58720 Federal Register / Vol. 65, No. 191 / Monday, October 2, 2000 / Proposed Rules

FEDERAL EMERGENCY

MANAGEMENT AGENCY

44 CFR Part 206

Disaster Assistance; Insurance

Requirements for the Public

Assistance Program

AGENCY: Federal Emergency

Management Agency (FEMA).

ACTION: Notice of findings for the

advance notice of proposed rulemaking.

SUMMARY: We (FEMA) published an

Advance Notice of Proposed

Rulemaking (ANPR) on February 23,

2000 on insurance requirements,

procedures and eligibility criteria with

respect to buildings under the Public

Assistance Program. The ANPR

described a range of problems with the

insurance element of the Public

Assistance Program, listed possible

options to address them, and finally,

included several specific questions

about how the Program could be

improved. The overwhelming majority

of comments responded to an aspect of

insurance coverage for which our

preferred option (referenced in the

ANPR as Option 3) would condition

Public Assistance grants for buildings

on adequate property insurance being in

place at the time of the disaster.

Comments on other approaches to the

insurance issues were received as well.

The deadline for comments was April

10, 2000. We received nearly 300

responses to the ANPR. The purpose of

this notice is to provide a summary of

these responses and an update on our

process of developing a proposed rule

on insurance requirements for the

Public Assistance Program.

FOR FURTHER INFORMATION CONTACT:

Curtis Carleton, (202) 646–4535.

SUPPLEMENTARY INFORMATION:

I. Background

The Robert T. Stafford Disaster Relief

and Emergency Assistance Act, 42

U.S.C. 5121 et seq. (Stafford Act),

authorizes the President to pay at least

75 percent of the costs to repair public

and certain eligible private non-profit

infrastructure and buildings damaged by

a presidentially declared major disaster.

The Public Assistance Program provides

grants to applicants—including State

and local governments, Native

Americans or authorized tribal

organizations, Alaskan Native villages

and organizations, as well as certain

eligible private non-profit

organizations—for emergency protective

measures, for debris removal, and for

disaster-damaged infrastructure and

buildings.

We published the ANPR in the

Federal Register at 65 FR 8927,

February 23, 2000. As discussed in the

ANPR, we believe that our current

program regulations, 44 Code of Federal

Regulations (CFR), Part 206, Subpart I—

Public Assistance Insurance

Requirements, are inadequate in

meeting the insurance considerations of

the Stafford Act, in particular, with

respect to buildings. The ANPR was

intended to surface what we consider to

be the important issues, and to seek

commentary and advice for program

improvements. The issues address two

major considerations. First, there is the

matter of how best to encourage

proactive risk management: this is

where we discuss property insurance

against major natural hazards for public

buildings as a pre-disaster program

eligibility requirement. And second,

there is the failure of our current

program regulation to adequately

address:

• Guidance for State insurance

commissioners’ waivers of the postdisaster insurance purchase

requirement;

• Whether the Public Assistance

Program will fund insurance

deductibles for buildings, and if so, how

much do we fund; and

• How we define insurance (or what

qualifies as insurance), among other

issues.

The ANPR was entirely successful in

meeting its objectives, and we are very

grateful to the many respondents who

provided needed information and

thoughtful perspectives on the issues.

The substance and quantity of the

ANPR comments were remarkable, and

are cause for a full and deliberative

analysis before continuing to the next

stage of developing a proposed rule.

Therefore, we wanted to give you an

idea as to the nature of the ANPR

responses, and advise you of where we

stand in the analytical process.

II. ANPR Findings

We received 291 comments

representing 32 States (including Guam

and Puerto Rico). The distribution of

responses is: 63 percent from California;

7 percent from Washington; 4 percent

from Florida; and 26 percent

representing the remaining 29 states that

submitted comments.

The respondents offered a variety of

perspectives, but many of them prefaced

their comments with a statement to the

effect that they agreed with the Public

Assistance program’s objective of

seeking aggressive risk management on

the part of public and private non-profit

building owners.

While the comments address many

issues, most are captured in the

following topics.

Adequate Insurance

This area deals with the

reasonableness of our schedule of

eligibility criteria with respect to

insurance.

The majority of comments focus on

earthquake coverage. Many of these

contend that the private insurance

market does not have the capacity to

provide adequate coverage, and that,

because of the unpredictable and

potentially catastrophic nature of

earthquakes, insurance companies tend

to exact high prices for their coverage.

The result is that some entities can only

get very limited coverage, and some find

that the coverage that they can get

makes little economic sense given the

high premiums and deductibles

required.

Earthquake coverage is separate and

apart from all other property coverage.

The insurance industry has trouble

offering coverage for perils such as

earthquakes that have no known

probable frequencies; therefore, the

insurance industry has limited its

exposure in this area. The public

entities tend to have little confidence

that insurance companies will be

willing or able to provide service at an

acceptable price and shared concerns

that the market will have the capacity to

provide coverage to the levels outlined

in the ANPR.

Over half of the comments were from

California, and virtually all of these tell

us that an eligibility requirement

involving earthquake insurance is

unreasonable. Some contend that money

spent on earthquake premiums would

reduce money available for seismic

retrofits, and that the net effect would

be counterproductive. Several writers

suggest that our schedule of eligibility

criteria in earthquake insurance

coverage is biased against small entities,

because those with less valuable

buildings would need to have a higher

percentage of them insured. (Note that

this concern is expressed by the larger

entities on behalf of the smaller entities;

we received a very low number of

responses from smaller entities.) Several

also suggest that the $125 million cap is

too high: it is hard to get that much

coverage even in today’s soft market for

all but a few of the largest entities and

pools.

We hear that, based on past

experience, few insurers will be able to

Federal Register / Vol. 65, No. 191 / Monday, October 2, 2000 / Proposed Rules 58721

fully indemnify earthquake

policyholders after a major quake.

There was a suggestion that a

requirement for an eligibility criterion

on earthquake insurance would be

viable only if FEMA were to promote a

nationwide pool for earthquake

coverage for public entities. This

suggestion rests on the presumption that

the commercial insurance market does

not have the capacity to deal with the

scope of the coverage needed. Along

these lines, other writers suggest that we

establish a National Earthquake

Program, similar to the National Flood

Insurance Program.

Other than the comments on

earthquake insurance, there were

questions about the meaning of

‘‘highest-valued single location.’’ There

was also the suggestion that we provide

for a cap on all risk insurance, just as

we do for wind and earthquake in our

insurance schedule.

Premium Thresholds

There was broad agreement with the

need for a safety net provision in the

form of a premium threshold. While

some find it to be reasonable, most

writers tell us that the $.30 per $100 is

far too high, based on what they

currently pay. For example, some

entities are telling us that they pay just

a few pennies per $100 for their hazard

insurance. Many writers also point out

that by using an absolute dollar

threshold, insurance companies will

quickly price their products to meet that

threshold.

Quite a few writers suggest that a

threshold based on a percentage of an

entity’s operating budget would be a

better way of offering a safety net. No

writer suggested an actual percentage to

be used in this regard.

Self-Insurance

There is a lot of interest in this area.

All comments support the idea that selfinsurance be an option for all entities.

Several writers suggest that there should

be specific, stringent requirements for

self-insurance—for example, the

retention of a dedicated fund—but, most

simply state that the self-insurance

should be an option to commercial

insurance. In many cases, writers felt

that self-insurance is a more sensible

risk management technique than

commercial insurance.

In this context, quite a few writers

speak to the ‘‘all or nothing’’ provision

of Option 3. They refer to the notion

that a failure to have adequate insurance

in force would result in zero aid for a

damaged building—the ‘‘all or nothing’’

provision. They suggest that this would

be unreasonable, particularly for a very

low probability hazard. The remedy put

forth is to treat an uninsured building as

self-insured, which would disqualify it

for Public Assistance below our

schedule of eligibility criteria coverage,

but would allow it to remain qualified

for Public Assistance above that

amount.

Deductibles

This is one area where we received

opposing viewpoints.

Some writers tell us that deductibles

are, by their very nature, the

responsibility of the insured, and

should not be funded by FEMA. They

point out that the size of the deductible

is a major factor for the premium

amount, and is a calculated business

decision on the part of the building

owner. It is their expression of risk

tolerance or risk aversion, and should be

their issue, not FEMA’s. Other, more

numerous writers are not only

comfortable with the concept of

deductibles being funded under the

program, but offered suggestions for

increasing the amounts. One person

suggests increasing the deductible for

blanket flood coverage from $25,000 to

$100,000 if the loss limits exceed 150

percent of the NFIP maximum coverage.

The suggestion is that this would

encourage building owners to carry

higher limit flood policies, and that it

would better correspond to the actual

deductibles associated with most

blanket flood policies. Another person

suggests that we eliminate the

deductible cap of $100,000 for wind

coverage, but reduce the amount that we

would fund from 5 percent to 2 percent,

which, the commenter tells us, is the

industry standard.

The writers express concerns that if

they had a higher deductible than the

amount we would fund they would not

be eligible for FEMA assistance. This

misconception caused concerns similar

to the concerns related to the ‘‘all or

nothing’’ provision.

Incentives

There is strong support for some form

of incentive regarding a provision to

condition future Public Assistance on

insurance being in place at the time of

the disaster. Fifty-two respondents favor

incentives for purchasing insurance.

However, the vast majority limit their

comments to broad statements in

support of the concept, rather than spell

out specific ways of implementing an

incentive arrangement.

Administrative Burdens

Many respondents are concerned that

an eligibility criterion for pre-disaster

insurance will result in added delays

and problems in obtaining Public

Assistance grants. The thought is that

FEMA would have to determine

whether adequate property insurance is

in effect on an applicant’s buildings at

the time of the disaster. This would

require insurance experts, and would

slow and complicate the process of

awarding grants. Further, some

respondents suggested that smaller

Public Assistance applicants may not

presently have property insurance on

their buildings. A pre-disaster insurance

eligibility criterion would necessitate

them buying property insurance for the

first time, and that, in so doing, they

would encounter significant

administrative burdens.

III. Next Steps

While we have received many

valuable comments on this subject, we

are still seeking information on the

feasibility of encouraging new or

expanded property insurance coverage

as a means to improving risk

management analysis and decisions

about public and certain private nonprofit buildings. For this reason, and in

order to assist us in the evaluation of

options, as well as to establish a

benchmark for whatever criteria are

eventually implemented, we plan to

perform a study of public entity

building insurance coverage.

Dated: September 20, 2000.

James L. Witt,

Director.

[FR Doc. 00–25017 Filed 9–29–00; 8:45 am]

BILLING CODE 6718–02–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 54

[CC Docket No. 96–45; FCC 00–332]

Federal-State Joint Board on Universal

Service: Promoting Deployment and

Subscribership in Unserved and

Underserved Areas, Including Tribal

and Insular Areas

AGENCY: Federal Communications

Commission.

ACTION: Notice of proposed rules.

SUMMARY: In this document, the

Commission seeks additional comment

on how to extend the enhanced Lifeline

and Link Up measures to qualifying

low-income consumers living in areas or

communities that are ‘‘near

reservations.’’ Specifically, the

Commission seeks comment on how to

define geographic areas that are adjacent

to the reservations, consistent with our