National Flood Insurance Program (NFIP): Financial Assistance/Subsidy Arrangement, 32261-32268 [2016-11701]

Agencies

• Federal Emergency Management Agency
• DEPARTMENT OF HOMELAND SECURITY

[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: https://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 https://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 https://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 https://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 https://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, https://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, 
https://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), 
https://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, https://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