Changes to the National Flood Insurance Program (NFIP)

Over the past 18 months, FEMA has been engaged in a wide-ranging effort to overhaul the National Flood Insurance Program.

FEMA’s NFIP Transformation focused on reform, litigation settlement and claims review.  FEMA is moving now to remove barriers to improve the overall customer experience delivery of the program.  Today, FEMA proposes to amend its regulations with a few administrative adjustments to the National Flood Insurance Program (NFIP) Write Your Own (WYO) Program to make the NFIP more agile and responsive to meet policyholder needs.

References

• NFIP Claims Appeals Process Improvement - Fact Sheet
• National Flood Insurance Program Reforms Timeline - 2015-2016
• NFIP Improvements to the Claims Appeals Process

National Flood Insurance Program Reforms Timeline 2015-2016

Notice of Proposed Rulemaking Comment Period

FEMA is publishing a Notice of Proposed Rulemaking, and FEMA proposes the following:

• Remove the copy of the Financial Assistance/Subsidy Arrangement (referred to as Arrangement) in 44 CFR Part 62, Appendix A;
• Remove the summary of the Financial Control Plan in 44 CFR Part 62, Appendix B; and
• Make conforming amendments to update citations which reference these appendices in Section 62.23.

FEMA is seeking written comment from all stakeholders on this Notice of Proposed Rulemaking during a 60-day comment period beginning on May 23, 2016, and ending on July 22, 2016.  Comments may be submitted through July 22, 2016 by one of the following methods:

Federal Register:  Search for the notice in Docket ID FEMA-2016-0012, or

Mail/Hand Delivery/Courier: 

Regulatory Affairs Division
Office of Chief Counsel
Federal Emergency Management Agency
8NE, 500 C Street, SW,
Washington, DC  20472-3100

Overview

A.  National Flood Insurance Program (NFIP)

The National Flood Insurance Act of 1968 (NFIA) authorizes 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.

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.”  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.

FEMA works closely with the insurance industry to facilitate the sale and servicing of flood insurance policies.  An NFIP policy, also known as the Standard Flood Insurance Policy (SFIP), is available to be purchased either by:  (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 the terms and conditions of insurance. FEMA establishes terms, rate structures, and premium costs of SFIPs and these are the same whether purchased from a direct servicing agent or through the WYO Program.  FEMA enters into a standard Financial Assistance/Subsidy Arrangement (referred to as 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.

FEMA Established Write Your Own (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.  Each Arrangement entered into by a WYO Company must be in the form and substance of the standard Arrangement to offer flood insurance coverage under NFIP to eligible applicants, and write and service the SFIP in their own names. Seventy-nine private property or casualty insurance companies participate in this program today.

In accordance with the current terms of the Arrangement, FEMA annually publishes in the Federal Register and makes available to the WYO Companies the terms for subscription or re-subscription to the Arrangement.

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’ responsibilities include:

• all aspects of servicing of the policies, including policy issuance to new policyholders, endorsement, underwriting, renewal of policies, and cancellation of policies;
• compliance with community eligibility/rating criteria, making policyholder eligibility determinations, correspondence, and the payment of agents’ commissions;
• investigate, adjust, settle, and defend all claims or losses arising from policies issued under the Arrangement;
• marketing flood insurance policies in a manner consistent with marketing guidelines established by FEMA; and
• meet the standards and requirements (financial, underwriting and other audits) of a Financial Control Plan also known as FEMA’s “Plan to Maintain Financial Control for Business Written Under the Write Your Own Program.”

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.

In 1985, FEMA also 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.

B.  Notice of Proposed Rulemaking: FEMA Proposes Removing Copy of Write Your Own (WYO) Arrangement from Regulations

1. As the NFIP undergoes a transformation focused on improving the overall customer experience, these proposed changes will help the FEMA-WYO relationship be more agile and responsive to meet policyholder needs. On May 24, 2016, FEMA published in the Federal Register a Notice of Proposed Rulemaking, which proposes the following:

• Remove the copy of the Financial Assistance/Subsidy Arrangement (referred to as the Arrangement) in Title 44 of the Code of Federal Regulations (CFR) Part 62, Appendix A;
• Remove the summary of the Financial Control Plan in 44 CFR Part 62, Appendix B; and,
• Make conforming amendments to update citations which reference Appendix A and Appendix B in 44 CFR Section 62.23.

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

FEMA proposes to remove the copy of the Arrangement from the CFR, because it is no longer necessary to include a copy, and FEMA is not required to include a copy, of the Arrangement in the NFIP regulations.

Currently, FEMA must undergo rulemaking procedures to update or make any changes to the Arrangement.  This rulemaking requirement can unnecessarily slow down the operation of the NFIP by FEMA and its industry partners. Additionally, the rulemaking requirement limits FEMA’s flexibility to negotiate operational adjustments and corrections to the Arrangement in a quick and efficient manner.  

Since FEMA added copy of the Arrangement in 1985 to inform the public of the procedural details of the WYO Program, there are now more efficient ways to inform the public of these details in other ways which utilizes changing technology and improves customer service.  An example is posting a copy of the Arrangement on FEMA.gov.

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 the Federal Register. 

Under the Biggert-Waters Flood Insurance Reform Act of 2012, 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. 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 from the NFIP regulations, because this information is contained in either the Financial Control Plan or in the NFIP regulations at 44 CFR Section 62.23 and thus, reprint elsewhere in the CFR is duplicative and unnecessary.

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.

FEMA is proposing to remove this information from Appendix B because a copy of the Financial Control Plan is available on FEMA’s website and thus, reprint in the CFR is duplicative and unnecessary.  Also, 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.

Specific referenced sections:

• Appendix A: Section 62.23: paragraphs (a) and (i)(1)
• Appendix B: Section 62.23: paragraphs (f) and (l)(2)

Addition note:  FEMA proposes to remove the example in Section 62.23(i)(1) which references the NFIP-approved, Single Adjuster Program (SAP).  FEMA granted a limited waiver of the SAP requirement, and this example is no longer relevant if these proposed changes are accepted.  Also, the example references Appendix A, which FEMA is proposing to remove via this Notice of Proposed Rulemaking.