Document ID: FEMA-2008-0001-0001
Agency: fema
Document Type: Rule
Title: National Flood Insurance Program (NFIP); Assistance to Private Sector Property Insurers; Write-Your-Own Arrangement
Posted Date: 2008-04-03T04:00Z

[Federal Register: April 3, 2008 (Volume 73, Number 65)]
[Rules and Regulations]               
[Page 18182-18188]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03ap08-13]                         

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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

44 CFR Part 62

[Docket ID FEMA-2008-0001]
RIN 1660-AA58

 
National Flood Insurance Program (NFIP); Assistance to Private 
Sector Property Insurers; Write-Your-Own Arrangement

AGENCY: Federal Emergency Management Agency, DHS.

ACTION: Interim Rule.

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SUMMARY: This rule amends portions of the Federal Emergency Management 
Agency (FEMA), Federal Insurance Administration, Financial Assistance/
Subsidy Arrangement (Arrangement) between Write-Your-Own Companies (WYO 
Companies) and FEMA. The rule makes technical changes intended to 
assist WYO Companies by recognizing each party's duties under the 
Arrangement and amends the way FEMA communicates changes to the 
Unallocated Loss Adjustment Expenses

[[Page 18183]]

(ULAE) compensation rate to WYO Companies.

DATES: Effective Date: May 5, 2008.
    Comment Date: Submit comments on or before June 2, 2008.

ADDRESSES: You may submit comments, identified by Docket ID FEMA-2008-
0001, by one of the following methods:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    E-mail: FEMA-RULES@dhs.gov. Include Docket ID FEMA-2008-0001 in the 
subject line of the message.
    Fax: 866-466-5370.
    Mail/Hand Delivery/Courier: Rules Docket Clerk, Office of Chief 
Counsel, Federal Emergency Management Agency, 500 C Street, SW., Room 
835, Washington, DC 20472.
    Handling of Confidential or Proprietary Information Submitted in 
Public Comments: Do not submit comments that include trade secrets, 
confidential commercial or financial information to the public 
regulatory docket. Please submit such comments separately from other 
comments on the rulemaking. Comments containing this type of 
information should be appropriately marked as containing such 
information and submitted by mail/hand delivery/courier to the FEMA 
Office of Chief Counsel, 500 C Street, SW., Room 835, Washington, DC 
20472.
    Upon receipt of such comments, FEMA will not place the comments in 
the public docket and will handle them in accordance with applicable 
safeguards and restrictions on access. FEMA will hold them in a 
separate file to which the public does not have access, and place a 
note in the public docket that FEMA has received such materials from 
the commenter. If FEMA receives a request to examine or copy this 
information, FEMA will treat it as any other request under the Freedom 
of Information Act (FOIA) (5 U.S.C. 552) and FEMA's FOIA regulation on 
confidential commercial information found at 44 CFR 5.57.
    Instructions: All submissions received must include the agency name 
and Docket ID (FEMA-2008-0001). Unless the comment or material is 
submitted using the method provided above in ``Handling of Confidential 
or Proprietary Information Submitted in Public Comments,'' all 
submissions will be posted, without change, to the Federal eRulemaking 
Portal at http://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 on the Privacy and Use Notice link on the Administration 
Navigation Bar of http://www.regulations.gov.
    Viewing Comments and Documents: For access to the docket to read 
background documents or comments received, go to the Federal 
eRulemaking Portal at http://www.regulations.gov and search for Docket 
ID FEMA-2008-0001. Submitted comments may also be inspected at Office 
of Chief Counsel, Federal Emergency Management Agency, 500 C Street, 
SW., Room 835, Washington, DC 20472.

FOR FURTHER INFORMATION CONTACT: Edward L. Connor, Deputy Assistant 
Administrator, Federal Emergency Management Agency, 500 C Street SW., 
Washington, DC 20472, (202) 646-3429 (Phone), (202) 646-3445 
(facsimile), or Edward.Connor@dhs.gov.

SUPPLEMENTARY INFORMATION: 

I. Introduction

    Under the authority of sections 1304 and 1345 of the National Flood 
Insurance Act of 1968, Public Law 90-448, 82 Stat. 476, as amended (42 
U.S.C. 4011, 4081), the Federal Emergency Management Agency (FEMA) 
provides insurance protection against flood damage to homeowners, 
businesses, and others by means of the National Flood Insurance Program 
(NFIP). The sale of flood insurance is largely implemented by private 
insurance companies that participate in the NFIP Write-Your-Own (WYO) 
program. Through the WYO program, insurance companies enter into 
agreements with FEMA to sell and service flood insurance policies and 
adjust claims after flood losses.
    Under the WYO program, 88 private sector property insurers issue 
flood insurance policies and adjust flood insurance claims under their 
own names based on the Financial Assistance/Subsidy Arrangement 
(Arrangement). The Arrangement is published at 44 CFR part 62, Appendix 
A and defines the duties and responsibilities of insurers that sell, 
service and market insurance under the WYO program. The Arrangement 
also identifies the responsibilities of the Government to provide 
financial and technical assistance to these insurers. The Arrangement 
is renewed yearly through written agreement between the WYO Companies 
and FEMA.

II. Discussion of the Interim Rule

    In this rule, FEMA makes three changes to the Arrangement. These 
changes either clarify existing practices or clarify how FEMA 
communicates certain information to WYO Companies.

1. Insurance Agent Training

    Article II, section G. 3., is being added to address the WYO 
Companies' cooperation in helping ensure that agents writing flood 
insurance under the NFIP avail themselves of the training opportunities 
needed to meet the minimum NFIP training requirements called for in 
section 207 of the Bunning-Bereuter-Blumenauer Flood Insurance Reform 
Act of 2004, Public Law 108-264, 118 Stat. 733 (42 U.S.C. 4011 note) 
(the ``BBB Act''). The new section of the Arrangement will not affect 
the training and education requirements, which are established by the 
States, but merely integrates WYO Companies into the effort to ensure 
agents meet those requirements. The new section commits the WYO 
Companies to notify their agents of the requirement to comply with 
State regulations regarding flood insurance agent education, notify 
them of flood insurance training opportunities, and assist FEMA in 
periodic assessment of agent training needs. Although WYO Companies are 
already undertaking these efforts, they are being added to the 
Arrangement to formalize the commitment.

2. Payment of Claims

    Article III, section D. 1. of the Arrangement provides that loss 
payments under flood insurance policies are to be made by the WYO 
Company from Federal funds retained in the bank account(s) established 
under Article II, section E., and, if such funds are depleted, from 
Federal funds derived by drawing against the Letter of Credit 
established pursuant to Article IV. WYO Companies have sought 
clarification as to what would occur following a large scale flooding 
event if there are no funds available in the National Flood Insurance 
Fund (NFIF) to be drawn down through the company letter of credit.
    Although the seventh ``Whereas'' clause in Article I already states 
that the Federal Treasury will back all flood policy claim payments by 
the Company, FEMA is revising Article VII, section A. to provide 
additional clarification that there is no requirement that WYO 
Companies use their own funds to pay NFIP claims when there are no 
funds available in the NFIF to be drawn down through the company letter 
of credit. As will be discussed in more depth below, in certain heavy 
loss years, the potential exists for the NFIP to exhaust its authority 
to borrow funds from the Treasury to pay claims. In such an event, 
there may be a period of time during which no funds are available in 
the Treasury until the Congress takes

[[Page 18184]]

action to either increase the program's borrowing authority, or 
appropriate funds to relieve the debt. This interim rule revises 
Article VII, section A. to provide that in such circumstances, the 
Federal Insurance Administrator will suspend the NFIP's payment of 
claims until funds are again available in the Treasury, and that the 
WYO Companies are not required to pay claims from their own funds in 
the event of such a suspension.

3. Unallocated Loss Adjustment Expense Schedule

    FEMA is revising Article III, section C.1. of the Arrangement which 
deals with the Unallocated Loss Adjustment Expense (ULAE) for which WYO 
Companies receive reimbursement under the Arrangement. At present, the 
ULAE rate is an expense reimbursement of 3.3 percent of the incurred 
loss (except that it does not include ``incurred but not reported''). 
The effect of this rule is to remove the ULAE compensation percentage 
from the Arrangement. Instead, the percentage will now be communicated 
by FEMA to the WYO Companies through a ULAE Schedule.
    As currently written, the ULAE compensation rate is one of only a 
few compensation rates explicitly spelled out in the Arrangement. The 
WYO Allocated Loss Adjustment Expense Fee Schedule (also called the 
Adjuster fee schedule) was at one time also in the Arrangement, but was 
removed because it changed frequently (61 FR 37687). Similarly, the 
total WYO Allowance was once contained in the Arrangement. The WYO 
Allowance was a combination of a 15 percent agency commission rate and 
an operating expense rate. Because the operating expense portion of 
that figure changed from year-to-year, the operating expense portion of 
that figure was removed (64 FR 27705). In the Fiscal Year 2007 
Arrangement, the only fixed compensation rates were the agency 
commission rate of 15 percent, a 2 percent marketing incentive, and the 
3.3 percent ULAE.
    Until now the ULAE has not changed. Pursuant to this rulemaking, 
however, the 3.3 percent fixed rate will be removed and, the ULAE 
compensation rate will be subject to change. Therefore, it makes sense 
to treat it in the same manner as the Adjuster fee schedule and the WYO 
Allowance by releasing it in an annual fee schedule. This will allow 
FEMA to adjust the rate as needed to reflect the actual expenses 
incurred by the WYO Companies.
    In the aftermath of Hurricanes Katrina, Rita, and Wilma in 2005, 
FEMA became aware that while the ULAE compensation percentage is 
equitable for most loss years, it exposes the Federal Government to an 
excessive amount of reimbursement in loss years that reach a 
catastrophic level of losses. ULAE is intended to cover those claim 
handling expenses that are not associated with specific claims, such as 
maintaining the home office claims staff and establishing and running 
on-site claims field offices. The 3.3 percent rate functioned equitably 
during most years of the NFIP, under-compensating companies moderately 
in light loss years, while providing slightly more compensation in 
heavier loss years, but averaging out to an appropriate level. However, 
as FEMA experienced after Hurricane Katrina, the 3.3 percent schedule 
greatly exceeds the companies' actual ULAE out-of-pocket expenses in 
catastrophic loss years.
    In an ``average'' loss year, the NFIP pays out approximately $16.8 
million in ULAE ($302,775,669/18 years), while a single catastrophic 
event (Hurricane Katrina) resulted in over $613 million in ULAE 
payments. The data from 1987 to 2007 used to generate these figures is 
available in the public docket for this rulemaking. Generally, ULAE is 
expected to increase as claims payout increases. That is, ULAE expenses 
for the WYO Companies should be larger during heavy loss years. 
However, the ratio of ULAE to losses (either paid losses or incurred 
losses) is not constant.
    For example, if paid losses increase ten-fold, the increase in ULAE 
expenditures (the administrative expense associated with processing 
each claim) will not also increase ten-fold. However, under the 
Arrangement, the ULAE reimbursement was a set 3.3 percent of the 
incurred loss. In an average year, claims tend to range between $15,000 
and $30,000. So, for an average $30,000 insurance claim the ULAE 
reimbursement of 3.3 percent would be $990 per claim. However, claims 
from Hurricane Katrina, averaged around $90,000, so the ULAE 
reimbursement of 3.3 percent jumped to $2,970 per claim. When entering 
the realm of certain catastrophic flooding events like Hurricane 
Katrina, WYO Companies could benefit somewhat from the economy of 
scale.
    To confirm this, FEMA sought data from the Institute for Business 
and Home Safety (IBHS), a nonprofit organization of insurers and 
reinsurers that conduct business in the United States or reinsure risks 
located in the United States. IBHS submitted a voluntary data call for 
unallocated loss figures related to Hurricane Katrina to the insurance 
companies on its flood subcommittee. FEMA received consolidated data 
from five of the companies.

                                               Companies A Thru E
----------------------------------------------------------------------------------------------------------------
                                                             2005                2006              2005-2006
----------------------------------------------------------------------------------------------------------------
Direct Incurred Losses..............................     $12,130,920,519        $304,991,844     $12,435,912,362
Direct ULAE Incurred................................        $328,235,999       $(17,947,595)        $310,288,405
Percentage..........................................                2.71               -5.88                2.50
----------------------------------------------------------------------------------------------------------------

    The figures above reflect the amount of Direct Incurred Losses that 
were paid out to policyholders for flood loss. The Direct ULAE Incurred 
is the actual amount of cost that the WYO Companies incurred to process 
the claims. In 2005, the companies expended $328,235,999 which was 2.71 
percent of the overall amount paid out. In contrast, in 2006, the 
companies actually saved $17,947,595, which is a negative 5.88 percent 
of the amount paid to insureds. The FY2006 cost savings was a result of 
efficiencies in scale resulting from the realization of the cost in 
FY2005. Because the losses in both years are attributed to Hurricane 
Katrina, FEMA has aggregated the figures which show an overall actual 
cost to the WYO Companies for their ULAE to be 2.5 percent of the 
incurred losses for a catastrophic event. This is in contrast to the 
3.3 percent that the WYO Companies were actually paid under the terms 
of the Arrangement.
    FEMA has considered four primary alternatives to the fixed 3.3 
percent rate:
    A. Status quo. This is an unacceptable position due to the inflated 
ULAE payments to the WYO Companies that occur after catastrophic events 
like Hurricane Katrina.
    B. Straight reduction to the ULAE formula from the current 3.3 
percent to

[[Page 18185]]

a number that is more equitable for catastrophic years. While this 
would solve the problem for catastrophic years, it would greatly under-
compensate the WYO Companies for the great preponderance of ``routine'' 
loss years. This would cause the companies to question their continued 
participation in the program and could greatly impact the long-term 
effectiveness of the program.
    C. A blend of A and B that would maintain the current ULAE schedule 
of 3.3 percent of incurred losses for non-catastrophic loss years, 
while providing a lower ULAE rate for losses in excess of a specified 
threshold. While this approach has a certain appeal, as FEMA explored 
this option the formula quickly became very complicated as FEMA tried 
to adapt the formula so that it could be applied at the individual 
company level, taking into account the difference in what a 
catastrophic loss year would look like for a large company versus 
smaller geographically concentrated companies. It also had to be 
flexible enough to appropriately limit ULAE compensation for 
catastrophes where the loss payments span fiscal years. In short, the 
formula quickly grew so complicated that it would be difficult to 
administer.
    D. Providing the ULAE reimbursement for companies to be based on a 
combination of a percentage of written premiums and a percentage of 
incurred loss. Shifting a portion of the ULAE compensation to be based 
on written premium would allow the companies a more equitable vehicle 
to cover their fixed expenses--such as home office claims staff--that 
are incurred every year whether a light loss year or a catastrophic 
loss year. However, under such an approach the appropriate percentage 
of written premium would probably vary over time depending upon the 
policy base and the premium adequacy of the NFIP. For example, as the 
current discounted premium (commonly referred to as ``subsidized 
premiums'') is addressed through aggressive rate increases, the NFIP's 
written premium would increase without an associated increase in the 
WYO Companies' fixed expenses.
    FEMA currently favors splitting the ULAE compensation between 
premium and incurred loss as described in alternative D. However, to 
assure that the ULAE Fee Schedule can be easily adjusted to reflect 
needed readjustments over time, the ULAE percentage should be removed 
from the Arrangement and handled similarly to the Adjuster Fee Schedule 
and WYO Allowance.
    Transmitting the ULAE rate through a Fee Schedule will align it 
with the method that FEMA uses to transmit most of the other rates in 
the Agreement to WYO Companies and will allow FEMA to revise the rate 
more rapidly than through the formal rulemaking process. However, FEMA 
will not revise the rate during the Arrangement year. Pursuant to the 
terms of 44 CFR 62.23(i)(3), an established loss adjustment Fee 
Schedule is part of the Arrangement and cannot be changed during an 
Arrangement year.
    FEMA has extended the FY2007 Arrangement until such time that the 
FY2008 Arrangement and Schedules are finalized. Concurrent with the 
release of the FY2008 Arrangement, FEMA will release the FY2008 ULAE 
Schedule. In the new schedule, FEMA intends to move from a fixed rate 
system to a formula. FEMA used the data above to generate the new ULAE 
formula which is expected to be 1 percent of the Written Premium plus 
1.5 percent of the Incurred Loss. FEMA used data from 1985 to 2007 to 
compare ULAE payments under the 3.3 percent framework versus this new 
formula and found the difference to be negligible in routine loss 
years. From 1985 to 2007, excluding 2005 and 2006, the total (not 
annual) difference is an increase of approximately $14 million. Using 
data from 2005-2006, which are the catastrophic Katrina years, the 
difference is a total reduction of approximately $300 million. A chart 
depicting this data is available in the public docket for this 
rulemaking.
    Although this rulemaking is focused on the manner in which the ULAE 
formula is communicated to the WYO Companies, and not the actual ULAE 
rate itself, FEMA seeks data to use in its efforts to revise the 
formula, and suggestions for ways to tailor the formula to ensure that 
it will accurately reimburse WYO Companies for their actual loss. WYO 
Companies are encouraged to submit actual ULAE data during the comment 
period of this rule to assist FEMA in continuing to refine the formula. 
Comments that include trade secrets, confidential commercial or 
financial information should be submitted using the methods described 
above in the ``Handling of Confidential or Proprietary Information 
Submitted in Public Comments'' portion of the ADDRESSES caption of this 
preamble.

III. Regulatory Requirements

Administrative Procedure Act

    The Administrative Procedure Act (APA), 5 U.S.C. 553, and 44 CFR 
1.12, provides an exception from the standard notice and comment 
rulemaking procedures where the agency for good cause finds the 
procedures for comment and response contrary to public interest. The 
rapid implementation of this rule is in the best interest of the 
public, as delay could overwhelm the NFIP should a catastrophic 
disaster occur.
    Although catastrophic loss events like Katrina are relatively 
infrequent events, the probability of another storm of similar 
magnitude remains the same for this year. Research has shown that there 
has been a significant increase in high-latitude cyclone frequency, 
with an increase in storm intensity. (``Trends in Northern Hemisphere 
Surface Cyclone Frequency and Intensity'', Gregory J. McCabe, Martyn P. 
Clark and Mark C. Serreze, American Meterological Society, June 15, 
2001.) There has also been an increase of more than 30 percent in the 
modeled frequency of major hurricanes making landfall in the United 
States, which accounts for current elevated levels of hurricane 
activity in the Atlantic basin that are expected to persist for at 
least the next five years. Although experts hold different 
climatological perspectives on the underlying causes of elevated 
hurricane activity, warmer temperatures are expected to result in high 
activity in the Atlantic basin, leading to a greater potential for 
hurricanes to make landfall at higher intensities. (``Insurance Risk 
Models Rise with Elevated Storm Frequency, Severity'' Environment News 
Service, April 13, 2006.)
    Furthermore, hurricanes are not the only cause of floods. 
Catastrophic flooding can occur at anytime of the year. If a 
catastrophic event occurs before FEMA is able to revise the ULAE figure 
it could cause a financial hardship to the American taxpayer as there 
would be a drain on the NFIP funds that would not have occurred if the 
change in the ULAE was in place at the time of the event. After 
Hurricane Katrina, the NFIP was forced to borrow $17.31 billion from 
the Federal Treasury. If an event were to occur, the program's debt to 
the Treasury would only increase. Since a catastrophic flooding event 
has the possibility of happening at any time, any delay in implementing 
this rule puts the risk of financial hardship in the realm of 
possibility.
    The program has been fortunate to have had two years in a row (2006 
and 2007), in which the United States has not been hit with a large 
disaster; however, it is foolish to expect that such calm years will 
continue. Spurred by the constant threat of flood hazards, FEMA has 
been reviewing the NFIP to evaluate areas in which the program is 
inefficient. One area addressed is the ULAE rate. As discussed above, 
the

[[Page 18186]]

fixed 3.3 percent ULAE rate established in the Arrangement is not 
aligned with the actual expenses incurred by WYO Companies in 
processing claims. If a catastrophic disaster or any disaster resulting 
in more than $3 million in losses hits before this rule goes into 
effect, it could overwhelm the NFIP. This rule is intended to reduce 
inefficiency in the NFIP and properly allocate relatively scarce 
resources to those in need.
    FEMA has not considered these changes to the Arrangement in a 
vacuum. In the summer of 2007 FEMA met with IBHS, a nonprofit 
organization of insurers and reinsurers that conduct business in the 
United States or reinsure risks located in the United States. Forty-
three of the 88 WYO companies are members of IBHS and those 43 
companies write 85 percent of the WYO policies. The purpose of that 
meeting was to discuss the possibility of removing the fixed ULAE rate 
and methods that could be used in its place to more appropriately 
reimburse the actual expenses incurred by WYO Companies. IBHS provided 
helpful ideas, many of which are discussed above in the ``Discussion of 
the Interim Rule'' section. In those discussions, IBHS did not oppose 
the removal of the ULAE percentage from the text of the Arrangement or 
the revision of the ULAE formula.
    FEMA believes it is contrary to the public interest to delay the 
benefits of this rule. In accordance with the APA, 5 U.S.C. 553(b)(B), 
for the reasons cited above FEMA finds that there is good cause for the 
interim final rule to be published without prior public comment FEMA, 
however, values public input to the regulatory process, and for this 
reason we are inviting post-effective-date comments on this interim 
rule. We may change this rule as a result of the comments we receive.

Congressional Review of Agency Rulemaking

    FEMA has sent this interim final rule to the Congress and to the 
Government Accountability Office under the Congressional Review of 
Agency Rulemaking Act, 5 U.S.C. 801-808. As discussed in depth below in 
the Executive Order 12866 analysis, this rule is not a ``major rule'' 
within the meaning of that Act and will not result in an annual effect 
on the economy of $100,000,000 or more. Moreover, 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. Nor does FEMA expect that it will 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.
    This rule is intended to revise the Arrangement between the WYO 
Companies and FEMA to encourage agents writing flood insurance under 
the NFIP to avail themselves of the training opportunities needed to 
meet the minimum NFIP training requirements, to clarify that there is 
no requirement that WYO Companies use their own funds to pay NFIP 
claims when there are no funds available in the NFIF to be drawn down 
through the company letter of credit, and to change the method in which 
FEMA communicates the ULAE rate to the WYO Companies. These changes are 
intended to improve the Arrangement and allow FEMA to run the NFIP in a 
more efficient and reasonable manner.

Executive Order 12866, Regulatory Planning and Review

    FEMA has prepared and reviewed this rule under the provisions of 
Executive Order 12866 (58 FR 51735, Oct. 4, 1993). This rulemaking is 
not a significant regulatory action under section 3(f) of Executive 
Order 12866; therefore, OMB has not reviewed it under that Order.
    As explained in this preamble, the first change to the Arrangement 
involves adding section G.3. to Article II. Section G.3. clarifies a 
WYO Company's cooperation in helping market the NFIP flood insurance 
policy, including ensuring that property insurance agents writing flood 
insurance under the NFIP avail themselves of the training opportunities 
needed to meet the minimum NFIP training requirements called for in 
section 207 of the Flood Insurance Reform Act of 2004. As insurance 
companies, these entities are expected to ensure that agents who 
provide insurance to the public understand the policies they provide. 
Training agents in the content of policies they provide is a necessary 
and typical part of marketing any insurance policy. These are efforts 
WYO Companies are already undertaking.
    Next, in Article VII of the Arrangement, FEMA revises section A. to 
clarify for WYO Companies that, as has always been the case, WYO 
Companies do not have to use company funds to pay NFIP claims when 
there are no funds available in the NFIF to be drawn down through the 
company letter of credit. In certain heavy loss years, the potential 
exists for the NFIF to exhaust its authority to borrow funds from the 
Treasury to pay claims. In such an event, there may be a period of time 
during which no funds are available in the Treasury until the Congress 
either takes action to increase the program's borrowing authority, or 
appropriates funds to relieve the debt. The change made to the 
Arrangement in this rule is consistent with past practices of the NFIP, 
clarifies that the practice will continue in the future, and has no 
monetary impact.
    Finally, this rule revises section C.1. of Article III, to remove 
explicit reference to the 3.3 percent ULAE compensation percentage in 
the Arrangement to allow FEMA added flexibility in adjusting the rate 
as needed to best align it to the actual expenses incurred by the WYO 
Companies. Instead, the ULAE rate will be communicated by FEMA to the 
WYO Companies through a Fee Schedule. The ULAE compensation rate will 
be communicated to the WYO Companies in the same manner that other 
forms of its compensation have been communicated. This rule does not 
change the ULAE rate, only the way it is communicated; therefore, there 
is no monetary effect from this rule.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') (5 U.S.C. 601 et seq.), as 
amended by the Small Business Regulatory Enforcement Fairness Act of 
1996 (Pub. L. 104-121, 110 Stat. 857) mandates that an agency conduct a 
RFA analysis when an agency is ``required by section 553 * * * to 
publish general notice of proposed rulemaking for any proposed rule * * 
*'' 5 U.S.C. 603(a). Accordingly, RFA analysis is not required when a 
rule is exempt from notice and comment rulemaking under 5 U.S.C. 
553(b). Good cause exists under 5 U.S.C. 553(b)(B) to exempt this rule 
from the notice and comment requirements of 5 U.S.C. 553(b). Therefore 
no RFA analysis under 5 U.S.C. 603 is required for this rule.

National Environmental Policy Act

    FEMA's regulations implementing the National Environmental Policy 
Act of 1969 (42 U.S.C. 4321 et seq.) at 44 CFR 10.8(d)(2)(ii) 
categorically exclude the preparation, revision, and adoption of 
regulations, directives, manuals, and other guidance documents related 
to actions that qualify for categorical exclusions. The changes made in 
this regulation constitute action to enforce Federal, State or local 
codes, standards or regulations. This rulemaking will not have a 
significant effect on the human environment and, therefore, neither an 
environmental assessment nor an

[[Page 18187]]

environmental impact statement are required.

Executive Order 13132, Federalism

    Executive Order 13132, entitled ``Federalism'' (64 FR 43255, Aug. 
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, 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. The changes in this rule affect the 
contractual relationship between FEMA and WYO Companies. Participation 
as a WYO Company is voluntary and does not affect State policymaking 
discretion. 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.

Paperwork Reduction Act of 1995

    As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 
et seq.), an agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless the 
collection of information displays a valid OMB control number. This 
rule does not impose any new reporting or recordkeeping requirements, 
nor does it revise information collection requirements currently 
approved under the Paperwork Reduction Act of 1995.

Executive Order 12988, Civil Justice Reform

    FEMA has reviewed this rule under Executive Order 12988, ``Civil 
Justice Reform'' (61 FR 4729, Feb. 7, 1996). This rule meets applicable 
standards to minimize litigation, eliminate ambiguity, and reduce 
burden.

Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) 
requires Federal agencies, to the extent permitted by law, to prepare a 
written assessment of the effects of any Federal mandate in a proposed 
or final agency rule that may result in the expenditure by State, 
local, and tribal governments, in the aggregate, or by the private 
sector, of $100 million or more in any one year. Though this rule will 
not result in such an expenditure, FEMA does discuss the effects of 
this rule elsewhere in this preamble.
    Moreover, because this rule addresses a pre-existing Arrangement 
between FEMA, FIA, and WYO Companies it does not impose any additional 
enforceable duty beyond that already agreed to. Participation as a WYO 
Company is voluntary and does not affect State policymaking discretion. 
Accordingly, this rule does not contain any unfunded mandate or 
significantly or uniquely affect small governments, as described in the 
Unfunded Mandates Reform Act of 1995.

Executive Order 12898, Environmental Justice

    Under Executive Order 12898, ``Federal Actions to Address 
Environmental Justice in Minority Populations and Low-Income 
Populations'' (59 FR 7629, Feb. 16, 1994), 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.
    FEMA believes that no action under this rule will have a 
disproportionately high or adverse effect on human health or the 
environment. Accordingly, the requirements of Executive Order 12898 do 
not apply to this rule.

Executive Order 13045, Protection of Children

    FEMA has analyzed this rule under Executive Order 13045, Protection 
of Children From Environmental Health Risks and Safety Risks. This rule 
is not an economically significant rule and would not create an 
environmental risk to health or safety that might disproportionately 
affect children.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    FEMA has reviewed this rule under Executive Order 13175, 
``Consultation and Coordination With Indian Tribal Governments'' (65 FR 
67249, Nov. 9, 2000). This rule will not have a substantial direct 
effect 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.

Executive Order 12630, Governmental Actions and Interference With 
Constitutionally Protected Property Rights

    FEMA has reviewed this rule under Executive Order 12630, 
``Governmental Actions and Interference With Constitutionally Protected 
Property Rights'' (53 FR 8859, Mar. 18, 1988) as supplemented by 
Executive Order 13406, ``Protecting the Property Rights of the American 
People'' (71 FR 36973, June 28, 2006). This rule will not affect a 
taking of private property or otherwise have taking implications under 
Executive Order 12630.

List of Subjects in 44 CFR Part 62

    Claims, Flood insurance, Reporting and recordkeeping requirements.

0
For the reasons set forth in the preamble, amend 44 CFR part 62, 
appendix A 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. In Appendix A to part 62, amend Article II to add section G.3. to 
read as follows:

Appendix A to Part 62--Federal Emergency Management Agency, Federal

Insurance Administration, Financial Assistance/Subsidy Arrangement

* * * * *
Article II--Undertaking of the Company
* * * * *
    G. * * *
    3. The Company shall 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.

0
3. In Appendix A to part 62, amend Article III to revise section C.1. 
to read as follows:
Article III--Loss Costs, Expenses, Expense Reimbursement, and Premium 
Refunds
* * * * *
    C. * * *
    1. Unallocated loss adjustment expense shall be reimbursed to the

[[Page 18188]]

Company pursuant to a ``ULAE Schedule'' coordinated with the Company 
and provided by the Federal Insurance Administrator.
* * * * *

0
4. In Appendix A to part 62, amend Article VII to revise section A. to 
read as follows:
Article VII--Cash Management and Accounting
    A. FEMA shall make available to the Company during the entire term 
of this Arrangement and any continuation period required by FIA 
pursuant to Article V, Section C., the Letter of Credit provided for in 
Article IV drawn on a repository bank within the Federal Reserve System 
upon which the Company may draw 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, FIA shall direct the Company to 
immediately suspend the issuance of loss payments until such time as 
adequate funds are available. The Companies are not required to pay 
claims from their own funds in the event of such suspension.
* * * * *

    Dated: March 28, 2008.
Harvey E. Johnson Jr.,
Acting Deputy Administrator, Federal Emergency Management Agency.
 [FR Doc. E8-6898 Filed 4-2-08; 8:45 am]

BILLING CODE 9110-12-P