[Code of Federal Regulations]

[Title 44, Volume 1]

[Revised as of October 1, 2005]

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, DEPARTMENT OF HOMELAND 

                                SECURITY

 

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



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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 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) A WYO Company shall act as a fiscal agent of the Federal 

Government, but not as its general agent. WYO Companies are solely 

responsible for their obligations to their insured under any flood 

insurance policies issued under agreements entered into with the 

Administrator, such that the Federal Government is not a proper party 

defendant in any lawsuit arising out of such policies.

    (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.



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    (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.

    (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.



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    (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 

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



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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 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; 69 FR 45610, July 30, 2004]



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