes terms, rate structures,
and premium costs of SFIPs. The terms, coverage limits, and flood
insurance premiums are the same whether purchased from the NFIP Direct
or the WYO Program.
FEMA established the WYO Program in 1983 to increase the NFIP
policy count and geographic distribution of policies by taking
advantage of the private insurance industry's marketing channels and
existing policy base to sell flood insurance. See 48 FR 46789 (Oct. 14,
1983) (establishing the WYO Program). Seventy-nine private property or
casualty insurance companies participate in this program today.\1\
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\1\ Federal Emergency Management Agency, Write Your Own Flood
Insurance Company List, http://www.fema.gov/wyo_company (last
accessed April 8, 2016).

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[[Page 32262]]

The NFIA authorizes FEMA to ``enter into any contracts, agreements,
or other arrangements'' with private insurance companies to utilize
their facilities and services in administering the NFIP, and on such
terms and conditions as may be agreed upon. See 42 U.S.C. 4081(a).
Pursuant to this authority, FEMA enters into a standard Financial
Assistance/Subsidy Arrangement (Arrangement) with private sector
property insurers, also known as the WYO Companies, to sell NFIP flood
insurance policies under their own names and adjust and pay claims
arising under the SFIP. Each Arrangement entered into by a WYO Company
must be in the form and substance of the standard Arrangement, a copy
of which is in 44 CFR part 62, Appendix A. See 44 CFR 62.23(a). The
standard Arrangement specifies the terms and conditions of utilizing
the WYO Companies' facilities and services to carry out the NFIP. Each
year, FEMA publishes in the Federal Register \2\ and makes available to
the WYO Companies the terms for subscription or re-subscription to the
Arrangement. See Financial Assistance/Subsidy Arrangement, Article
V(B). Under the Arrangement, participating WYO companies offer flood
insurance coverage under the NFIP to eligible applicants, and write and
service the SFIP in their own names. WYO Companies are responsible for
all aspects of servicing of the policies, including policy issuance to
new policyholders, endorsement, underwriting, renewal of policies, and
cancellation of policies. WYO Companies are also responsible for
compliance with community eligibility/rating criteria, making
policyholder eligibility determinations, correspondence, and the
payment of agents' commissions. The WYO Companies also investigate,
adjust, settle, and defend all claims or losses arising from policies
issued under the Arrangement. In addition, under the Arrangement, WYO
Companies market flood insurance policies in a manner consistent with
marketing guidelines established by FEMA. The WYO Companies are
required to meet the requirements of a Financial Control Plan (see
below for explanation of the Financial Control Plan), and submit to
FEMA monthly Financial Reporting and Statistical Transaction reports.
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\2\ See, e.g., 80 FR 46313 (Aug. 4, 2015).
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In accordance with the Arrangement, WYO Companies retain a specific
amount of policyholder premium for their operating and administrative
expenses, for a commission allowance to meet commission or salaries of
insurance agents, brokers, or other entities producing qualified flood
insurance applications, and other related expenses. FEMA also
reimburses WYO Companies for certain unallocated, allocated, and
special allocated loss adjustment expenses as provided for in the
Arrangement.
The Arrangement includes an arbitration provision applicable if any
misunderstanding or dispute arises between FEMA and a WYO Company with
reference to any factual issue under any provision of the Arrangement
or with respect to FEMA's non-renewal of the Company's participation.
The Arrangement also includes provisions related to information and
annual statements, access to books and records, cash management and
accounting, offset, errors and omissions, terms for the commencement
and termination of the Arrangement, and other miscellaneous provisions.
Since the primary relationship between the Federal government and
the WYO Companies is one of a fiduciary nature (that is, to ensure that
any taxpayer funds are appropriately expended), FEMA established ``A
Plan to Maintain Financial Control for Business Written Under the Write
Your Own Program,'' also known as the ``Financial Control Plan.'' See
42 U.S.C. 4071; 44 CFR 62.23(f), Part 62, App. B. To ensure financial
and statistical control over the NFIP, as part of the Arrangement WYO
companies agree to adhere to the standards and requirements in the
Financial Control Plan. The Financial Control Plan includes standards
and requirements for financial, underwriting, and other audits of
participating WYO companies. Reconciliation procedures for the
Transaction Record Reporting and Processing (TRRP) Plan are also
outlined in the Financial Control Plan, in addition to other financial
controls, such as the Claims Reinspection Program, report
certifications and signature authorizations, and operation review
procedures.
In 1985, FEMA added a copy of the Financial Control Plan to the
NFIP regulations at 44 CFR part 62, Appendix B. However, in 1999, FEMA
removed the copy of the Financial Control Plan from the regulations and
replaced it with a summary, thus allowing the Federal 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. See 64 FR 56174
(Oct. 18, 1999).

III. Discussion of Proposed Rule

In this rule, FEMA proposes to remove the copy of the Arrangement
in 44 CFR part 62, Appendix A, and the summary of the Financial Control
Plan in 44 CFR part 62, Appendix B. In addition, FEMA proposes to make
conforming amendments to update citations to these appendices in
Section 62.23.

1. Financial Assistance/Subsidy Arrangement: 44 CFR Part 62, Appendix A

FEMA proposes to remove the copy of the Arrangement in 44 CFR part
62, Appendix A, because it is no longer necessary to include a copy of
the Arrangement in the Code of Federal Regulations (CFR), and the NFIA
does not require FEMA to include a copy of the Arrangement in the CFR.
See 42 U.S.C. 4081. In 1985, FEMA added a copy of the Arrangement to
the appendix of 44 CFR part 62 to inform the public of the procedural
details of the WYO program. See 50 FR 16236 (April 25, 1985). However,
since that time, there have been technological advances for
disseminating information to the public, and there are now more
efficient ways to inform the public of the procedural details of the
WYO program. For example, FEMA now posts a copy of the Arrangement on
its Web site.\3\ Moreover, after more than thirty years of operation,
the public is more familiar with the procedural details of the WYO
Program and the flood insurance provided through WYO Companies than it
was in 1985, after only two years of operation. Additionally, FEMA
proposes to remove the copy of the Arrangement in 44 CFR part 62,
Appendix A, because it is inappropriate to codify in regulation a
contract, agreement, or other arrangement between FEMA and private
insurance companies.
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\3\ FEMA, WYO Company Financial Assistance/Subsidy Arrangement,
http://www.fema.gov/media-library/assets/documents/17972?id=4054
(last accessed April 8, 2016).
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By removing the copy of the Arrangement from the appendix of Part
62, FEMA and its industry partners maintain the flexibility to
negotiate operational adjustments and corrections to the Arrangement
more quickly and efficiently. Because a copy of the Arrangement is
currently in the CFR, FEMA must undergo rulemaking to update the
Arrangement. Since 1985, when FEMA added a copy of the Arrangement to
the CFR, FEMA has undergone rulemaking approximately 21 times to make
corrections and updates to the Arrangement. Although

[[Page 32263]]

the rulemaking process plays an important role in agency policymaking,
when this process is not required or necessary, the requirement to
undergo rulemaking can unnecessarily slow down the operation of the
NFIP by FEMA and its industry partners and can result in the use of
alternate, less than ideal measures that result in business and
operational inefficiencies.
For example, under Article II(C) of the Arrangement, following a
catastrophic event, WYO companies agreed to adjust combined flood and
wind losses utilizing one adjuster under the NFIP-approved Single
Adjuster Program (SAP) using procedures issued by FEMA. This practice
proved functionally impractical. Rather than undergo rulemaking to
remove the SAP requirement from the Arrangement, since 2012 FEMA has
granted a limited waiver of this requirement, pursuant to FEMA's waiver
authority in Section 62.23(k) of FEMA's regulations. FEMA communicated
the exceptions to and under Section 62.23(k) through WYO Bulletins.\4\
This may cause confusion for NFIP stakeholders and the general public
because the copy of the Arrangement in the CFR does not reflect those
updates. Once FEMA removes the copy of the Arrangement from the CFR,
however, FEMA can make changes such as removal of the revisions to the
SAP requirement before the beginning of the next Arrangement period,
without engaging in rulemaking and without workarounds such as FEMA's
limited waiver authority. In addition, FEMA would be able to implement
updates and corrections more efficiently, and would have the
flexibility to negotiate longer Arrangement terms; currently, the
Arrangement is signed and in effect for a one-year period, but in the
future, FEMA could offer an Arrangement term for a two- or three-year
period. FEMA also recognizes that insurance industry practices and
technology evolve at a fast pace, providing efficiencies and customer-
centric innovations that can streamline and improve the financial
stability and customer focus of the NFIP. FEMA would be able to
implement changes to the NFIP to take advantage of innovations and
technology changes in an efficient and timely manner.
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\4\ See FEMA, Memorandum For: WYO Principal Coordinators and the
NFIP Direct Servicing Agent, Granting a Limited Waiver for Insurance
Companies Participating in the WYO Program of the SAP found in 44
CFR Pt. 62, App. A, Article II, Section C, Paragraphs 1-3--FEMA,
Federal Insurance Administration--Financial Assistance/Subsidy
Arrangement, W-12050 (Aug. 13, 2012); FEMA, Memorandum For: WYO
Principal Coordinators and the NFIP Direct Servicing Agent, Granting
an extension of the Limited Waiver for Insurance Companies
Participating in the WYO Program of the SAP found in 44 CFR Pt. 62,
App. A, Article II, Section C, Paragraphs 1-3--FEMA, Federal
Insurance Administration--Financial Assistance/Subsidy Arrangement
and Revised Wording, W-13040 (July 9, 2013); FEMA, Memorandum For:
WYO Principal Coordinators and the NFIP Direct Servicing Agent,
Extension of the Limited Waiver of the SAP, W-14051 (Sept. 10,
2014); FEMA, Memorandum For: WYO Company Principal Coordinators and
the NFIP Direct Servicing Agent, Extension of the Limited Waiver of
the SAP, W-15044 (Sept. 17, 2015).
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Once a copy of the Arrangement is removed from the CFR, FEMA will
continue to enter into the Arrangement with WYO Companies, and in
accordance with the terms of the current Arrangement, FEMA will
continue to notify private insurance companies and make available to
companies the terms for subscription or re-subscription of the
Arrangement through a notice in the Federal Register. See Financial
Assistance/Subsidy Arrangement, Article V(B). As is current practice,
all private insurance companies wishing to participate in the WYO
Program should request subscription or re-subscription in accordance
with the instructions in the Federal Register notice published before
each fiscal year. See 80 FR 46313 (Aug. 4, 2015). FEMA evaluates
requests from private insurance companies to participate using publicly
available information, industry performance data, and other criteria
outlined in FEMA's regulations and in the Arrangement. FEMA will also
continue to send a copy of the offer for the Arrangement each fiscal
year, together with related materials and submission instructions, to
all private insurance companies successfully evaluated by the NFIP.
Under the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-
12), FEMA is required to issue a rule to formulate revised expense
reimbursements to property and casualty insurance companies
participating in the WYO Program for their expenses servicing standard
flood insurance policies, including how such companies shall be
reimbursed in both catastrophic and non-catastrophic years. Sec.
100224, Public Law 112-141, 126 Stat. 936. FEMA is in the process of
developing this rulemaking and will issue a notice of proposed
rulemaking in the future.

2. A Plan To Maintain Financial Control for Business Written Under the
Write Your Own Program: 44 CFR Part 62, Appendix B

FEMA proposes to remove the summary of the Financial Control Plan
in 44 CFR part 62, Appendix B. As discussed, beginning in 1985, FEMA
included a copy of the Financial Control Plan in regulation at 44 CFR
part 62, Appendix B. In 1999 FEMA removed the copy of the Financial
Control Plan from FEMA's regulations and replaced it with a summary of
the Financial Control Plan. 64 FR 56174 (Oct. 18, 1999). FEMA proposes
to remove the summary of the Financial Control Plan in Appendix B
because this information is contained in either FEMA's Financial
Control Plan,\5\ or in 44 CFR Section 62.23, and thus reprint elsewhere
in the CFR is duplicative and unnecessary.
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\5\ See, National Flood Insurance Program, The Write Your Own
Program Financial Control Plan Requirements and Procedures (1999),
http://bsa.nfipstat.fema.gov/manuals/fcp99jc.pdf (last accessed
April 8, 2016).
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Paragraphs (a) and (b) of Appendix B contain a general overview of
the Arrangement and the Financial Control Plan. FEMA is removing this
information from Appendix B because this information is also contained
in the Arrangement, the Financial Control Plan, and FEMA's regulations
at Section 62.23, and is therefore duplicative and unnecessary.
Paragraph (c) of Appendix B describes the roles and responsibilities of
the Standards Committee. FEMA is removing this information from
Appendix B because this information describes internal procedural
details of the Standards Committee, which do not need to be in
regulation. In addition, paragraph (c) contains information related to
the Standards Committee that is already codified in FEMA's regulations
at Section 62.23 and in FEMA's Financial Control Plan. As a result,
FEMA proposes to remove this information from Appendix B because it is
duplicative and unnecessary. In paragraphs (d) and (e) of Appendix B,
there is the Financial Control Plan Table of Contents, and information
on where to obtain a copy of the Financial Control Plan. FEMA is
removing this information from Appendix B because a copy of the
Financial Control Plan is available on FEMA's Web site, and the NFIA
does not require this information to be in regulation.

3. Amendments to 44 CFR 62.23 To Remove Reference to Appendices A and B

FEMA proposes to make conforming amendments to the language in 44
CFR 62.23 where FEMA references Appendix A and Appendix B of 44 CFR
part 62, because those appendices will be removed. In paragraphs (a)
and (i)(1) of Section 62.23, FEMA proposes to remove reference to
Appendix A, because FEMA proposes to remove the copy of the Arrangement
in Appendix A. In addition, in paragraphs (f) and (l)(2) of Section
62.23, FEMA proposes

[[Page 32264]]

to remove reference to Appendix B, because FEMA proposes to remove the
summary of the Financial Control Plan in Appendix B.
Lastly, FEMA proposes to remove the example in Section 62.23(i)(1)
which references the SAP. As discussed above, FEMA has granted a
limited waiver of the SAP requirement, and this example is no longer
relevant. In addition, the example references Appendix A, which FEMA is
proposing to remove via this notice of proposed rulemaking.

IV. Regulatory Analysis

a. Executive Order 12866, as Amended, Regulatory Planning and Review;
Executive Order 13563, Improving Regulation and Regulatory Review

Executive Orders 13563 and 12866 direct agencies to assess the
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility. This rule has not been designated a ``significant
regulatory action'' under section 3(f) of Executive Order 12866.
Accordingly, the rule has not been reviewed by the Office of Management
and Budget.
FEMA is issuing a proposed rule that would remove Appendix A and B
from part 62 of 44 CFR. These Appendices contain a copy of the WYO
Financial Assistance/Subsidy Arrangement (Arrangement) and a summary of
the ``Plan to Maintain Financial Control for Business Written Under the
Write Your Own Program'' (Financial Control Plan), respectively. In
addition, FEMA proposes to make conforming amendments to update
citations to these appendices in Section 62.23.
Since 1983, FEMA has entered into a standard Arrangement with WYO
companies to sell NFIP insurance policies under their own names and
adjust and pay SFIP claims.\6\ Since 1985, a copy of the Arrangement
has been in FEMA regulations. FEMA has made frequent changes to the
Arrangement, and underwent rulemaking approximately 21 times to update
the copy of the Arrangement in the regulations. Its placement in the
CFR is not required by statute, and is redundant and unnecessary.
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\6\ As of April 2016, 79 private property or casualty insurance
companies participate in the Write Your Own program. Federal
Emergency Management Agency, Write Your Own Flood Insurance Company
List, http://www.fema.gov/wyo_company (last accessed April 8, 2016).
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FEMA proposes to remove the copy of the Arrangement in 44 CFR part
62, Appendix A, because the NFIA does not require FEMA to include a
copy of the Arrangement in the CFR, and therefore, it is no longer
necessary. In 1985, FEMA added a copy of the Arrangement to the
regulations to inform the public of the procedural details of the WYO
Program. However, since that time there have been technological
advances for disseminating information to the public, and there are now
more efficient ways to inform the public of the procedural details of
the WYO Program. For example, FEMA now posts a copy of the Arrangement
on its Web site. This serves the purpose of promoting awareness and
disseminating program information, without needing to go through the
rulemaking process. This rulemaking does not impose any changes to the
current Arrangement with WYO Companies; FEMA believes there would not
be any costs imposed on participating WYO companies as a result of this
proposed rule. FEMA would continue to enter into the Arrangement with
WYO companies, and make available the terms for subscription or re-
subscription through Federal Register notice. In addition, FEMA would
continue to place a copy of the Arrangement on its Web site to inform
the public of the procedural details of the WYO program, and engage in
negotiation with WYO companies on the terms of the Arrangement.
One of the benefits associated with this rule is enhanced
flexibility for FEMA and its industry partners to negotiate operational
adjustments to the Arrangement more quickly and efficiently in order to
be more responsive to the needs of industry partners and the operation
of the NFIP. Additionally there is less confusion generated from
inconsistences that result from current practice. Finally, the
elimination of the administrative burden that accompanies repeated
updates to the CFR and any posted departures from the CFR onto FEMA's
Web site regarding Program requirements are an additional benefit. FEMA
believes there would be no economic impact associated with implementing
the proposed rule.
Additionally, we are proposing to remove a summary of the Financial
Control Plan; the plan itself was removed in 1985. FEMA does not
anticipate any economic impacts from removing the summary.
Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.) and
Executive Order 13272 (67 FR 53461; August 16, 2002) require agency
review of proposed and final rules to assess their impact on small
entities. An agency must prepare an initial regulatory flexibility
analysis (IRFA) unless it determines and certifies that a rule, if
promulgated, would not have a significant economic impact on a
substantial number of small entities. FEMA does not believe this
proposed rule will have a significant economic impact on a substantial
number of small entities. However, FEMA is publishing this IRFA to aid
the public in commenting on the potential small business impacts of the
proposed requirements in this NPRM. FEMA invites all interested parties
to submit data and information regarding the potential economic impact
on small entities that would result from the adoption of this NPRM.
FEMA will consider all comments received in the public comment process
when making a final determination.
In accordance with the Regulatory Flexibility Act, an IFRA must
contain: (1) A description of the reasons why the action by the agency
is being considered; (2) A succinct statement of the objectives of, and
legal basis for, the proposed rule; (3) A description--and, where
feasible, an estimate of the number--of small entities to which the
proposed rule will apply; (4) A description of the projected reporting,
record keeping, and other compliance requirements of the proposed rule,
including an estimate of the classes of small entities that will be
subject to the requirements and the types of professional skills
necessary for preparation of the report or record; (5) An
identification, to the extent practicable, of all relevant Federal
rules that may duplicate, overlap, or conflict with the proposed rule;
and (6) A description of significant alternatives to the rule.
(1) A Description of the Reasons Why Action by the Agency Is Being
Considered
FEMA proposes to remove the copy of the Arrangement, because it is
no longer necessary to include a copy of the Arrangement in the CFR,
and the NFIA does not require FEMA to include a copy of the Arrangement
in the CFR. Moreover, by removing the copy of the Arrangement from the
CFR, FEMA and its industry partners would benefit from enhanced
flexibility to negotiate operational adjustments and corrections to the
Arrangement more quickly and

[[Page 32265]]

efficiently. FEMA proposes to remove the summary of the Financial
Control Plan in the CFR because this information is contained in either
FEMA's Financial Control Plan, or 44 CFR 62.23, and thus reprint
elsewhere in the CFR is duplicative and unnecessary. Finally, FEMA
proposes to make conforming amendments by removing the language in 44
CFR 62.23 where FEMA references Appendix A and Appendix B of 44 CFR
part 62, for administrative efficiency because those appendices would
be removed.
(2) A Succinct Statement of the Objectives of, and Legal Basis for, the
Proposed Rule
FEMA proposes to remove the copy of the Arrangement from the CFR,
because the NFIA does not require FEMA to include a copy of the
Arrangement in the CFR. FEMA proposes to remove the summary of the
Financial Control Plan in the CFR because this information is contained
in either FEMA's Financial Control Plan, or 44 CFR 62.23, and thus
reprinting elsewhere in the CFR is duplicative and unnecessary.
Finally, FEMA proposes to make conforming amendments to the language in
44 CFR 62.23 where FEMA references Appendix A and Appendix B of 44 CFR
part 62, because those appendices would be removed.
The NFIA authorizes FEMA to ``enter into any contracts, agreements,
or other arrangements'' with private insurance companies to utilize
their facilities and services in administering the NFIP, and on such
terms and conditions as may be agreed upon. See 42 U.S.C. 4081.
Pursuant to this authority, FEMA enters into a standard Financial
Assistance/Subsidy Arrangement (Arrangement) with private sector
property insurers, also known as the WYO companies, to sell NFIP flood
insurance policies under their own names and adjust and pay claims
arising under the policy. Since the primary relationship between the
Federal government and WYO Companies is one of a fiduciary nature, FEMA
established the Financial Control Plan. See 42 U.S.C. 4071; 44 CFR
62.23(f), Part 62, App. B. The NFIA does not require FEMA to include a
copy of the Arrangement or a summary of the Financial Control Plan in
the CFR. It is in reference to these specific authorities to administer
the NFIP, and the WYO program that is encompassed within it, that FEMA
is proposing to continue to streamline operations and remove
administrative hurdles to the effectiveness of these programs.
(3) A Description of and, Where Feasible, an Estimate of the Number of
Small Entities to Which the Proposed Rule Will Apply
``Small entity'' is defined in 5 U.S.C. 601. The term ``small
entity'' can have the same meaning as the terms ``small business'',
``small organization'' and ``small governmental jurisdiction.'' Section
601(3) defines a ``small business'' as having the same meaning as
``small business concern'' under Section 3 of the Small Business Act.
This includes any small business concern that is independently owned
and operated, and is not dominant in its field of operation. Section
601(4) defines a ``small organization'' as any not-for-profit
enterprises that are independently owned and operated, and are not
dominant in their field of operation. Section 601(5) defines small
governmental jurisdictions as governments of cities, counties, towns,
townships, villages, school districts, or special districts with a
population of less than 50,000. No small organization or governmental
jurisdiction are party to the WYO program and therefore would not be
affected.
The SBA stipulates in its size standards the largest an insurance
firm that is ``for profit'' may be and still be classified as a ``small
entity.'' \7\ The small business size standards for North American
Industry Classification System (NAICS) code 524126 (direct property and
casualty insurance carriers) is 1,500 employees. The size standard for
the four remaining applicable codes of 524210 (Insurance Agencies and
Brokerages), 524113 (Direct Life Insurance Carriers), 524292 (Third
Party Administration of Insurance and Pension Funds) and 524128 (Other
Direct Insurance) is $7.0 million in revenue as modified by the SBA,
effective February 26, 2016.
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\7\ U.S. Small Business Administration Table of Small Business
Size Standards Matched to North American Industry Classification
System Codes effective February 26, 2016. Available at https://www.sba.gov/content/small-business-size-standards.
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There are currently a total of 79 companies participating in the
WYO Program; these 79 companies are subject to the terms of the
Arrangement and the standards and requirements in the Financial Control
Plan. FEMA researched each WYO company to determine the NAICS code,
number of employees, and revenue for the individual companies. FEMA
used the open-access database, www.manta.com, as well as
www.cortera.com to find this information for the size determination.
This was used as a metric of company size, compliant with the SBA
thresholds based on the assigned NAICS code. Of the 79 WYO companies we
found a majority of 53 firms were under code 524210 (Insurance Agencies
and Brokerages), of which 20 firms or 38% were found to be small (with
only one lacking full data but presumed to be small). The second
largest contingent of 17 firms were under 524126 (direct property and
casualty insurance carriers), of which 11 firms or 65% were found to be
small (with only one missing data points but presumed to be small). Of
the other three aforementioned industry codes, 524113, 524292 and
524128, there was one firm under each and none were small. Finally, six
firms were specifically missing industry classifications, and FEMA
believes that all but one are likely to be small. In total we found
that a total of 36 of the 79 companies are below this maximum, and
therefore would be considered small entities. Consequently, small
entities comprise 46% of participating companies.
FEMA believes that the rule would impose no burdens on any
participating company because it is removing a redundant section of the
CFR and not substantively changing to the Arrangement or the Financial
Control Plan itself. Therefore, FEMA does not anticipate that there
would be a significant economic impact on a substantial number of small
entities as a result of this proposed rule.
(4) A Description of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements of the Proposed Rule, Including an Estimate of
the Classes of Small Entities Which Will Be Subject to the Requirement
and the Types of Professional Skills Necessary for Preparation of the
Report or Record
The proposed rule would not impose any compliance costs on WYO
companies. The WYO Arrangement in 44 CFR part 62, Appendix A is a copy
of the Arrangement that FEMA enters into separately with each WYO
Company. FEMA would continue to enter into the Arrangement with WYO
Companies, and in accordance with the terms of the current Arrangement,
FEMA would continue to notify private insurance companies and make
available to companies the terms for subscription or re-subscription of
the Arrangement through Federal Register Notice.
As the record of regulatory changes to the Arrangement shows,
required changes will be implemented regardless of the regulatory
process. Current channels of notification and negotiation would remain
unaffected by this rule;

[[Page 32266]]

the only thing that would change is the elimination of the
administrative burden that would accompany these changes.
As part of the Arrangement, WYO companies agree to adhere to the
standards and requirements in the Financial Control Plan. The Financial
Control Plan has been removed from the regulations since 1985. Removing
the summary would have no economic impact. FEMA does not believe this
proposed rule would have a significant economic impact on a substantial
number of small entities.
(5) An Identification, to the Extent Practicable, of All Relevant
Federal Rules Which May Duplicate, Overlap, or Conflict With the
Proposed Rule
There are no relevant Federal rules that may duplicate, overlap, or
conflict with the proposed rule.
(6) A Description of Any Significant Alternatives to the Proposed Rule
Which Accomplish the Stated Objectives of Applicable Statutes and Which
Minimize Any Significant Economic Impact of the Proposed Rule on Small
Entities
Given that this rule has no direct compliance costs, no less
burdensome alternatives to the proposed rule are available. In the
absence of this proposed rule, small entities would continue to
experience the negative repercussions of inconsistences between the
written Arrangement and updates that FEMA has communicated through
bulletins to provide exceptions to certain parts. Small entities would
also continue to experience burdens associated with alternate, less
than ideal measures that have been implemented in lieu of updates to
the Arrangement in the CFR.
FEMA invites all interested parties to submit data and information
regarding the potential economic impact that would result from adoption
of the proposals in this NPRM. FEMA will consider all comments received
in the public comment process.

b. Unfunded Mandates Reform Act of 1995

Pursuant to Section 201 of the Unfunded Mandates Reform Act of 1995
(Pub. L. 104-4, 2 U.S.C. 1531), each Federal agency ``shall, unless
otherwise prohibited by law, assess the effects of Federal regulatory
actions on State, local, and tribal governments, and the private sector
(other than to the extent that such regulations incorporate
requirements specifically set forth in law).'' Section 202 of the Act
(2 U.S.C. 1532) further requires that ``before promulgating any general
notice of proposed rulemaking that is likely to result in the
promulgation of any rule that includes any Federal mandate that may
result in expenditure by State, local, and tribal governments, in the
aggregate, or by the private sector, of $100 million or more (adjusted
annually for inflation) in any one year, and before promulgating any
final rule for which a general notice of proposed rulemaking was
published, the agency shall prepare a written statement'' detailing the
effect on State, local, and tribal governments and the private sector.
The proposed rule would not result in such an expenditure, and thus
preparation of such a statement is not required.

c. National Environmental Policy Act of 1969 (NEPA)

Under the National Environmental Policy Act of 1969 (NEPA), as
amended, 42 U.S.C. 4321 et seq. an agency must prepare an environmental
assessment and environmental impact statement for any rulemaking that
significantly affects the quality of the human environment. FEMA has
determined that this rulemaking does not significantly affect the
quality of the human environment and consequently has not prepared an
environmental assessment or environmental impact statement. Although
rulemaking is a major federal action subject to NEPA, the list of
exclusion categories at 44 CFR 10.8(d)(2)(ii) excludes the preparation,
revision, and adoption of regulations from the preparation of an EA or
EIS where the rule relates to actions that qualify for categorical
exclusions. Administrative actions are categorically excluded from
NEPA. 44 CFR 10.8(d)(2)(i). This is a rulemaking related to an
administrative function. An environmental assessment will not be
prepared because a categorical exclusion applies to this rulemaking and
no extraordinary circumstances exist.

d. Paperwork Reduction Act of 1995

Under the Paperwork Reduction Act of 1995 (PRA), as amended, 44
U.S.C. 3501-3520, an agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless the
agency obtains approval from the Office of Management and Budget (OMB)
for the collection and the collection displays a valid OMB control
number. See 44 U.S.C. 3506, 3507. This proposed rulemaking would call
for no new collections of information under the PRA. The removal of the
Arrangement from the regulation will not impact any existing
information collections in that it would not substantively change any
of the information collection requirements, because the information
collection requirements still exist in the regulations. The existing
information collections listed include citations to 44 CFR part 62
Appendices A and B. These citations will be updated in the next
information collection renewal cycle. The WYO Companies will still be
expected to comply with each of the information collection requirements
associated with the WYO Program.
The collections associated with this regulation are as follows: (1)
OMB Control Number 1660-0038, Write Your Own Company Participation
Criteria, 44 CFR 62 Appendix A, which establishes the criteria to
return to or participate in the WYO program; (2) OMB control number
1660-0086, the National Flood Insurance Program--Mortgage Portfolio
Protection Program (MPPP), 44 CFR part 62.23 (l)(2) and Appendix B,
which is a program lenders can use to bring their mortgage loan
portfolios into compliance with flood insurance purchase requirements;
and (3) OMB control number 1660-0020, WYO Program, 44 CFR 62.23 (f) and
Appendix B, the Federal Insurance and Mitigation Administration program
that requires each WYO Company to submit financial data on a monthly
basis into the National Flood Insurance Program's Transaction Record
Reporting and Processing Plan (TRRPP) system as referenced in 44 CFR
62.23(h)(4). Each of these collections are still required by Part 62
and will not be impacted by the removal of the Arrangement from the
regulation because the existing information collections cover
requirements in the regulations, not requirements in the Appendices.

e. Privacy Act/E-Government Act

Under the Privacy Act of 1974, 5 U.S.C. 552a, an agency must
determine whether implementation of a proposed regulation will result
in a system of records. A record is any item, collection, or grouping
of information about an individual that is maintained by an agency,
including, but not limited to, his/her education, financial
transactions, medical history, and criminal or employment history and
that contains his/her name, or the identifying number, symbol, or other
identifying particular assigned to the individual, such as a finger or
voice print or a photograph. See 5 U.S.C. 552a(a)(4). A system of
records is a group of records under the control of an agency from which
information is retrieved by the name of the individual or by some
identifying number, symbol, or other identifying particular assigned

[[Page 32267]]

to the individual. An agency cannot disclose any record which is
contained in a system of records except by following specific
procedures.
The E-Government Act of 2002, 44 U.S.C. 3501 note, also requires
specific procedures when an agency takes action to develop or procure
information technology that collects, maintains, or disseminates
information that is in an identifiable form. This Act also applies when
an agency initiates a new collection of information that will be
collected, maintained, or disseminated using information technology if
it includes any information in an identifiable form permitting the
physical or online contacting of a specific individual. A Privacy
Threshold Analysis was completed. This rule does not require a Privacy
Impact Analysis or System of Records Notice at this time.

f. Executive Order 13175, Consultation and Coordination With Indian
Tribal Governments

Executive Order 13175, Consultation and Coordination with Indian
Tribal Governments, 65 FR 67249, November 9, 2000, applies to agency
regulations that have Tribal implications, that is, regulations that
have substantial direct effects on one or more Indian Tribes, on the
relationship between the Federal Government and Indian Tribes, or on
the distribution of power and responsibilities between the Federal
Government and Indian Tribes. Under this Executive Order, to the extent
practicable and permitted by law, no agency shall promulgate any
regulation that has Tribal implications, that imposes substantial
direct compliance costs on Indian Tribal governments, and that is not
required by statute, unless funds necessary to pay the direct costs
incurred by the Indian Tribal government or the Tribe in complying with
the regulation are provided by the Federal Government, or the agency
consults with Tribal officials.
This proposed rule does not have Tribal implications. Currently,
Indian Tribal governments cannot participate in the WYO Program as WYO
companies, and thus are not affected by this proposed rule. To
participate in the WYO program, a company must be a licensed property
or casualty insurance company and meet the requirements in FEMA
regulations at 44 CFR 62.24.

g. Executive Order 13132, Federalism

Executive Order 13132, Federalism, 64 FR 43255, August 10, 1999,
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, on the relationship between the national government and
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.
FEMA has reviewed this proposed rule under Executive Order 13132
and has determined that this rule does not have substantial direct
effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government, and therefore
does not have federalism implications as defined by the Executive
Order. This rule does not have federalism implications, because
participation as a WYO Company is voluntary and does not affect State
policymaking discretion. Moreover, currently, States cannot participate
in the WYO Program as WYO companies, and thus are not affected by this
proposed rule. To participate in the WYO program, a company must be a
licensed property or casualty insurance company and meet the
requirements in FEMA regulations at 44 CFR 62.24. In accordance with
Section 6 of Executive Order 13132, FEMA determines that this rule will
not have federalism implications sufficient to warrant the preparation
of a federalism impact statement.

h. Executive Order 11988, Floodplain Management

Pursuant to Executive Order 11988, each agency is required to
provide leadership and take action to reduce the risk of flood loss, to
minimize the impact of floods on human safety, health and welfare, and
to restore and preserve the natural and beneficial values served by
floodplains in carrying out its responsibilities for (1) acquiring,
managing, and disposing of Federal lands and facilities; (2) providing
Federally undertaken, financed, or assisted construction and
improvements; and (3) conducting Federal activities and programs
affecting land use, including but not limited to water and related land
resources planning, regulating, and licensing activities. In carrying
out these responsibilities, each agency must evaluate the potential
effects of any actions it may take in a floodplain; to ensure that its
planning programs and budget requests reflect consideration of flood
hazards and floodplain management; and to prescribe procedures to
implement the policies and requirements of the Executive Order.
Before promulgating any regulation, an agency must determine
whether the proposed regulations will affect a floodplain(s), and if
so, the agency must consider alternatives to avoid adverse effects and
incompatible development in the floodplain(s). If the head of the
agency finds that the only practicable alternative consistent with the
law and with the policy set forth in Executive Order 11988 is to
promulgate a regulation that affects a floodplain(s), the agency must,
prior to promulgating the regulation, design or modify the regulation
in order to minimize potential harm to or within the floodplain,
consistent with the agency's floodplain management regulations and
prepare and circulate a notice containing an explanation of why the
action is proposed to be located in the floodplain. The changes
proposed in this rule would not have an effect on land use, floodplain
management, or wetlands.

i. Executive Order 11990, Protection of Wetlands

Pursuant to Executive Order 11990, each agency must provide
leadership and take action to minimize the destruction, loss or
degradation of wetlands, and to preserve and enhance the natural and
beneficial values of wetlands in carrying out the agency's
responsibilities for (1) acquiring, managing, and disposing of Federal
lands and facilities; and (2) providing Federally undertaken, financed,
or assisted construction and improvements; and (3) conducting Federal
activities and programs affecting land use, including but not limited
to water and related land resources planning, regulating, and licensing
activities. Each agency, to the extent permitted by law, must avoid
undertaking or providing assistance for new construction located in
wetlands unless the head of the agency finds (1) that there is no
practicable alternative to such construction, and (2) that the proposed
action includes all practicable measures to minimize harm to wetlands
which may result from such use. In making this finding the head of the
agency may take into account economic, environmental and other
pertinent factors.
In carrying out the activities described in the Executive Order,
each agency must consider factors relevant to a proposal's effect on
the survival and

[[Page 32268]]

quality of the wetlands. Among these factors are: Public health,
safety, and welfare, including water supply, quality, recharge and
discharge; pollution; flood and storm hazards; and sediment and
erosion; maintenance of natural systems, including conservation and
long term productivity of existing flora and fauna, species and habitat
diversity and stability, hydrologic utility, fish, wildlife, timber,
and food and fiber resources; and other uses of wetlands in the public
interest, including recreational, scientific, and cultural uses. The
changes proposed in this rule would not have an effect on land use,
floodplain management, or wetlands.

j. Executive Order 12898, Environmental Justice

Pursuant to Executive Order 12898, --Federal Actions to Address
Environmental Justice in Minority Populations and Low-Income
Populations, 59 FR 7629, February 16, 1994, as amended by Executive
Order 12948, 60 FR 6381, February 1, 1995, FEMA incorporates
environmental justice into its policies and programs. The Executive
Order requires each Federal agency to conduct its programs, policies,
and activities that substantially affect human health or the
environment in a manner that ensures that those programs, policies, and
activities do not have the effect of excluding persons from
participation in programs, denying persons the benefits of programs, or
subjecting persons to discrimination because of race, color, or
national origin.
This rulemaking will not have a disproportionately high or adverse
effect on human health or the environment. This rulemaking will not
have a disproportionately high or adverse effect on human health or the
environment. Therefore the requirements of Executive Order 12898 do not
apply to this rule.

k. Congressional Review of Agency Rulemaking

Under the Congressional Review of Agency Rulemaking Act (CRA), 5
U.S.C. 801-808, before a rule can take effect, the Federal agency
promulgating the rule must submit to Congress and to the Government
Accountability Office (GAO) a copy of the rule, a concise general
statement relating to the rule, including whether it is a major rule,
the proposed effective date of the rule, a copy of any cost-benefit
analysis, descriptions of the agency's actions under the Regulatory
Flexibility Act and the Unfunded Mandates Reform Act, and any other
information or statements required by relevant executive orders.
FEMA will send this rule to the Congress and to GAO pursuant to the
CRA if the rule is finalized. The rule is not a major rule within the
meaning of the CRA. It will not have an annual effect on the economy of
$100,000,000 or more, it will not result in a major increase in costs
or prices for consumers, individual industries, Federal, State, or
local government agencies, or geographic regions, and it will not have
significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.

List of Subjects in 44 CFR Part 62

Claims, Flood insurance, and Reporting and recordkeeping
requirements.

For the reasons discussed in the preamble, the Federal Emergency
Management Agency proposes to amend 44 CFR Chapter I as follows:

PART 62--SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS

0
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.

0
2. Amend Sec. 62.23 by:
0
a. Revising the last sentence of paragraph (a);
0
b. Revising the second sentence of paragraph (f);
0
c. Revising paragraph (i)(1); and
0
d. Revising the last sentence of paragraph (l)(2).

Sec. 62.23 [Amended]

(a), * * * Arrangements entered into by WYO Companies or other
insurers under this subpart must be in the form and substance of the
standard arrangement, titled ``Financial Assistance/Subsidy
Arrangement.''
* * * * *
(f) * * * In furtherance of this end, the Federal Insurance
Administrator has established ``A Plan to Maintain Financial Control
for Business Written Under the Write Your Own Program.'' * * *
* * * * *
(i) * * *
(1) WYO Companies will adjust claims in accordance with general
Company standards, guided by NFIP Claims manuals. The Arrangement
provides that claim adjustments shall be binding upon the FIA.
* * * * *
(l) * * *
(2) * * * Participating WYO Companies must also maintain evidence
of compliance with paragraph (l)(3) of this section for review during
the audits and reviews required by the WYO Financial Control Plan.
* * * * *

Appendix A [Removed]

0
3. Remove Appendix A to Part 62.

Appendix B [Removed]

0
4. Remove Appendix B to Part 62.

Dated: May 12, 2016.
W. Craig Fugate,
Administrator, Federal Emergency Management Agency.
[FR Doc. 2016-11701 Filed 5-20-16; 8:45 am]
BILLING CODE 9110-11-P