[Code of Federal Regulations]
[Title 44, Volume 1]
[Revised as of October 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 44CFR62.23]

[Page 318-322]
 
              TITLE 44--EMERGENCY MANAGEMENT AND ASSISTANCE
 
             CHAPTER I--FEDERAL EMERGENCY MANAGEMENT AGENCY
 
PART 62--SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS--Table of Contents
 
                Subpart C--Write-Your-Own (WYO) Companies
 
Sec. 62.23  WYO Companies authorized.


    (a) Pursuant to section 1345 of the Act, the Administrator may enter 
into arrangements with individual private sector property insurance 
companies or other insurers, such as public entity risk sharing 
organizations. Under these arrangements, such companies or other 
insurers may offer flood insurance coverage under the program to 
eligible applicants. Such WYO companies may offer flood coverage to 
policyholders insured by them under their own property business lines of 
insurance, pursuant to their customary business practices, including 
their usual arrangements with agents and producers. WYO companies may 
sell flood insurance coverage in any State in which the WYO company is 
authorized to engage in the business of property insurance. Other WYO 
insurers may offer flood insurance coverage to their pool members 
insured by them under their own property business lines of coverage, 
pursuant to their customary business practices. These other WYO insurers 
may provide flood coverage in any State that has authorized the other 
insurer to provide property coverage to its members. 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,'' a copy of which is 
included in appendix A of this

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part and made a part of these regulations.
    (b) Any duly authorized insurer so engaged in the Program shall be a 
WYO Company. (The term ``WYO Company'' shall include the following kinds 
of insurers: Public entity risk-sharing organizations, an association of 
local governments, a State association of political subdivisions, a 
State-sponsored municipal league, and other intergovernmental risk-
sharing pool for covering public entity structures.)
    (c) A WYO Company is authorized to arrange for the issuance of flood 
insurance in any amount within the maximum limits of coverage specified 
in Sec. 61.6 of this subchapter, as Insurer, to any person qualifying 
for such coverage under parts 61 and 64 of this subchapter who submits 
an application to the WYO Company; coverage shall be issued under the 
Standard Flood Insurance Policy.
    (d) A WYO Company issuing flood insurance coverage shall arrange for 
the adjustment, settlement, payment and defense of all claims arising 
from policies of flood insurance it issues under the Program, based upon 
the terms and conditions of the Standard Flood Insurance Policy.
    (e) In carrying out its functions under this subpart, a WYO Company 
shall use its own customary standards, staff and independent contractor 
resources, as it would in the ordinary and necessary conduct of its own 
business affairs, subject to the Act and regulations prescribed by the 
Administrator under the Act.
    (f) To facilitate the marketing of flood insurance coverage under 
the Program to policyholders of WYO Companies, the Administrator will 
enter into arrangements with such companies whereby the Federal 
Government will be a guarantor in which the primary relationship between 
the WYO Company and the Federal Government will be one of a fiduciary 
nature, i.e., to assure that any taxpayer funds are accounted for and 
appropriately expended. In furtherance of this end, the Administrator 
has established ``A Plan to Maintain Financial Control for Business 
Written Under the Write Your Own Program'', a copy of which is included 
in appendix B of this part and made a part of these regulations.
    (g) WYO Companies shall not be agents of the Federal Government and 
are solely responsible for their obligations to their insureds under any 
flood insurance policies issued under agreements entered into with the 
Administrator.
    (h) To facilitate the underwriting of flood insurance coverage by 
WYO Companies, the following procedures will be used by WYO Companies:
    (1) To expedite business growth, the WYO Company will encourage its 
present property insurance policyholders to purchase flood insurance 
through the NFIP WYO Program.
    (2) To conform its underwriting practices to the underwriting rules 
and rates in effect as to the NFIP, the WYO Company will establish 
procedures to carry out the NFIP rating system and provide its 
policyholders with the same coverage as is afforded under the NFIP.
    (3) The WYO Company may follow its customary billing practices to 
meet the Federal rules on the presentment of premium and net premium 
deposits to a Letter of Credit bank account authorized by the 
Administrator and reduction of coverage when an underpayment is 
discovered.
    (4) The WYO Company is expected to meet the recording and reporting 
requirements of the WYO Transaction Record Reporting and Processing 
Plan. Transactions reported by the WYO Company under the WYO Transaction 
Record Reporting and Processing Plan will be analyzed by the NFIP Bureau 
& Statistical Agent. A monthly report will be submitted to the WYO 
Company and the FIA. The analysis will cover the timeliness of WYO 
Company submissions, the disposition of transactions that have not 
passed systems edits and the reconciliation of the totals generated from 
transaction reports with those submitted on the WYO Company's 
reconciliation reports.
    (5) If a WYO Company rejects an application from an agent or a 
producer, the agent or producer shall be notified so that the business 
can be placed through the NFIP Servicing Agent, or another WYO Company.

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    (6) Flood insurance coverage will be issued by the WYO Company on a 
separate policy form and will not be added, by endorsement, to the 
Company's other property insurance forms.
    (7) Premium payment plans can be offered by the WYO Company so long 
as the net premium depository requirements specified under the NFIP/WYO 
Program accounting procedures are met. A cancellation by the WYO Company 
for non-payment of premium will not produce a pro rata return of the net 
premium deposit to the WYO Company.
    (8) NFIP business will not be assumed by the WYO Companies at any 
time other than at renewal time, at which time the insurance producer 
may submit the business to the WYO Company as new business. However, it 
is permissible to cancel and rewrite flood policies to obtain concurrent 
expiration dates with other policies covering the property.
    (i) To facilitate the adjustment of flood insurance claims by WYO 
Companies, the following procedures will be used by WYO Companies.
    (1) Under the terms of the Arrangement set forth at appendix A of 
this part, WYO Companies will adjust claims in accordance with general 
Company standards, guided by NFIP Claims manuals. The Arrangement also 
provides that claim adjustments shall be binding upon the FIA. For 
example, the entire responsibility for providing a proper adjustment for 
both combined wind and water claims and flood-alone claims is the 
responsibility of the WYO Company. The responsibility for providing a 
proper adjustment for combined wind and water claims is to be conducted 
by listing in concert with the Single Adjuster provisions listed in 
appendix A.
    (2) The WYO Company may use its staff adjusters, independent 
adjusters, or both. It is important that the Company's Claims Department 
verifies the correctness of the coverage interpretations and 
reasonableness of the payments recommended by the adjusters.
    (3) An established loss adjustment Fee Schedule is part of the 
Arrangement and cannot be changed during an Arrangement year. This is 
the expense allowance to cover costs of independent or WYO Company 
adjusters.
    (4) The normal catastrophe claims procedure currently operated by a 
WYO Company should be implemented in the event of a claim catastrophe 
situation. Flood claims will be handled along with other catastrophe 
claims.
    (5) It will be the WYO Company's responsibility to try to detect 
fraud (as it does in the case of property insurance) and coordinate its 
findings with FIA.
    (6) Pursuant to the Arrangement, the responsibility for defending 
claims will be upon the Write Your Own Company and defense costs will be 
part of the unallocated or allocated claim expense allowance, depending 
on whether a staff counsel or an outside attorney handles the defense of 
the matter. Claims in litigation will be reported by WYO Companies to 
FIA upon joinder of issue and FIA may inquire and be advised of the 
disposition of such litigation.
    (7) The claim reserving procedures of the individual WYO Company can 
be used.
    (8) Regarding the handling of subrogation, if a WYO Company prefers 
to forego pursuit of subrogation recovery, it may do so by referring the 
matter, with a complete copy of the claim file, to FIA. Subrogation 
initiatives may be truncated at any time before suit is commenced (after 
commencing an action, special arrangement must bemade). FIA, after 
consultation with FEMA's Office of the General Counsel (OGC), will 
forward the cause of action to OGC or to the NFIP Bureau and Statistical 
Agent for prosecution. Any funds received will be deposited, less 
expenses, in the National Flood Insurance Fund.
    (9) Special allocated loss adjustment expenses will include such 
items as: nonstaff attorney fees, engineering fees and special 
investigation fees over and above normal adjustment practices.
    (10) The customary content of claim files will include coverage 
verification, normal adjuster investigations, including statements where 
necessary, police reports, building reports and investigations, damage 
verification and other documentation relevant to the adjustment of 
claims under the NFIP's and the WYO Company's traditional claim 
adjustment practices and procedures. The WYO Company's claim examiners

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and managers will supervise the adjustment of flood insurance claims by 
staff and independent claims adjusters.
    (11) The WYO Company will extend reasonable cooperation to FEMA's 
Office of the General Counsel on matters pertaining to litigation and 
subrogation, under paragraph (i)(8) of this section.
    (j) To facilitate establishment of financial controls under the WYO 
Program, the WYO Company will:
    (1) Have a biennial audit of the flood insurance financial 
statements conducted by an independent Certified Public Accountant (CPA) 
firm at the Company's expense to ensure that the financial data reported 
to us accurately represents the flood insurance activities of the 
Company. The CPA firm must conduct its audits in accordance with the 
generally accepted auditing standards (GAAS) and Government Auditing 
Standards issued by the Comptroller General of the United States 
(commonly known as ``yellow book'' requirements). The Company must file 
with us (the Federal Insurance Administration) a report of the CPA 
firm's detailed biennial audit, and, after our review of the audit 
report, we will convey our determination to the Standards Committee.
    (2) Participate in a WYO Company/FIA Operation review. We will 
conduct a review of the WYO Company's flood insurance claims, 
underwriting, customer service, marketing, and litigation activities at 
least once every three (3) years. As part of these reviews, we will 
reconcile specific files with a listing of transactions submitted by the 
Company under the Transaction Record Reporting and Processing (TRPP) 
Plan (Part 5). We will file a report of the Operation Review with the 
Standards Committee.
    (3) Meet the recording and reporting requirements of the WYO 
Transaction Record Reporting and Processing Plan and the WYO Accounting 
Procedures Manual. Transactions reported to the National Flood Insurance 
Program's (NFIP's) Bureau and Statistical Agent by the WYO Company under 
the WYO Transaction Record Reporting and Processing Plan and the WYO 
Accounting Procedures Manual will be analyzed by the Bureau and 
Statistical Agent and a monthly report will be submitted to the WYO 
Company and the FIA. The analysis will cover the timeliness of the WYO 
Company submissions, the disposition of transactions which do not pass 
systems edits and the reconciliation of the totals generated from 
transaction reports with those submitted on WYO Company reconciliation 
reports.
    (4) Cooperate with FEMA's Office of Financial Management on Letter 
of Credit matters.
    (5) Cooperate with FIA in the implementation of a claims 
reinspection program.
    (6) Cooperate with FIA in the verification of risk rating 
information.
    (7) Cooperate with FEMA's Office of the Inspector General on matters 
pertaining to fraud.
    (k) To facilitate the operation of the WYO Program and in order that 
a WYO Company can use its own customary standards, staff and independent 
contractor resources, as it would in the ordinary and necessary conduct 
of its own business affairs, subject to the Act, the Administrator, for 
good cause shown, may grant exceptions to and waivers of the regulations 
contained in this title relative to the administration of the NFIP.
    (l)(1) WYO Companies may, on a voluntary basis, elect to participate 
in the Mortgage Portfolio Protection Program (MPPP), under which they 
can offer, as a last resort, flood insurance at special high rates, 
sufficient to recover the full cost of this program in recognition of 
the uncertainty as to the degree of risk a given building presents due 
to the limited underwriting data required, to properties in a lending 
institution's mortgage portfolio to achieve compliance with the flood 
insurance purchase requirements of the Flood Disaster Protection Act of 
1973. Flood insurance policies under the MPPP may only be issued for 
those properties that:
    (i) Are determined to be located within special flood hazard areas 
of communities that are participating in the NFIP, and
    (ii) Are not covered by a flood insurance policy even after a 
required series of notices have been given to the property owner 
(mortgagor) by the lending

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institution of the requirement for obtaining and maintaining such 
coverage, but the mortgagor has failed to respond.
    (2) WYO Companies participating in the MPPP must provide a detailed 
implementation package to any lending institution that, on a voluntary 
basis, chooses to participate in the MPPP to ensure the lending 
institution has full knowledge of the criteria in that program and must 
obtain a signed receipt for that package from the lending institution. 
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 contained in appendix 
B of this part.
    (3) The mortgagor must be protected against the lending 
institution's arbitrary placing of flood insurance for which the 
mortgagor will be billed by being sent three notification letters as 
described in paragraphs (l)(4) through (6) of this section.
    (4) The initial notification letter must:
    (i) State the requirements of the Flood Disaster Protection Act of 
1973, as amended;
    (ii) Announce the determination that the mortgagor's property is in 
an identified special flood hazard area as delineated on the appropriate 
FEMA map, necessitating flood insurance coverage for the duration of the 
loan;
    (iii) Describe the procedure to follow should the mortgagor wish to 
challenge the determination;
    (iv) Request evidence of a valid flood insurance policy or, if there 
is none, encourage the mortgagor to obtain a Standard Flood Insurance 
Policy (SFIP) promptly from a local insurance agent (or WYO Company);
    (v) Advise that the premium for a MPPP policy is significantly 
higher than a conventional SFIP policy and advise as to the option for 
obtaining less costly flood insurance; and
    (vi) Advise that a MPPP policy will be purchased by the lender if 
evidence of flood insurance coverage is not received by a date certain.
    (5) The second notification letter must remind the mortgagor of the 
previous notice and provide essentially the same information.
    (6) The final notification letter must:
    (i) Enclose a copy of the flood insurance policy purchased under the 
MPPP on the mortgagor's (insured's) behalf, together with the 
Declarations Page,
    (ii) Advise that the policy was purchased because of the failure to 
respond to the previous notices, and
    (iii) Remind the insured that similar coverage may be available at 
significantly lower cost and advise that the policy can be cancelled at 
any time during the policy year and a pro rata refund provided for the 
unearned portion of the premium in the event the insured purchases 
another policy that is acceptable to satisfy the requirements of the 
1973 Act.

(Approved by the Office of Management and Budget under OMB control 
number 3067-0229.)

[61 FR 51219, Oct. 1, 1996, as amended at 64 FR 56176, Oct. 18, 1999; 67 
FR 13549, Mar. 22, 2002]