[Federal Register: February 3, 2003 (Volume 68, Number 22)]
[Proposed Rules]
[Page 5264-5266]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03fe03-14]
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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) rules@fema.gov.
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) Thomas.Hayes@fema.gov.
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
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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):
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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
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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
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\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).
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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
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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
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\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.
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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
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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
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\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