Document ID: FEMA-2018-0019-0001
Agency: fema
Document Type: Notice
Title: National Flood Insurance Program (NFIP); Assistance to Private Sector Property Insurers, Notice of FY 2019 Arrangement
Posted Date: 2018-03-16T04:00Z

[Federal Register Volume 83, Number 52 (Friday, March 16, 2018)]
[Notices]
[Pages 11772-11778]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05418]

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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

[Docket ID FEMA-2018-0019]

National Flood Insurance Program (NFIP); Assistance to Private 
Sector Property Insurers, Notice of FY 2019 Arrangement

AGENCY: Federal Emergency Management Agency, DHS.

ACTION: Notice.

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SUMMARY: The Federal Emergency Management Agency announces the Fiscal 
Year 2019 Financial Assistance/Subsidy Arrangement for private property 
insurers interested in participating in the National Flood Insurance 
Program's Write Your Own Program.

DATES: Interested insurers must submit intent to subscribe or re-
subscribe to the Arrangement by June 14, 2018.

FOR FURTHER INFORMATION CONTACT: Kelly Bronowicz, Federal Insurance and 
Mitigation Administration, FEMA, 400 C St. SW, Washington, DC 20472; 
(202) 557-9488 (phone), or [email protected] (email).

SUPPLEMENTARY INFORMATION: 

I. 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). Under the NFIA, FEMA has the authority 
to undertake arrangements 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. To this end, 
FEMA may ``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 Write Your Own (WYO) companies, to 
sell NFIP flood insurance policies under their own names and adjust and 
pay claims arising under the Standard Flood Insurance Policy (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 published in 
the Federal Register annually, at least 6 months prior to becoming 
effective. See 44 CFR 62.23(a).

II. Notice of Availability

    Insurers interested in participating in the WYO Program for Fiscal 
Year 2019 must contact Clark Poland at

[[Page 11773]]

[email protected] by June 14, 2018.
    Prior participation in the WYO Program does not guarantee that FEMA 
will approve continued participation. FEMA will evaluate requests to 
participate in light of publicly available information, industry 
performance data, and other criteria listed in 44 CFR 62.24 and the FY 
2019 Arrangement, copied below. Private insurance companies are 
encouraged to supplement this information with customer satisfaction 
surveys, industry awards or recognition, or other objective performance 
data. In addition, private insurance companies should work with their 
vendors and subcontractors involved in servicing and delivering their 
insurance lines to ensure FEMA receives the information necessary to 
effectively evaluate the criteria set forth in its regulations.
    FEMA will send a copy of the offer for the FY 2019 Arrangement, 
together with related materials and submission instructions, to all 
private insurance companies successfully evaluated by the NFIP. If 
FEMA, after conducting its evaluation, chooses not to renew a Company's 
participation, FEMA, at its option, may require the continued 
performance of all or selected elements of the FY 2018 Arrangement for 
a period required for orderly transfer or cessation of the business and 
settlement of accounts, not to exceed 18 months. See FY 2018 
Arrangement, Article V.C. All evaluations, whether successful or 
unsuccessful, will inform both an overall assessment of the WYO Program 
and any potential changes FEMA may consider regarding the Arrangement 
in future fiscal years.
    Any private insurance company with questions may contact FEMA at: 
Kelly Bronowicz, Federal Insurance and Mitigation Administration, FEMA, 
400 C St. SW, Washington, DC 20472 (mail); (202) 557-9488 (phone), or 
[email protected] (email).

III. Fiscal Year 2019 Arrangement

    Pursuant to 44 CFR 62.23(a), FEMA must publish the Arrangement at 
least 6 months prior to the Arrangement becoming effective. The FY 2019 
Arrangement copied below is substantially similar to the previous 
year's Arrangement. FEMA has made several changes designed to improve 
the overall clarity and readability of the document, as well as 
incorporate existing WYO Program policies and requirements. Noteworthy 
changes include:
     Establishing timeliness requirements for the claim appeals 
process;
     Requiring WYO companies to submit an Operations Plan to 
FEMA.
     Removing the provision increasing the WYO Allowance by 1 
percent of written premium over the rate indicated by expense data from 
non-flood insurance lines.
     Removing the cap on the maximum potential growth bonus 
paid to an individual WYO company, while limiting the total growth 
bonuses paid to all WYO companies at 2 percent of aggregate written 
premium.
     Formalizing FEMA's process to temporarily increase the 
allocated loss adjustment fee schedule when necessary to ensure supply 
of qualified adjusters during a catastrophic flood event.
     Removing restrictions on WYO companies choosing to offer 
private flood insurance, while maintaining requirements that such 
private flood insurance lines remain entirely separate from a WYO 
company's NFIP insurance business.
     Several stylistic changes designed to improve overall 
clarity and readability in accordance with Federal Plain Language 
Guidelines.
    The Fiscal Year 2019 Arrangement reads as follows:

Financial Assistance/Subsidy Arrangement

Article I. Findings, Purposes, and Authority

    Whereas, the Congress in its ``Finding and Declaration of Purpose'' 
in the National Flood Insurance Act of 1968, Public Law 90-448, Title 
XIII, as amended, (``the Act'' or ``Act'') recognized the benefit of 
having the National Flood Insurance Program (the ``Program'' or 
``NFIP'') ``carried out to the maximum extent practicable by the 
private insurance industry''; and
    Whereas, the Federal Emergency Management Agency (``FEMA''), which 
operates the Program through its Federal Insurance and Mitigation 
Administration (``FIMA''), recognizes this Arrangement as coming under 
the provisions of Sections 1340 and 1345 of the Act (42 U.S.C. 4071 and 
4081, respectively); and
    Whereas, the goal of FEMA is to develop a program with the 
insurance industry where the risk-bearing role for the industry will 
evolve as intended by the Congress (Section 1304 of the Act [42 U.S.C. 
4011]); and
    Whereas, Section 205 of the Bunning-Bereuter-Blumenauer Flood 
Insurance Reform Act of 2004, Public Law 108-264, as implemented by 44 
CFR 62.20, permits Program policyholders to appeal the denial of a 
claim, in completely or in part, to FEMA; and
    Whereas, the NFIP is a program administered by FEMA, all 
participants of this Arrangement, and other entities operating on their 
behalf, shall align themselves toward the common purpose of helping 
survivors and their communities recover from floods by effectively 
delivering customer-focused flood insurance products and information; 
and
    Whereas, the insurer (hereinafter the ``Company'') under this 
Arrangement must charge rates established by FEMA; and
    Whereas, FEMA has promulgated regulations and guidance implementing 
the Act and the Write Your Own (WYO) Program whereby participating 
private insurance companies act in a fiduciary capacity utilizing 
Federal funds to sell and administer the Standard Flood Insurance 
Policies, and has extensively regulated the participating companies' 
activities when selling or administering the Standard Flood Insurance 
Policies; and
    Whereas, any litigation resulting from, related to, or arising from 
the Company's compliance with the written standards, procedures, and 
guidance issued by FEMA arises under the Act or regulations, and legal 
issues thereunder raise a federal question; and
    Whereas, through this Arrangement, the Federal Treasury will back 
all flood policy claim payments by the Company; and
    Whereas, FEMA developed this Arrangement to enable any interested 
qualified insurer to write flood insurance under its own name; and
    Whereas, insured survivors recover faster and more fully than 
uninsusred survivors, and FEMA is committed to developing a culture of 
preparedness and closing the insurance gap across the nation; and
    Whereas, one of the primary objectives of the Program is to provide 
coverage to the maximum number of buildings at risk and because the 
insurance industry has marketing access through its existing facilities 
not directly available to FEMA, FEMA concludes that coverage will be 
extended to those who would not otherwise be insured under the Program; 
andWhereas, flood insurance policies issued subject to this Arrangement 
must be only that insurance written by the Company in its own name 
under prescribed policy conditions and pursuant to this Arrangement, 
the Act, and any guidance issued by FEMA; and
    Whereas, over time, the Program is designed to increase industry 
participation, and, accordingly, reduce or eliminate Government as the

[[Page 11774]]

principal vehicle for delivering flood insurance to the public; and
    Whereas, the sole parties under this Arrangement are the Company 
and FEMA.
    Now, therefore, the parties hereto mutually undertake the 
following:

Article II. Undertakings of the Company

    A. Eligibility Requirements for Participation in the NFIP.
    1. Policy Administration. All fund receipt, recording, control, 
timely deposit requirements, and disbursement in connection with all 
Policy Administration and any other related activities or 
correspondences, must meet all requirements of the Financial Control 
Plan and any guidance issued by FEMA. The Company shall be responsible 
for:
    a. Compliance with the Community Eligibility/Rating Criteria.
    b. Making Policyholder Eligibility Determinations.
    c. Policy Issuances.
    d. Policy Endorsements.
    e. Policy Cancellations.
    f. Policy Correspondence.
    g. Payment of Agents' Commissions.
    2. Claims Processing. The Company must process all claims 
consistent with the Standard Flood Insurance Policy, Financial Control 
Plan, other guidance adopted by FEMA, and as much as possible, with the 
Company's standard business practices for its non-NFIP policies.
    3. Reports. The Company must submit monthly financial reports and 
statistical transaction reports in accordance with the requirements of 
the NFIP Transaction Record Reporting and Processing Plan for the 
Company and the Financial Control Plan for business written under the 
WYO Program, as well as with WYO Accounting Procedures. FEMA will 
validate, edit, and audit in detail these data and compare and balance 
the results against Company reports.
    4. Operations Plan. Within ninety (90) days of the commencement of 
this Arrangement, the Company must submit an Operations Plan to FEMA 
describing its efforts to perform under this Arrangement. The plan must 
include the following:
    a. A marketing plan describing the Company's forecasted growth, 
efforts to achieve that growth, and ability to comply with any 
marketing guidelines provided by FEMA.
    b. A description of the Company's NFIP flood insurance distribution 
network, including anticipated numbers of agents, efforts to train 
those agents, and an average rate of commissions paid to producers by 
state.
    c. A catastrophic claims handling plan describing how the Company 
will respond and maintain service standards in catastrophic flood 
events.
    d. A business continuity plan identifying threats and risks facing 
the Company's NFIP-related operations and how the Company will maintain 
operations in the event of a disaster affecting its operational 
capabilities.
    B. Time Standards. Time will be measured from the date of receipt 
through the date mailed out. All dates referenced are working days, not 
calendar days. In addition to the standards set forth below, all 
functions performed by the Company must be in accordance with the 
highest reasonably attainable quality standards generally utilized in 
the insurance and data processing field. Continual failure to meet 
these requirements may result in limitations on the company's authority 
to write new business or the removal of the Company from the WYO 
Program. Applicable time standards are:
    1. Application Processing--15 days (Note: if the policy cannot be 
mailed due to insufficient or erroneous information or insufficient 
funds, the Company must mail a request for correction or added moneys 
within 10 days).
    2. Renewal processing--7 days.
    3. Endorsement processing--15 days.
    4. Cancellation processing--15 days.
    5. Claims Draft Processing--7 days from completion of file 
examination.
    6. Claims Adjustment--45 days average from the receipt of Notice of 
Loss (or equivalent) through completion of examination.
    C. Policy Issuance.
    1. The flood insurance subject to this Arrangement must be only 
that insurance written by the Company in its own name pursuant to the 
Act.
    2. The Company must issue policies under the regulations prescribed 
by the Federal Emergency Management Agency, in accordance with the Act, 
on a form approved by FEMA.
    3. All policies must be issued in consideration of such premiums 
and upon such terms and conditions and in such states or areas or 
subdivisions thereof as may be designated by FEMA and only where the 
Company is licensed by State law to engage in the property insurance 
business.
    D. FEMA may require the Company to discontinue issuing policies 
subject to this Arrangement immediately in the event Congressional 
authorization or appropriation for the NFIP is withdrawn.
    E. The Company must separate federal flood insurance funds from all 
other Company accounts, at a bank or banks of its choosing for the 
collection, retention and disbursement of federal funds relating to its 
obligation under this Arrangement, less the Company's expenses as set 
forth in Article III, and the operation of the Letter of Credit 
established pursuant to Article IV. The Company must remit all funds 
not required to meet current expenditures to the United States 
Treasury, in accordance with the provisions of the WYO Accounting 
Procedures Manual.
    F. The Company must investigate, adjust, settle, and defend all 
claims or losses arising from policies issued under this Arrangement. 
Payment of flood insurance claims by the Company bind FEMA, subject to 
appeal.
    G. Compliance with Agency Standards and Guidelines.
    1. The Company must comply with the Act, regulations, written 
standards, procedures, and guidance issued by FEMA relating to the NFIP 
and applicable to the Company, including, but not limited to:
    a. Financial Control Plan.
    b. Transaction Record Reporting and Processing (TRRP) Plan.
    c. Flood Insurance Manual.
    d. Adjuster Claims Manual.
    e. WYO Bulletins.
    2. The Company must market flood insurance policies in a manner 
consistent with marketing guidelines established by FEMA.
    3. FEMA may require the Company to collect customer service 
information to monitor and improve their program delivery.
    4. The Company must notify its agents of the requirement to comply 
with State regulations regarding flood insurance agent education, 
notify agents of flood insurance training opportunities, and assist 
FEMA in periodic assessment of agent training needs.
    H. Compliance with Appeals Process.
    1. FEMA will notify the Company when a policyholder files an 
appeal. After notification, the Company must provide FEMA the following 
information:
    a. All records created or maintained pursuant to this Arrangement 
requested by FEMA; and
    b. A comprehensive claim file synopsis that includes a summary of 
the appeal issues, the Company's position on each issue, and any 
additional relevant information. If, in the process of writing the 
synopsis, the Company determines that it can address the issue raised 
by the policyholder on appeal without further direction, it must notify 
FEMA. The Company will then work directly with the policyholder to 
achieve resolution and update FEMA upon completion. The Company may

[[Page 11775]]

have a claims examiner review the file who is independent from the 
original decision and who possesses the authority to overturn the 
original decision if the facts support it.
    2. The Company must cooperate with FEMA throughout the appeal 
process until final resolution. This includes adhering to any written 
appeals guidance issued by FEMA.
    3. Resolution of Appeals. FEMA will close an appeal when:
    a. FEMA upholds the denial by the Company;
    b. FEMA overturns the denial by the Company and all necessary 
actions that follow are completed;
    c. The Company independently resolves the issue raised by the 
policyholder without further direction;
    d. The policyholder voluntarily withdraws the appeal; or
    e. The policyholder files litigation.
    4. Processing of Additional Payments from Appeal. The Company must 
follow supplemental claim procedures for appeals that result in 
additional payment to a policyholder.
    5. Time Standards.
    a. Provide FEMA with requested files pursuant to Article II.H.1.a--
10 business days after request.
    b. Provide FEMA with comprehensive claim file synopsis pursuant to 
Article II.H.1.b--10 business days after request.
    c. Responding to inquiries from FEMA regarding an appeal--10 
business days after inquiry.
    I. Other Flood Insurance. If the Company also offers flood 
insurance outside of the NFIP in any geographic area in which Program 
authorizes the purchase of flood insurance, the Company must:
    1. Ensure that all public communications (whether written, 
recorded, electronic, or other) regarding non-NFIP flood insurance 
lines would not lead a reasonable person to believe that the NFIP, 
FEMA, or the Federal Government in any way endorses, sponsors, 
oversees, regulates, or otherwise has any connection with the non-NFIP 
flood insurance line. The Company may assure compliance with this 
requirement by prominently including in such communications the 
following statement: ``This insurance product is not affiliated with 
the National Flood Insurance Program.''
    2. Ensure that data related to this Arrangement are not used to 
further or support the Company's non-NFIP flood insurance lines.

Article III. Loss Costs, Expenses, Expense Reimbursement, and Premium 
Refunds

    A. The Company is liable for operating, administrative and 
production expenses, including any State premium taxes, dividends, 
agents' commissions or any other expense of whatever nature incurred by 
the Company in the performance of its obligations under this 
Arrangement but excluding other taxes or fees, such as municipal or 
county premium taxes, surcharges on flood insurance premium, and 
guaranty fund assessments.
    B. Payment for Selling and Servicing Policies.
    1. Operating and Administrative Expenses. The Company may withhold, 
as operating and administrative expenses, other than agents' or 
brokers' commissions, an amount from the Company's written premium on 
the policies covered by this Arrangement in reimbursement of all of the 
Company's marketing, operating, and administrative expenses, except for 
allocated and unallocated loss adjustment expenses described in Article 
III.C. This amount will equal the sum of the average industry expenses 
ratios for ``Other Acq.'', ``Gen. Exp.'' and ``Taxes'' calculated by 
aggregating premiums and expense amounts for each of five property 
coverages using direct premium and expense information to derive 
weighted average expense ratios. For this purpose, FEMA will use data 
for the property/casualty industry published, as of March 15 of the 
prior Arrangement year, in Part III of the Insurance Expense Exhibit in 
A.M. Best Company's Aggregates and Averages for the following five 
property coverages: Fire, Allied Lines, Farmowners Multiple Peril, 
Homeowners Multiple Peril, and Commercial Multiple Peril (non-liability 
portion).
    2. Agent Compensation. The Company may retain fifteen (15) percent 
of the Company's written premium on the policies covered by this 
Arrangement as the commission allowance to meet the commissions or 
salaries of insurance agents, brokers, or other entities producing 
qualified flood insurance applications and other related expenses.
    3. Growth Bonus. FEMA may increase the amount of expense allowance 
retained by the Company depending on the extent to which the Company 
meets the marketing goals for the Arrangement year contained in 
marketing guidelines established pursuant to Article II.G. The total 
growth bonuses paid to companies pursuant to this Arrangement may not 
exceed two (2) percent of the aggregate net written premium collected 
by all WYO companies. FEMA will pay the Company the amount of any 
increase after the end of the Arrangement year.
    4. Reimbursement for Services of a National Rating Organization. 
The Company, with the consent of FEMA as to terms and costs, may use 
the services of a national rating organization, licensed under state 
law, to help us undertake and carry out such studies and investigations 
on a community or individual risk basis, and to determine equitable and 
accurate estimates of flood insurance risk premium rates as authorized 
under the Act, as amended. FEMA will reimburse the Company for the 
charges or fees for such services under the provisions of the WYO 
Accounting Procedures Manual.
    C. FEMA will reimburse Loss Adjustment Expenses as follows:
    1. FEMA will reimburse unallocated loss adjustment expenses to the 
Company pursuant to a ``ULAE Schedule'' coordinated with the Company 
and provided by FEMA.
    2. FEMA will reimburse allocated loss adjustment expenses to the 
Company pursuant to a ``Fee Schedule'' coordinated with the Company and 
provided by FEMA. To ensure the availability of qualified insurance 
adjusters during catastrophic flood events, FEMA may, in its sole 
discretion, temporarily authorize the use of an alternative Fee 
Schedule with increased amounts during the term of this Arrangement for 
losses incurred during a time frame and geographic area established by 
FEMA.
    3. FEMA will reimburse special allocated loss expenses to the 
Company in accordance with guidelines issued by FEMA.
    D. Loss Payments.
    1. The Company must make loss payments for flood insurance policies 
from federal funds retained in the bank account(s) established under 
Article II.E and, if such funds are depleted, from federal funds 
derived by drawing against the Letter of Credit established pursuant to 
Article IV.
    2. Loss payments include payments because of litigation that arises 
under the scope of this Arrangement, and the Authorities set forth 
herein. All such loss payments and related expenses must meet the 
documentation requirements of the Financial Control Plan and of this 
Arrangement, and the Company must comply with the litigation 
documentation and notification requirements established by FEMA. 
Failure to meet these requirements may result in FEMA's decision not to 
provide reimbursement.
    3. Limitation on Litigation Costs.
    a. Following receipt of notice of such litigation, the FEMA Office 
of Chief Counsel (``OCC'') will review the information submitted. If 
OCC finds that

[[Page 11776]]

the litigation is grounded in actions by the Company that are 
significantly outside the scope of this Arrangement, and/or involves 
issues of agent negligence, then OCC may make a recommendation 
regarding whether all or part of the litigation is significantly 
outside the scope of the Arrangement.
    b. In the event the FEMA determines that the litigation is grounded 
in actions by the Company that are significantly outside the scope of 
this Arrangement, and/or involves issues of agent negligence, then FEMA 
will notify the Company in writing within thirty (30) days that any 
award or judgment for damages and any costs to defend such litigation 
will not be recognized under Article III as a reimbursable loss cost, 
expense, or expense reimbursement.
    c. In the event a question arises whether only part of the costs of 
a litigation is reimbursable, OCC may make a recommendation about the 
appropriate division of responsibility, if possible.
    d. In the event that the Company wishes to petition for 
reconsideration of the determination that it will not be reimbursed for 
any part of the award or judgment or any part of the costs expended to 
defend such litigation made under Article III.D.3.a-c, it may do so by 
mailing, within thirty (30) days of the notice that reimbursement will 
not be made, a written petition to FEMA, who may request advice on 
other than legal matters of the WYO Standards Committee established 
under the WYO Financial Control Plan. The WYO Standards Committee will 
consider the request at its next regularly scheduled meeting or at a 
special meeting called for that purpose by the Chairman and issue a 
written recommendation to the Administrator. FEMA's final determination 
will be made in writing within a reasonable time to the Company.
    E. The Company must make premium refunds required by FEMA to 
applicants and policyholders from federal flood insurance funds 
referred to in Article II.E, and, if such funds are depleted, from 
funds derived by drawing against the Letter of Credit established 
pursuant to Article IV. The Company may not refund any premium to 
applicants or policyholders in any manner other than as specified by 
FEMA since flood insurance premiums are funds of the Federal 
Government.

Article IV. Undertakings of the Government

    A. FEMA must establish Letter(s) of Credit against which the 
Company may withdraw funds daily, if needed, pursuant to prescribed 
procedures implemented by FEMA. The amounts of the authorizations will 
be increased as necessary to meet the obligations of the Company under 
Article III.C-E. The Company may only request funds when net premium 
income has been depleted. The timing and amount of cash advances must 
be as close as is administratively feasible to the actual disbursements 
by the recipient organization for allowable Letter of Credit expenses. 
Request for payment on Letters of Credit may not ordinarily be drawn 
more frequently than daily. This Letter of Credit may be drawn by the 
Company for any of the following reasons:
    1. Payment of claims, as described in Article III.D;
    2. Refunds to applicants and policyholders for insurance premium 
overpayment, or if the application for insurance is rejected or when 
cancellation or endorsement of a policy results in a premium refund, as 
described in Article III.E; and
    3. Allocated and unallocated loss adjustment expenses, as described 
in Article III.C.
    B. FEMA must provide technical assistance to the Company as 
follows:
    1. FEMA's policy, history concerning underwriting, and claims 
handling.
    2. A mechanism to assist in clarification of coverage and claims 
questions.
    3. Other assistance as needed.
    C. FEMA must provide the Company with a copy of all formal written 
appeal decisions conducted in accordance with Section 205 of the 
Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004, Public 
Law 108-264 and 44 CFR 62.20.
    D. Prior to the end of the Arrangement period, FEMA may provide the 
Company a statistical summary of their performance during the signed 
Arrangement period. This summary will detail the Company's performance 
individually, as well as compare the Company's performance to the 
aggregate performance of all WYO companies and the NFIP Direct 
Servicing Agent.

Article V. Commencement and Termination

    A. The effective period of this Arrangement begins on October 1, 
2018 and terminates no earlier than September 30, 2019, subject to 
extension pursuant to Article V.C. FEMA may provide financial 
assistance only for policy applications and endorsements accepted by 
the Company during this period pursuant to the Program's effective 
date, underwriting, and eligibility rules.
    B. Pursuant to 44 CFR 62.23(a), FEMA will publish the Arrangement 
and the terms for subscription or re-subscription for Fiscal Year 2020 
in the Federal Register no later than April 1, 2019. Upon such 
publication, the Company must notify FEMA of its intent to re-subscribe 
or not re-subscribe to the WYO Program for the following term within 
ninety (90) calendar days.
    C. In addition to the requirements of Article V.B, in order to 
assure uninterrupted service to policyholders, the Company must 
promptly notify FEMA in the event the Company elects not to re-
subscribe to the WYO Program during the term of this Arrangement. If so 
notified, or if FEMA chooses not to renew the Company's participation, 
FEMA, at its option, may require the continued performance of all or 
selected elements of this Arrangement for the period required for 
orderly transfer or cessation of business and settlement of accounts, 
not to exceed eighteen (18) months after the end of this Arrangement 
(September 30, 2019), and may either require transfer of activities to 
FEMA under Article V.C.1 or allow transfer of activities to another WYO 
company under Article V.C.2:
    1. FEMA may require the Company to transfer all activities under 
this Arrangement to FEMA. Within 30 calendar days of FEMA's election of 
this option, the Company must deliver to FEMA the following:
    a. A plan for the orderly transfer to FEMA of any continuing 
responsibilities in administering the policies issued by the Company 
under the Program including provisions for coordination assistance.
    b. All data received, produced, and maintained through the life of 
the Company's participation in the Program, including certain data, as 
determined by FEMA, in a standard format and medium.
    c. All claims and policy files, including those pertaining to 
receipts and disbursements that have occurred during the life of each 
policy. In the event of a transfer of the services provided, the 
Company must provide FEMA with a report showing, on a policy basis, any 
amounts due from or payable to insureds, agents, brokers, and others as 
of the transition date.
    d. All funds in its possession with respect to any policies 
transferred to FEMA for administration and the unearned expenses 
retained by the Company.
    e. A point of contact within the Company responsible for addressing 
issues that may arise from the Company's previous participation under 
the WYO Program.

[[Page 11777]]

    2. FEMA may allow the Company to transfer all activities under this 
Arrangement to one or more other WYO companies. Prior to commencing 
such transfer, the Company must submit and FEMA must approve a formal 
request. Such request must include the following:
    a. An assurance of uninterrupted service to policyholders.
    b. A detailed transfer plan providing for either: (1) The renewal 
of the Company's NFIP policies by one or more other WYO companies or 
(2) the transfer of the Company's NFIP policies to one or more other 
WYO companies.
    c. A description who the responsible party will be for liabilities 
relating to losses incurred by the Company in this or preceding 
Arrangement years.
    d. A point of contact within the Company responsible for addressing 
issues that may arise from the Company's previous participation under 
the WYO Program.
    D. Cancellation by FEMA.
    1. FEMA may cancel financial assistance under this Arrangement in 
its entirety upon thirty (30) days written notice to the Company by 
certified mail stating one or more of the following reasons for such 
cancellation:
    a. Fraud or misrepresentation by the Company subsequent to the 
inception of the Arrangement; or
    b. Nonpayment to FEMA of any amount due; or
    c. Material failure to comply with the requirements of this 
Arrangement or with the written standards, procedures, or guidance 
issued by FEMA relating to the NFIP and applicable to the Company.
    2. If FEMA cancels this Arrangement pursuant to Article V.D.1, FEMA 
may require the transfer of administrative responsibilities and the 
transfer of data and records as provided in Article V.C.1.a-d. If 
transfer is required, the Company must remit to FEMA the unearned 
expenses retained by the Company. In such event, FEMA will assume all 
obligations and liabilities owed to policyholders under such policies, 
arising before and after the date of transfer.
    3. As an alternative to the transfer of the policies to FEMA 
pursuant to Article V.D.2, FEMA will consider a proposal, if it is made 
by the Company, for the assumption of responsibilities by another WYO 
company as provided in Article V.C.2.
    E. In the event that the Company is unable or otherwise fails to 
carry out its obligations under this Arrangement by reason of any order 
or directive duly issued by the Department of Insurance of any 
jurisdiction to which the Company is subject, the Company agrees to 
transfer, and FEMA will accept, any and all WYO policies issued by the 
Company and in force as of the date of such inability or failure to 
perform. In such event FEMA will assume all obligations and liabilities 
within the scope of the Arrangement owed to policyholders arising 
before and after the date of transfer, and the Company will immediately 
transfer to FEMA all needed records and data and all funds in its 
possession with respect to all such policies transferred and the 
unearned expenses retained by the Company. As an alternative to the 
transfer of the policies to FEMA, FEMA will consider a proposal, if it 
is made by the Company, for the assumption of responsibilities by 
another WYO company as provided by Article V.C.2.
    F. In the event the Act is amended, repealed, expires, or if FEMA 
is otherwise without authority to continue the Program, FEMA may cancel 
financial assistance under this Arrangement for any new or renewal 
business, but the Arrangement will continue for policies in force that 
shall be allowed to run their term under the Arrangement.

Article VI. Information and Annual Statements

    A. The Company must furnish to FEMA such summaries and analysis of 
information including claim file information, and property address, 
location, and/or site information in its records as may be necessary to 
carry out the purposes of the Act, in such form as FEMA, in cooperation 
with the Company, will prescribe.
    B. Upon FEMA's request, the Company must provide FEMA with a true 
and correct copy of the Company's Fire and Casualty Annual Statement, 
and Insurance Expense Exhibit or amendments thereof as filed with the 
State Insurance Authority of the Company's domiciliary State.

Article VII. Cash Management and Accounting

    A. FEMA must make available to the Company during the entire term 
of this Arrangement, and any continuation period required by FEMA 
pursuant to Article V.C, the Letter of Credit provided for in Article 
IV drawn on a repository bank within the Federal Reserve System. This 
Letter of Credit may be drawn by the Company for reimbursement of its 
expenses as set forth in Article IV that exceed net written premiums 
collected by the Company from the effective date of this Arrangement or 
continuation period to the date of the draw. In the event that adequate 
Letter of Credit funding is not available to meet current Company 
obligations for flood policy claim payments issued, FEMA must direct 
the Company to immediately suspend the issuance of loss payments until 
such time as adequate funds are available. The Company is not required 
to pay claims from their own funds in the event of such suspension.
    B. The Company must remit all funds, including interest, not 
required to meet current expenditures to the United States Treasury, in 
accordance with the provisions of the WYO Accounting Procedures Manual 
or procedures approved in writing by FEMA.
    C. In the event the Company elects not to participate in the 
Program in this or any subsequent fiscal year, or is otherwise unable 
or not permitted to participate, the Company and FEMA must make a 
provisional settlement of all amounts due or owing within three (3) 
months of the expiration or termination of this Arrangement. This 
settlement must include net premiums collected, funds drawn on the 
Letter of Credit, and reserves for outstanding claims. The Company and 
FEMA agree to make a final settlement, subject to audit, of accounts 
for all obligations arising from this Arrangement within eighteen (18) 
months of its expiration or termination, except for contingent 
liabilities that must be listed by the Company. At the time of final 
settlement, the balance, if any, due FEMA or the Company must be 
remitted by the other immediately and the operating year under this 
Arrangement must be closed.

Article VIII. Arbitration

    If any misunderstanding or dispute arises between the Company and 
FEMA with reference to any factual issue under any provisions of this 
Arrangement or with respect to FEMA's nonrenewal of the Company's 
participation, other than as to legal liability under or interpretation 
of the Standard Flood Insurance Policy, such misunderstanding or 
dispute may be submitted to arbitration for a determination that will 
be binding upon approval by FEMA. The Company and FEMA may agree on and 
appoint an arbitrator who will investigate the subject of the 
misunderstanding or dispute and make a determination. If the Company 
and FEMA cannot agree on the appointment of an arbitrator, then two 
arbitrators will be appointed, one to be chosen by the Company and one 
by FEMA.
    The two arbitrators so chosen, if they are unable to reach an 
agreement, must select a third arbitrator who must act as

[[Page 11778]]

umpire, and such umpire's determination will become final only upon 
approval by FEMA. The Company and FEMA shall bear in equal shares all 
expenses of the arbitration. Findings, proposed awards, and 
determinations resulting from arbitration proceedings carried out under 
this section, upon objection by FEMA or the Company, shall be 
inadmissible as evidence in any subsequent proceedings in any court of 
competent jurisdiction.
    This Article shall indefinitely succeed the term of this 
Arrangement.

Article IX. Errors and Omissions

    In the event of negligence by the Company that has not resulted in 
litigation but has resulted in a claim against the Company, FEMA will 
not consider reimbursement of the Company for costs incurred due to 
that negligence unless the Company takes all reasonable actions to 
rectify the negligence and to mitigate any such costs as soon as 
possible after discovery of the negligence. The Company may choose not 
to seek reimbursement from FEMA.
    Further, if the claim against the Company is grounded in actions 
significantly outside the scope of this Arrangement or if there is 
negligence by the agent, FEMA will not reimburse any costs incurred due 
to that negligence. The Company will be notified in writing within 
thirty (30) days of a decision not to reimburse. In the event the 
Company wishes to petition for reconsideration of the decision not to 
reimburse, the procedure in Article III.D.3.d applies.
    However, in the event that the Company has made a claim payment to 
an insured without including a mortgagee (or trustee) of which the 
Company had actual notice prior to making payment, and subsequently 
determines that the mortgagee (or trustee) is also entitled to any part 
of said claim payment, any additional payment may not be paid by the 
Company from any portion of the premium and any funds derived from any 
federal letter of credit deposited in the bank account described in 
Article II.E. In addition, the Company agrees to hold the Federal 
Government harmless against any claim asserted against the Federal 
Government by any such mortgagee (or trustee), as described in the 
preceding sentence, by reason of any claim payment made to any insured 
under the circumstances described above.

Article X. Officials Not To Benefit

    No Member or Delegate to Congress, or Resident Commissioner, may be 
admitted to any share or part of this Arrangement, or to any benefit 
that may arise therefrom; but this provision may not be construed to 
extend to this Arrangement if made with a corporation for its general 
benefit.

Article XI. Offset

    At the settlement of accounts, the Company and FEMA has, and may 
exercise, the right to offset any balance or balances, whether on 
account of premiums, commissions, losses, loss adjustment expenses, 
salvage, or otherwise due one party to the other, its successors or 
assigns, hereunder or under any other Arrangements heretofore or 
hereafter entered into between the Company and FEMA. This right of 
offset shall not be affected or diminished because of insolvency of the 
Company.
    All debts or credits of the same class, whether liquidated or 
unliquidated, in favor of or against either party to this Arrangement 
on the date of entry, or any order of conservation, receivership, or 
liquidation, shall be deemed to be mutual debts and credits and shall 
be offset with the balance only to be allowed or paid. No offset shall 
be allowed where a conservator, receiver, or liquidator has been 
appointed and where an obligation was purchased by or transferred to a 
party hereunder to be used as an offset.
    Although a claim on the part of either party against the other may 
be unliquidated or undetermined in amount on the date of the entry of 
the order, such claim will be regarded as being in existence as of the 
date of such order and any credits or claims of the same class then in 
existence and held by the other party may be offset against it.

Article XII. Equal Opportunity

    The Company shall not discriminate against any applicant for 
insurance because of race, color, religion, sex, age, handicap, marital 
status, or national origin.

Article XIII. [Reserved]

[Reserved]

Article XIV. Access to Books and Records

    FEMA, the Department of Homeland Security, and the Comptroller 
General of the United States, or their duly authorized representatives, 
for the purpose of investigation, audit, and examination shall have 
access to any books, documents, papers and records of the Company that 
are pertinent to this Arrangement. The Company shall keep records that 
fully disclose all matters pertinent to this Arrangement, including 
premiums and claims paid or payable under policies issued pursuant to 
this Arrangement. Records of accounts and records relating to financial 
assistance shall be retained and available for three (3) years after 
final settlement of accounts, and to financial assistance, three (3) 
years after final adjustment of such claims. FEMA shall have access to 
policyholder and claim records at all times for purposes of the review, 
defense, examination, adjustment, or investigation of any claim under a 
flood insurance policy subject to this Arrangement.

Article XV. Compliance With Act and Regulations

    This Arrangement and all policies of insurance issued pursuant 
thereto are subject to federal law and regulations.

Article XVI. Relationship Between the Parties and the Insured

    Inasmuch as the Federal Government is a guarantor hereunder, the 
primary relationship between the Company and the Federal Government is 
one of a fiduciary nature, that is, to assure that any taxpayer funds 
are accounted for and appropriately expended. The Company is a fiscal 
agent of the Federal Government, but is not a general agent of the 
Federal Government. The Company is solely responsible for its 
obligations to its insured under any policy issued pursuant hereto, 
such that the Federal Government is not a proper party to any lawsuit 
arising out of such policies.

    Authority: 42 U.S.C. 4071, 4081; 44 CFR 62.23.

    Dated: March 8, 2018.
Roy E. Wright,
Deputy Associate Administrator for Insurance and Mitigation, Federal 
Emergency Management Agency.
[FR Doc. 2018-05418 Filed 3-15-18; 8:45 am]
 BILLING CODE 9111-52-P