[Federal Register Volume 89, Number 212 (Friday, November 1, 2024)]
[Rules and Regulations]
[Pages 87299-87309]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-25213]
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DEPARTMENT OF HOMELAND SECURITY
Federal Emergency Management Agency
44 CFR Parts 61 and 62
[Docket ID FEMA-2024-0030]
RIN 1660-AB16
National Flood Insurance Program Installment Payment Plan
AGENCY: Federal Emergency Management Agency, Department of Homeland
Security (DHS).
ACTION: Final rule.
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SUMMARY: The National Flood Insurance Program (NFIP) is a voluntary
program in which interested persons can purchase flood insurance for
their property, if it is located in a community that participates in
the NFIP by adopting and enforcing a set of minimum floodplain
management requirements to reduce future flood damages. FEMA is
revising the NFIP's regulations to offer NFIP policyholders the option
of paying their annual flood insurance premium in monthly installments.
DATES: This rule is effective December 31, 2024.
ADDRESSES: The docket for this rulemaking is available for inspection
using the Federal eRulemaking Portal at https://www.regulations.gov and
can be viewed by following that website's instructions.
FOR FURTHER INFORMATION CONTACT: Kelly Bronowicz, Director,
Policyholder Services Division, Federal Insurance Directorate,
Resilience, Federal Emergency Management Agency, (202) 557-9488,
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
A. The National Flood Insurance Program
Congress created the National Flood Insurance Program (NFIP)
through enactment of the National Flood Insurance Act of 1968 (NFIA)
(title XIII of Pub. L. 90-448, 82 Stat. 572), 42 U.S.C. 4001 et seq.
The NFIP is a Federal program enabling property owners in participating
communities that adopt and enforce floodplain management regulations to
purchase insurance as a protection against flood losses. A consumer may
purchase an NFIP federally-backed flood insurance policy either: (1)
directly from the Federal Government through a direct servicing agent
(referred to as ``NFIP Direct''); or (2) from a participating private
insurance company through the Write Your Own (WYO) Program. The
Standard Flood Insurance Policy (SFIP) sets out the terms and
conditions of insurance. See 44 CFR part 61, appendix A. FEMA
establishes terms and conditions of coverage and sets premiums for
coverage. The terms, coverage limits, and flood insurance premiums are
the same whether a policy is purchased from the NFIP Direct or a
private WYO insurance company in the WYO Program. See 44 CFR 62.23(a).
Under the regulations in place prior to this rule change, FEMA required
policyholders to pay their applicable SFIP annual premium in full at
the time of application.\1\ 44 CFR 61.4(b). Requiring payment of the
annual premium in full at the time of application reduced
administrative costs to the program, and because of the seasonal nature
of flooding, ensured the receipt of premium and exposure to risk
[[Page 87300]]
would align.\2\ In 2012, Congress passed the Biggert-Waters Flood
Insurance Reform Act (BW-12), amending the NFIA to mandate that FEMA
provide NFIP policyholders who were ``not required to escrow their
premiums and fees for flood insurance as set forth under section 102 of
the Flood Disaster Protection Act of 1973 (42 U.S.C. 4012a) \3\ with
the option of paying their premiums annually or in more frequent
installments.'' Sec. 100205(d), Public Law 112-141, 126 Stat 405. The
Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) amended BW-
12 and the NFIA regarding the frequency of the installments by striking
the language ``annually or in more frequent installments'' and
inserting ``annually or monthly'' instead. 42 U.S.C. 4001 et seq.; sec.
11, Public Law 113-89, 128 Stat. 1025 (2014). The NFIP, having operated
for several decades within an annual payment structure for premiums,
provides payment compliance measures that will apply to the amended
regulations discussed herein.\4\ The changes in this rule will bring
FEMA's regulations into compliance with the nondiscretionary statutory
mandate to provide policyholders with the option of paying their
premiums annually or in monthly installments.
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\1\ Policyholders must also pay policy fees and statutory
surcharges at the time of application or policy renewal. See 44 CFR
61.10.
\2\ The NFIA requires FEMA to account for administrative costs
when setting rates. See 42 U.S.C. 4014(a)(1)(B); 42 U.S.C.
4015(b)(3)). See also 44 CFR 61.5(c) (2018) (restricting ability to
refund premium due to seasonal nature of flooding).
\3\ Pursuant to section 102 of the Flood Disaster Protection Act
of 1973, federal entities responsible for regulating lenders must
require federally backed lenders to allow borrowers who are required
to purchase flood insurance as a condition of a loan to escrow flood
insurance premiums ``with the same frequency as payments on the loan
are made, for the duration of the loan.'' 42 U.S.C. 4012a(d).
Mortgage payments are typically made monthly which means mortgagees
who are required to have flood insurance already pay for their flood
insurance premiums on a monthly basis.
\4\ See e.g., Insufficient Premium or Rating Information at 44
CFR part 61, appendix A(1), art. VII.D.
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B. Installment Plans Reduce Barriers To Purchasing Flood Insurance
This rulemaking, in addition to fulfilling a statutory mandate,
will also reduce barriers to purchasing flood insurance. In
administering the NFIP, FEMA provides information to help communities
and individuals better understand their flood risk. However, flood risk
knowledge by itself is not enough if households cannot act to protect
themselves. Providing an option for monthly installments will expand
access to flood insurance to meet the evolving needs of the Nation. The
option to pay in installments may also increase policyholders'
budgetary flexibility by alleviating cash flow pressure, as they could
use the deferred payment to address other monthly needs.
Some consumers may lack the financial ability to pay the entire
premium at one time.\5\ In this scenario, consumers will need to either
finance their purchase of flood insurance through debt (e.g., interest-
bearing credit cards) or forego flood insurance protection entirely.
Both outcomes can exacerbate negative financial outcomes following a
flood disaster, as many consumers may lack adequate funds to recover.
The installment plan relieves the immediate financial pressure on
policyholders from paying the entire premium amount at one time.
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\5\ See Lending Club, 9.3 Million More Consumers Ended 2022
Living Paycheck to Paycheck Than in 2021, Jan. 30, 2022, available
at https://ir.lendingclub.com/news/news-details/2023/9.3-Million-More-U.S.-Consumers-Ended-2022-Living-Paycheck-to-Paycheck-Than-in-2021/default.aspx (reporting that 64 percent of the 166 million
consumers in the U.S. were living paycheck to paycheck in 2022)
(last accessed October 7, 2024).
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Finally, the ability to pay in installments may result in more
policyholders retaining their flood insurance protection. Under the
NFIP's current annual premium payment requirement, a policyholder who
pays annually typically only interacts with their flood insurance
coverage at the time of initial purchase or renewal. The policyholder
must pay the full cost of flood insurance all at once, creating a
different trade-off dynamic than when the cost is spread out. Facing a
one-time annual payment, a policyholder may rationalize a decision to
opt out of renewing on grounds that they perceive their risk to be low
or that they will instead save the money spent on premium to self-fund
repairs. In contrast, policyholders who make more frequent flood
insurance payments will have an ongoing reminder that they are
protected against flood, and may be more aware of flood alerts, news
about flooding, and more accurately perceive their risk. At the time of
renewal, the ability to pay in installments may support a decision to
retain flood insurance.
II. Final Rule
FEMA is revising 44 CFR parts 61 and 62 as follows to add an
installment plan payment option for NFIP policies.
A. 44 CFR 61.4: Special Terms and Conditions
Section 61.4(b) requires that flood insurance applicants pay their
full policy premium at the time of application. FEMA is removing
paragraph (b) because it conflicts with the option to pay by monthly
installment plan. FEMA will retain paragraph (a) of Sec. 61.4, as that
section is unrelated to installment plans, will undesignate paragraph
(a), and will rename Sec. 61.4 ``Properties in violation of law,
regulation or ordinance'' as this more accurately describes the
contents of this revised section.
B. 44 CFR 61.10: Requirements for Issuance or Renewal of Flood
Insurance Coverage
Section 61.10 provides that FEMA will not issue or renew flood
insurance unless FEMA receives: (a) the full amount due (including
applicable premiums, surcharges, and fees); and (b) a complete
application, including the information necessary to establish a premium
rate for the policy, or submission of corrected or additional
information necessary to calculate the premium for the renewal of the
policy. FEMA is revising paragraph (a) to specify that FEMA will not
issue or renew flood insurance unless it receives the full amount due,
which is either presentment of the full annual premium, or presentment
of the first of a series of monthly premium installment payments
inclusive of all surcharges, fees, and assessments.
The revised paragraph (a) requires the first payment to include all
surcharges, fees, and assessments because the NFIA categorizes premiums
separately from the surcharges, fees, and assessments of administrative
expenses the agency is authorized to collect. See, e.g., 42 U.S.C.
4014(a)(1)(B)(ii); 42 U.S.C. 4014(a)(1)(B)(iii). In 1990, Congress
authorized the Federal Policy Fee (FPF) which helps pay for the
administrative expenses of the program, including the floodplain
management and mapping activities FEMA is required to fund.\6\ 42
U.S.C. 4017a.; sec. 100212, Public Law 112-141, 126 Stat. 992. In BW-
12, Congress also authorized FEMA to establish and maintain a National
Flood Insurance Program Reserve Fund to cover future claim and debt
expenses, especially those from catastrophic disasters. 42 U.S.C.
4014(a)(1)(B)(iii).
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\6\ 42 U.S.C. 4014(a)(1)(B)(iii); see also Congressional
Research Service, Introduction to the National Flood Insurance
Program, R44593, pg. 18 available at https://crsreports.congress.gov/product/pdf/R/R44593/42 (last accessed
October 7, 2024).
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As a result of these statutory distinctions, FEMA currently
separates the premium from the fees/surcharges/assessments in the
annual bill, allowing policyholders to see their flood risk. Combining
divided fees and surcharges with all the installment premium payments
might distort the important
[[Page 87301]]
risk assessment signal to policyholders. See, e.g., 42 U.S.C.
4014(a)(1)(B)(ii)-(iii). In this rulemaking, FEMA continues to separate
the premium from the fees/surcharges/assessments and requires payment
of the fees and surcharges up front instead of dividing them over the
life of the policy. Fees and surcharges are both used to carry out
certain mandatory operational activities, such as floodplain management
and mapping, and fund the interest-earning National Flood Insurance
Reserve Fund. 42. U.S.C. 4017(a); 42 U.S.C. 4017(c). Upfront payment of
fees and surcharges with the initial premium payment will reduce
administrative costs for the NFIP, a benefit to all policyholders, and
align the NFIP with other commercial services familiar to policyholders
(e.g., cable, where installation fees, taxes and the like are due up
front).
FEMA is moving to paragraph (a) the language currently in paragraph
(b) that explains FEMA must receive a complete application or
submission of corrected or additional information necessary to
establish a premium.
FEMA is revising paragraph (b) to include paragraphs (b)(1) and
(2). The Standard Flood Insurance Policy currently provides that FEMA
will reduce coverage on a policy if the premium it receives is not
sufficient to buy the kinds and amounts of coverage requested. See
e.g., 44 CFR part 61, appendix A(1), art. VII.D.2. This makes sense in
the context of an annual premium payment but not for monthly payments;
as such, FEMA has revised paragraph (b) to provide that FEMA will not
reduce coverage or reform the policy for any policyholder who makes
timely installment payments in accordance with the terms identified in
paragraph (a)(1)(i)(B). If a policyholder misses an installment
payment, current regulations provide an opportunity to cure, as a
policyholder can provide any missed or additional payment and avoid
reductions in coverage or policy reformation. See e.g., 44 CFR part 61,
appendix A(1), art. VII.D.3.a.(1).
Revised paragraph (b)(1) will further provide that in the event of
a claim occurring prior to a policyholder completing all installment
payments, the policyholder must remit the balance of the premium owed.
The policyholder may settle their balance out of claim proceeds in
accordance with the Standard Flood Insurance Policy. See e.g., 44 CFR
part 61, appendix A(1), art. VII.D.3.a(3). FEMA is adding this language
to avoid a scenario where the policyholder would consider withholding
premium for reasons other than ability to pay, such as when they
disagree with aspects of FEMA's claim handling, and FEMA would be
forced to reduce coverage. See e.g., id. at appendix A(1), art.
VII.D.2-3. Giving policyholders the option to pay their remaining
premium out of their claims proceeds mitigates this risk.
Revised paragraph (b)(2) will provide that FEMA will require
payment in full for premiums in the next policy term for any
policyholder who fails to make all installment payments in accordance
with the terms identified in paragraph (a)(1).\7\ A significant portion
of policyholders are subject to seasonal flooding risk, meaning that
the likelihood they will file a claim is higher during certain months
of the year. For example, many policyholders in Florida face the risk
of flooding due to tropical storms and hurricanes, which typically
occur from the start of June through November. The purpose of paragraph
(b)(2) will be to ensure policyholders are not incentivized to miss
payments or cancel their coverage before the end of the policy term
(for instance, at the end of hurricane season), as this could
potentially create adverse financial consequences for the NFIP.\8\
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\7\ FEMA does not have discretion in whether to implement the
statutory requirement to make installment payments available to NFIP
policy holders. However, FEMA relies on 42 U.S.C. 4013(a) and 4015
which provide the terms and conditions of insurability, including
premium payments. Section 4013 includes a non-exhaustive list of
items to include in regulations, such as ``any other terms and
conditions relating to insurance coverage or exclusion which may be
necessary to carry out the purposes of this chapter.'' Id. at
4013(a)(6).
\8\ For example, imagine a scenario where a policyholder's
annual premium is $6,000, with $5,000 being the proportion of the
risk attributable to hurricane season (June-November). If a
policyholder obtains coverage in June but fails to pay any
installments after November, the NFIP will have only collected
$3,000 ($500 x 6) but will have provided a transfer of risk valued
at $5,000. If this occurs on a large enough scale, it would
negatively impact the NFIP's financial position and could require
FEMA to increase rates among all policyholders.
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C. 44 CFR 62.23: WYO Companies Authorized
Section 62.23 governs FEMA's WYO program. Paragraph (h) describes
the procedures used by WYO companies in underwriting and servicing
flood insurance policies. Paragraph (h)(7) currently authorizes WYO
companies to offer premium payment plans so long as the net premium
depository requirements specified under the NFIP/WYO Program accounting
procedures are met. This subsection also states that a WYO company's
cancellation of a policy for non-payment of premium will not produce a
pro rata return of the net premium deposit to the WYO company. In
effect, this subsection authorizes WYO companies to offer installment
payment plans if they pay the full annual premium to the NFIP and bear
the risk of policyholders' non-payment of installments.
FEMA is revising paragraph (h)(7) to explain that WYO companies
must offer premium payment plans under the terms prescribed by the FEMA
Administrator in Sec. 61.10(a)(1). FEMA's current regulations have
provided WYO companies the ability to offer payment via installment
plan, but to date, no WYO company has chosen to offer it. Because FEMA
has a statutory obligation to offer policyholders the option of paying
their premium via monthly installment plan, FEMA will require WYO
companies to offer installment plans consistent with this rule. See 42
U.S.C. 4015. Requiring adherence to FEMA's installment plan terms will
ensure that all eligible policyholders with federally backed flood
insurance will be treated similarly.
III. Regulatory and Economic Analysis
A. Administrative Procedure Act
1. Good Cause Exemption
The Administrative Procedure Act (APA) generally requires agencies
to publish a notice of proposed rulemaking in the Federal Register and
provide interested persons the opportunity to submit comments. See 5
U.S.C. 553(b) and (c). The Administrative Procedure Act, 5 U.S.C.
553(b)(3)(B), provides that, when an agency for good cause finds that
public notice and comment procedures are impracticable, unnecessary, or
contrary to the public interest, the agency may issue a rule without
providing notice and an opportunity for public comment. FEMA has
determined that there is good cause to issue this rulemaking without
prior proposal and opportunity for comment. The amendments to the NFIA
require FEMA to offer policyholders the option to pay their premiums in
monthly installments and the agency lacks discretion to reach a
different outcome in response to comment. This rule revises two
sections in FEMA's prior regulations requiring policyholders to pay the
full amount due on a flood insurance policy before it would issue a
policy for flood insurance. FEMA previously interpreted the full amount
due to include the annual premium, fees and surcharges, or the amount
of premium due at the time of the claim. Previously, the regulations
authorized, but did not require, WYO companies to offer the monthly
installment plan option to policyholders. The
[[Page 87302]]
amendment to the NFIA requires FEMA and servicing agent, NFIP Direct,
to offer the monthly installment plan as an option to policyholders.
The regulations now accurately reflect the statutory language of the
NFIA. Considering the statutory mandate, FEMA revises these sections
without discretion.
2. Contract Exemption
Section 553(a)(2) of the APA provides an exception to this prior
notice and comment requirement for matters relating to public property,
loans, grants, benefits, or contracts. The exemption covers both narrow
``managerial'' proprietary decisions and broader proprietary ``matters
of interpretation and policy.'' Alphapointe v. Dep't of Veterans
Affairs, 416 F. Supp. 3d (D.D.C. 2019) (quoting Nat'l Wildlife Fed'n v.
Snow, 561 F.2d 227, 231-32 (D.C. Cir. 1976)). The case law interpreting
the requirement sets forth a relatively brief framework for analysis:
namely, that the exempted subject matters are ``clearly and directly''
implicated in the rulemaking at issue. Humana of S.C., Inc. v.
Califano, 191 U.S. App. D.C. 368, 590 F.2d 1070, 1082 (1978) (That the
governmental function is not strictly ``proprietary,'' or the
regulation's character is not ``mechanical,'' does not curtail section
553(a)(2)'s permissive effect. Public policy may be sorely affected,
and the wisdom of public input manifest, but the statutory exemption
still prevails when ``grants,'' ``benefits,'' or other named subjects
are ``clearly and directly'' implicated.).
As described more fully in the background section, supra, this rule
is clearly and directly related to contracts. The NFIP is a Federal
program enabling property owners in participating communities to
purchase insurance as a protection against flood losses. A consumer may
purchase a SFIP either: (1) directly from the Federal Government
through a direct servicing agent (referred to as ``NFIP Direct''); or
(2) from a participating private insurance company through the Write
Your Own (WYO) Program. The SFIP sets out the terms and conditions of
insurance. See 44 CFR part 61, appendix A. FEMA establishes terms and
conditions of coverage and sets premiums for coverage. The terms,
coverage limits, and flood insurance premiums are the same whether
purchased from the NFIP Direct or the WYO Program. See 44 CFR 62.23(a).
For an eligible policyholder to obtain flood insurance from the NFIP,
they must pay their premium and any surcharges, fees and assessments,
and in exchange, they will be covered by the SFIP (i.e., an insurance
contract). This rule provides an additional approach to payment of
premium to complete the contractual relationship. This statutory
construct is similar to other Federal programs in which Congress has
authorized an agency to enter into contracts with individuals and
upheld the application of the APA contract exemption to a subsequent
agency policy change that ultimately resulted in a change in terms for
individual contractees or policyholders. See, e.g., Rainbow Valley
Citrus Corp. v. FCIC, 506 F.2d 467 (9th Cir. 1974) (Plaintiffs, three
citrus growers in Arizona, sued the Federal Crop Insurance Corporation
(FCIC) challenging the FCIC's decision to discontinue citrus insurance
in their area, and argued that the decision was in violation of the
notice and comment rulemaking requirement under the APA. The Court
found in favor of the FCIC, citing to the APA contract exemption.);
Housing Authority of the City of Omaha vs. U.S. Housing Authority, 468
F.2d 1 (8th Cir. 1972) (Plaintiffs, local housing authorities, sued the
Department of Housing and Urban Development (HUD) alleging that two
circulars issued by HUD that required Plaintiffs to include certain
tenant's rights in contracts the housing authorities entered into with
renters was in violation of the notice and comment rulemaking
requirement under the APA. The Court found in favor of HUD citing to
the APA contract exemption.).
FEMA acknowledges its general policy to provide for public
participation in rulemaking unless it determines that circumstances
warrant a departure from that general policy. 44 CFR 1.3(a) and (c).
The circumstances presented here warrant such a departure. The statute
requires FEMA to offer policyholders the option to pay in monthly
installments and notice and opportunity for comment on the revisions is
unnecessary because the agency lacks discretion to reach a different
outcome regarding installment plan payments for policyholders in
response to comment.
B. Executive Orders 12866, ``Regulatory Planning and Review,'' and
13563, ``Improving Regulation and Regulatory Review''
Executive Orders 12866 (Regulatory Planning and Review), as amended
by Executive Order 14094 (Modernizing Regulatory Review), and 13563
(Improving Regulation and Regulatory Review) direct agencies to assess
the costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, reducing costs, harmonizing rules, and promoting flexibility.
The Office of Management and Budget (OMB) has not designated this
rule a significant regulatory action under section 3(f) of Executive
Order 12866, as amended by Executive Order 14094. Accordingly, OMB has
not reviewed this regulatory action.
Need for Regulation
In BW-12 and the HFIAA, Congress amended the NFIA requiring FEMA to
provide certain eligible policyholders with a federally backed SFIP,
``the option of paying their premiums annually or monthly.'' Sec.
100205(d), Public Law 112-141, 126 Stat. 405, 919 (2012) (codified at
42 U.S.C. 4015(g)), as amended by sec. 11(a), Public Law 113-89, 128
Stat. 1020, 1025 (2014). Currently, FEMA and WYO companies bill their
customers' NFIP premiums on an annual basis as a lump sum. This rule
will fulfill the statutory requirement by allowing residential and
commercial policyholders to pay their premiums in 11 to 12 payments
over the course of the year.\9\
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\9\ Customers will make 11 payments in their first year due to a
30-day waiting period for their initial enrollment in the NFIP.
Following years will have 12 monthly payments.
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FEMA, through its subcomponent the Federal Insurance Directorate,
is promulgating this rule to implement a monthly installment payment
plan option for policyholders not currently paying flood insurance
premiums through escrow.\10\ The installment plan option is available
for residential and non-residential SFIP policyholders.
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\10\ Mortgage lenders set aside a portion of monthly mortgage
payments to cover annual costs such as property taxes and
homeowners' insurance premiums.
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A monthly installment payment plan is in keeping with the property
and casualty insurance industry standard. Aligning with these consumer
expectations will make it easier for consumers to consider acquiring
flood insurance. Additionally, some consumers may lack the financial
ability to pay the entire premium at one time. The option to pay in
installments may increase policyholders' budgetary flexibility by
alleviating cash flow pressure, as they could use the deferred payment
to address other needs.
[[Page 87303]]
Affected Population
NFIP enables homeowners, renters, and businesses in participating
communities to purchase Federal insurance protection against losses
from floods. Communities participate in the NFIP after they agree to
adopt and enforce minimum floodplain development regulations designed
to reduce future flood risk in Special Flood Hazard Areas (SFHAs).
As of April 30, 2024, according to FEMA's PIVOT database,\11\ there
were 4,664,515 NFIP policies in force, including 3,248,737 residential
Dwelling Form Policies, 290,800 Commercial Policies, 1,115,443
Condominium Association Policies and 9,535 Group Flood Insurance
Policies (GFIPs). GFIPs are not included in the population of
policyholders that will pay monthly,\12\ which means the affected
population of potentially eligible individual policies is 4,654,980
(3,248,737 + 290,800 + 1,115,443).
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\11\ FEMA's PIVOT database contains NFIP information. Please
note that PIVOT is the name of the database, and it is not an
acronym.
\12\ A GFIP is a policy covering all individuals named by a
State as recipients of assistance under FEMA's Individual Assistance
(IA) program. 44 CFR 61.17(a). FEMA or the State pays the premium on
behalf of recipients by withholding the applicable amount from the
IA ``other needs assistance'' (ONA) award for which recipients are
eligible. 44 CFR 61.17(b) and 206.119. ONA is provided to recipients
as a one-time award, i.e., on a non-continuing basis; as such, FEMA
will continue to make those one-time payments at the time of ONA
award.
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FEMA expects the number of individual policyholders who will make
the change from paying annually to paying monthly will be much less
than the total eligible affected population. FEMA estimates that 45
percent \13\ of potentially eligible individual policyholders are
residential mortgage holders who already pay their NFIP premiums on a
regular basis (generally monthly) into an escrow account as required
under section 102 of the Flood Disaster Protection Act of 1973. FEMA
does not have enough information to estimate how many condominium
association policyholders might switch from an annual payment to a
monthly payment. Condominium associations typically include flood
insurance payments in their condominium association fees \14\ which
means such associations typically collect the premium before the
renewal premium is due. FEMA does not expect condo associations to
utilize installment plans because these associations will have the
available cash reserves to pay a yearly premium. Switching to monthly
payments would increase uncertainty and unnecessarily complicate their
accounting practices.
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\13\ Derived by subtracting the 1,794,911 policies without a
mortgage from the 3,248,737 total Dwelling Form Policies and finding
the percent of that whole [(3,248,737-1,794,911) / 3,248,737].
\14\ Residential Condominium Building Association Policies
(RCBAP) are sold to the condominium associations to cover the whole
building. Condominium associations pass on their costs to their
members in the form of condo fees https://www.fema.gov/pdf/nfip/manual201110/content/06condo.pdf, pg.1.
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Excluding these two populations from the analysis decreases the
total population from approximately 4.7 million policyholders to 1.9
million policyholders. Specifically, according to PIVOT data, in 2023
there were 1,794,911 residential policyholders who did not have a
mortgage \15\ and were not condominium associations who would most
likely opt for installment plans as they must currently make an annual
lump sum payment. Additionally, FEMA expects 76,876 small businesses
and houses of worship (according to PIVOT data) to change to monthly
payment installments because they typically have smaller cash reserves
on hand.\16\ This makes a total of 1,871,787 (1,794,911 + 76,876) out
of 4,664,515 policyholders that will utilize monthly installment plans
to pay their flood insurance premiums. For the purposes of this
analysis, FEMA assumed that all eligible policyholders, excluding
residential mortgage holders, condominium associations, and larger
commercial policyholders will utilize installment plans. This leaves
1,453,826 mortgage-paying residential policyholders, 1,115,443
condominium association policyholders, and 211,175 commercial property
policyholders that are not expected to opt for installment plans. This
may overestimate the number of policyholders paying in installments and
the overall economic impact of this rule.
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\15\ This group includes condominium owners that have purchased
flood insurance for their individual units outside of their
condominium association.
\16\ On average, small businesses hold $12,000 in cash. JP
Morgan Chase & Co., Cash is King: Flows, Balances, and Buffer Days
(jpmorganchase.com) available at https://www.jpmorganchase.com/institute/research/small-business/report-cash-flows-balances-and-buffer-days#finding-2 (last accessed October 7, 2024).
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Baseline and Affected Population
Following OMB Circular A-4 guidance, FEMA assessed impacts of this
rule against a no-action baseline. The no-action baseline considers
what the world will look like without this rule. Accordingly, measuring
the rule against a no-action baseline shows the effects of the rule as
compared to current FEMA practice, because FEMA has not implemented the
option to pay flood insurance premiums through installment plans.
Currently, SFIPs are issued on a one-year term, and policyholders must
pay full annual premiums at the inception of policy coverage and at
annual renewal.
FEMA used policies-in-force data from 2023 to 2024 \17\ to estimate
the number of affected NFIP policyholders. During this period, the
number of NFIP policies was 4,720,559 on April 1, 2023 and 4,672,375
policies on April 1, 2024. FEMA was not able to forecast an increase in
currently uninsured property owners purchasing flood insurance once the
installment plan option is available. However, FEMA anticipates the
flexibility provided through implementation of an installment payment
plan will likely result in greater retention of policyholders and
incentivize greater participation in the NFIP.
---------------------------------------------------------------------------
\17\ The data was limited due to the implementation of a new
risk rating approach on April 1, 2023. Because of these changes,
pre-2023 data are not directly comparable to data after April 1,
2023.
---------------------------------------------------------------------------
Flood insurance premiums are subject to change year-to-year due to
any number of factors that may cause unexpected increases in yearly
premiums. The option to pay in installments may relieve some of the
burden of changes in flood insurance premiums. Due to the numerous
factors affecting premium rates and the rate of flood insurance uptake
nationwide, FEMA is unable to forecast the impact that the availability
of installment plans may have on affordability or future participation
in the NFIP.
Costs
This rule will result in start-up (upfront) and annual costs to
FEMA and WYO insurance companies. Over 10 years, FEMA estimates a total
cost of $34,181,503 undiscounted. The following is a breakdown of the
specific costs to FEMA,WYO companies, and NFIP Policyholders.
Federal Costs: FEMA expects to incur development costs to adapt
current NFIP systems to handle the administration of installment plans
and payments that will be processed by the existing pay.gov system.\18\
Based on estimates from FEMA subject matter experts, development work
will require one General Schedule (GS)-13 Step 5 and eight GS-12 Step 5
equivalent contractors for a total of 700 hours. According to the
Office of Personnel Management (OPM), hourly wage rates in the
Washington-Baltimore-Arlington locality for GS-13 Step 5 is $60.83 and
[[Page 87304]]
GS-12 Step 5 staff is $51.15.\19\ FEMA assumes the contractors would
have equivalent salaries to their respective GS levels. The combined
hourly staff wage rate equals $470.03 ((1 x $60.83) + (8 x $51.15)).
Additionally, FEMA adds a 1.45 wage multiplier to the wage rate to
account for the full cost of employment, making it $681.54 ($470.03 x
1.45) per hour for 700 hours for a total of $477,078 (((1 x $60.83) +
(8 x $51.15)) x 1.45 x 700).\20\
---------------------------------------------------------------------------
\18\ Pay.gov is a website where users can fill out a government
or pay a bill to a U.S. Government agency. See https://www.pay.gov/public/about-us/pay-gov (last accessed October 7, 2024).
\19\ OPM 2023 Pay and Leave Tables for the Washington-Baltimore-
Arlington, DC-MD-VA-WV-PA locality, available at: http://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/23Tables/html/DCB_h.aspx (last accessed October 7, 2024).
\20\ The national wage multiplier is calculated by dividing
total compensation for all workers of $42.48 by wages and salaries
for all workers of $29.32 per hour yielding a benefits multiplier of
approximately 1.45.U.S. Bureau of Labor Statistics (BLS), Employer
Costs for Employee Compensation, Table 1. Available at https://www.bls.gov/news.release/archives/ecec_03172023.pdf. (last accessed
October 7, 2024).
---------------------------------------------------------------------------
To create marketing materials, FEMA subject matter experts estimate
a team of four GS-14 level employees working for 40 hours each on this
project. Using the prior methodology, OPM wage rate for a GS-14 Step 5
is $71.88 per hour and including the wage multiplier equals $104.23
($71.88 x 1.45) per hour for a total cost of $16,677 ($104.23 x 4 staff
x 40 hours). FEMA expects a total of $493,755 (477,078 + $16,677) for
startup costs.
For ongoing costs, FEMA expects to hire two additional GS-13 Step 5
employees to handle the installment plan program full time. This would
cost $368,152 (2 GS-13 Step 5 x $126,949 annual salary x 1.45) per
year.\21\ These costs include the cost for FEMA developing and testing
guidance materials, systems, trainings, and marketing content as well
as ongoing support for managing installment plans. FEMA anticipates
that it will largely use existing NFIP infrastructure and resources to
support implementation of installment plans and that annual costs
associated with maintaining installment plan policies are comparable to
annual policies and thus do not represent an additional cost.
---------------------------------------------------------------------------
\21\ OPM 2023 Pay and Leave Tables for the Washington-Baltimore-
Arlington, DC-MD-VA-WV-PA locality, available at https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/pdf/2023/DCB.pdf (last accessed October 7, 2024).
---------------------------------------------------------------------------
WYO Costs: FEMA's current regulations have provided WYO companies
the ability to offer payment via installment plan, but to date, no WYO
company has chosen to offer it. Because FEMA has a statutory obligation
to offer policyholders the option of paying their premium via monthly
installment plan, FEMA will require WYO companies to offer installment
plans consistent with this rule. WYO insurers will use their customary
business practices to secure monthly payment of flood insurance
premiums from policyholders.\22\ However, for many WYO insurers, flood
insurance premiums are handled separately and will require additional
systems or modification of existing systems and infrastructure to
support flood insurance installment payment plans. FEMA does not have
access to internal WYO insurance company data on their information
technology (IT) costs. However, based on FEMA's experience with
managing IT costs for insurance purposes, FEMA estimates eight WYO
vendors \23\ to each incur $200,000 in costs for updating their
internal systems for a total upfront starting cost of $1,600,000
($200,000 x 8) in year 1.\24\ Based on feedback from WYO vendors and
their finance teams, FEMA expects each of the eight WYO vendors to hire
2 additional staff members for the support and operation of installment
plan systems, incurring $1,986,152 (8 x 2 x $85,610 x 1.45) per
year.\25\ Bureau of Labor Statistics data regarding insurance
underwriters is used as a proxy for the salary of the additional hires.
---------------------------------------------------------------------------
\22\ ``Write Your Own'' refers to private insurance companies
that work with FEMA in providing NFIP policies and are able to write
and service NFIP policies in their own names.
\23\ There are 8 vendors (i.e., companies) that support the 50+
WYOs. All but one WYO work with an outside company to support them
in operational work such as management of systems, customer
services, financial reporting, servicing of policies, etc.
\24\ Implementation costs are derived from an estimate of IT
infrastructure and development costs FEMA anticipates would be borne
by WYO vendors servicing payments but paid for by WYO companies.
\25\ Based on 2023 BLS mean salary data for Insurance
Underwriters (SOC 13-2053), available at: https://www.bls.gov/oes/2023/may/oes132053.htm (last accessed October 7, 2024).
---------------------------------------------------------------------------
Policyholder Costs: FEMA estimates that there will be no additional
financial costs to policyholders.\26\ However, it may result in a small
amount of time burden to make 12 installment payments in lieu of one
annual payment. Policyholders will make payments via automatic payments
from a bank account, debit card, or credit card through the pay.gov
system.\27\ FEMA estimates a total burden hour cost of $8,544,708 for
NFIP policyholders to enroll in pay.gov. This estimate is based on an
expectation that pay.gov account creation takes 6 minutes on average
\28\ for a total of 187,179 hours for the estimated 1,871,787
policyholders that will use the system. At a fully loaded wage rate of
$45.65 ($31.48 x 1.45) per hour 29 30 for all workers, this
makes a total of $8,544,708 one-time cost for account creation.
Policyholders that do not have access to pay.gov payment methods will
not be eligible. Policyholders that decide to switch to installment
plans will receive their information via already existing marketing
sources and thus will not incur additional familiarization costs.
---------------------------------------------------------------------------
\26\ Installment plans will be implemented by FEMA using
operational dollars within the NFIP and the WYO vendors will use
their expense allowance received under their financial agreements
with FEMA. The current financial agreements include provisions for
WYOs to implement installment plans.
\27\ All policyholders, NFIP Direct and WYO, will go through
pay.gov to make their installment payment.
\28\ Dep't. of Treasury, OMB Approval No.1530-0071, available at
https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202308-1530-001
(last accessed October 7, 2024).
\29\ Information on the mean wage rate from the U.S. Department
of Labor, Bureau of Labor Statistics is available at: https://www.bls.gov/oes/2023/may/oes_nat.htm (last accessed October 7,
2024).
\30\ The national wage multiplier is calculated by dividing
total compensation for all workers of $45.42 by wages and salaries
for all workers of $31.29 per hour yielding a benefits multiplier of
approximately 1.45.Bureau of Labor Statistics, Employer Costs for
Employee Compensation, Table 1, available at: https://www.bls.gov/news.release/archives/ecec_03132024.pdf (last accessed October 7,
2024).
---------------------------------------------------------------------------
Table 1 shows FEMA, WYO, and policyholder estimated costs over a
10-year period. The total cost over 10 years equals $34,181,503
undiscounted and $31,577,602 discounted at 2 percent in 2023 dollars.
Table 1--Total Costs Over 10 Years
[2023$]
----------------------------------------------------------------------------------------------------------------
Annual costs
Year Policyholder FEMA costs WYO insurance Total costs discounted at
costs company costs undiscounted 2%
----------------------------------------------------------------------------------------------------------------
1.............................. $8,544,708 $861,907 $3,586,152 $12,992,767 $12,738,007
[[Page 87305]]
2.............................. 0 368,152 1,986,152 2,354,304 2,262,884
3.............................. 0 368,152 1,986,152 2,354,304 2,218,513
4.............................. 0 368,152 1,986,152 2,354,304 2,175,013
5.............................. 0 368,152 1,986,152 2,354,304 2,132,366
6.............................. 0 368,152 1,986,152 2,354,304 2,090,555
7.............................. 0 368,152 1,986,152 2,354,304 2,049,563
8.............................. 0 368,152 1,986,152 2,354,304 2,009,376
9.............................. 0 368,152 1,986,152 2,354,304 1,969,976
10............................. 0 368,152 1,986,152 2,354,304 1,931,349
--------------------------------------------------------------------------------
Total...................... 8,544,708 4,175,275 21,461,520 34,181,503 31,577,602
--------------------------------------------------------------------------------
Annualized................. .............. .............. ............... .............. 3,515,425
----------------------------------------------------------------------------------------------------------------
Benefits
The benefits from a monthly installment plan option will include
increased NFIP policy retention and improved flexibility to
policyholders. Allowing policyholders the option of making flood
insurance payments in monthly installments rather than a single annual
payment provides increased budgetary flexibility on how to use the
deferred payment which may be especially relevant for policyholders
unable to pay a lump-sum annual premium or otherwise experiencing a
financial burden thereby alleviating some cash flow pressure. FEMA
believes offering installment plans will help policyholders remain in
the program. Policyholder retention also maintains the societal and
policyholder benefits associated with the NFIP in proportion to those
policyholders retained. FEMA does not have data available to estimate
the number of policyholders that will remain in the program due to the
installment plan option, or to project any growth in the number of
policies.
Providing a monthly installment brings the NFIP into alignment with
other insurance (auto, homeowners) that typically allow monthly
payments, making the flood insurance product more attractive to
potential policyholders, and potentially increasing participation in
the NFIP.
Transfers
FEMA does not expect transfers from this rule since it does not
impact what policyholders pay in premiums, but the timing of when they
pay. Policyholders may make investment gains or interest savings based
on retaining money throughout the year that they would have spent on a
lump sum payment. However, FEMA is unable to estimate if and how
policyholders will adjust their behavior based on the ability to pay in
installments.
Alternatives Considered
FEMA did not consider any alternatives to issuing this regulation
allowing monthly installments. BW-12 and HFIAA collectively mandated
FEMA to promulgate a rule allowing the option of paying flood insurance
premiums either annually or monthly. As such, FEMA must pursue a
regulatory action to accomplish this requirement. While FEMA could have
set a different premium schedule in addition to monthly payments (i.e.,
quarterly or biannual), FEMA considers monthly payments to be the most
appropriate payment schedule that poses the least burden on
policyholders.
Conclusion
In summary, FEMA quantitatively estimated the impacts of the rule.
This includes estimating the costs to FEMA, WYO companies, and
policyholders. In terms of benefits, FEMA anticipates the
implementation of an installment payment plan will result in greater
retention of policyholders and incentivize greater participation in the
NFIP. Transfer payments will be minimal. This rule fulfills a statutory
requirement in a cost-effective manner and warrants implementation. For
the future 10-year period, the estimated costs of the rule are
$34,181,503 undiscounted. The Present Value (PV), discounted at 2
percent, is $31,577,602 ($3,515,425 annualized). The primary benefit
associated with installment plans is increased retention and potential
increased participation in the NFIP.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612) and section
213(a) of the Small Business Regulatory Enforcement Fairness Act of
1996, Public Law 104-121, 110 Stat. 847, 858-9 (Mar. 29, 1996) (5
U.S.C. 601 note), require that special consideration be given to the
effects of regulations on small entities. The RFA applies only 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). An RFA
analysis is not required for this rulemaking because the Regulatory
Flexibility Act is inapplicable to final rules issued pursuant to an
exemption from notice and comment. FEMA issues the NFIP Installment
Plans rulemaking pursuant to the 5 U.S.C. 553(a)(2), for all rules
relating to ``public property, loans, grants, benefits or contracts,''
as well as 5 U.S.C. 553(b)(3)(B), which provides that, when an agency
for good cause finds that public notice and comment procedures are
impracticable, unnecessary, or contrary to the public interest, the
agency may issue a rule without providing notice and an opportunity for
public comment.
D. Unfunded Mandates Reform Act
The Unfunded Mandates Reform Act of 1995, 2 U.S.C. 658, 1501-1504,
1531-1536, 1571, pertains to any rulemaking which is likely to result
in the promulgation of any rule that includes a Federal mandate that
may result in the expenditure by State, local, and Tribal governments,
in the aggregate, or by the private sector, of $100 million (adjusted
annually for inflation) or more in any one year. If the rulemaking
includes a Federal mandate, the Act requires an agency to prepare an
assessment of the anticipated costs and benefits of the Federal
mandate. The Act also pertains to any regulatory requirements that
might significantly or uniquely affect small governments. Before
establishing
[[Page 87306]]
any such requirements, an agency must develop a plan allowing for input
from the affected governments regarding the requirements.
FEMA has determined that this rulemaking will not result in the
expenditure by State, local, and Tribal governments, in the aggregate,
nor by the private sector, of $100,000,000 or more in any one year as a
result of a Federal mandate, and it will not significantly or uniquely
affect small governments. Therefore, no actions are deemed necessary
under the provisions of the Unfunded Mandates Reform Act of 1995
(UMRA).
Additionally, regulations are only reviewable under UMRA when an
agency has published a notice of proposed rulemaking as defined by 5
U.S.C. 553(b). See 2 U.S.C. 658(10); 5 U.S.C. 601(2). FEMA is not
required to publish a notice of proposed rulemaking; thus, this rule is
exempt from UMRA's requirements pertaining to the preparation of a
written statement.
E. National Environmental Policy Act of 1969 (NEPA)
Section 102 of the National Environmental Policy Act of 1969
(NEPA), Public Law 91-190, 83 Stat. 852 (Jan. 1, 1970) (42 U.S.C. 4321
et seq.), as amended, requires Federal agencies to evaluate the impacts
of a proposed major Federal action that significantly affect the
quality of the human environment, consider alternatives to the proposed
action, provide public notice and opportunity to comment, and properly
document its analysis. DHS and its component agencies analyze proposed
actions to determine whether NEPA applies to those actions and, if so,
what level of documentation and analysis is required. 40 CFR 1501.3.
DHS Directive 023-01, Rev. 01 and DHS Instruction Manual 023-01-
001-01, Rev. 01 (Instruction Manual) establish the policies and
procedures DHS and its component agencies use to comply with NEPA and
the Council on Environmental Quality (CEQ) regulations for implementing
the procedural requirements of NEPA codified at 40 CFR parts 1500
through 1508. The CEQ regulations allow Federal agencies to establish,
in their NEPA implementing procedures, with CEQ review and concurrence,
categories of actions (``categorical exclusions'' or ``Catex'') that
experience has shown normally do not, individually or in the aggregate,
have a significant effect on the human environment and, therefore, do
not require preparation of an environmental assessment or environmental
impact statement. 40 CFR 1501.4, 1507.3(c)(8), 1508.1(e). DHS
Instruction Manual, Appendix A, lists the categorical exclusions
established by DHS in conformity with CEQ's regulations. Under DHS NEPA
implementing procedures, for an action to be categorically excluded it
must satisfy each of the following conditions: (1) the entire action
clearly fits within one or more of the categorical exclusions; (2) the
action is not a piece of a larger action; and (3) no extraordinary
circumstances exist that create the potential for a significant
environmental effect. Instruction Manual, section V.B. (2) (a-c).
This rulemaking is a major Federal action subject to NEPA. Under
DHS Instruction Manual 023-01-001-01, Appendix A, DHS has established
that certain categories of rulemaking, to include (1) the promulgation
of rules that are of a strictly administrative or procedural nature and
(2) rules that implement, without substantive change, statutory or
regulatory requirements, meet the criteria for categorical exclusion
and therefore do not require preparation of an environmental assessment
or environmental impact statement. (Catex A3(a) and (b)). This
rulemaking satisfies the conditions for categorical exclusion
established under DHS Instruction Manual, section V.B.(2) and Appendix
A because: (1) the final rule is both strictly administrative in nature
and is intended only to implement, without substantive change, the
statutory requirement that FEMA offer policyholders the option of
paying their annual flood insurance premiums in monthly installments;
(2) the impact of the final rule affects only payment schedules
available under the NFIP and is not part of a larger action that would
impact other FEMA programs; and (3) the final rule will not result in
any extraordinary circumstances that would make application of a
categorical exclusion inappropriate or trigger the need for additional
analysis. See DHS Instruction Manual 023-01-001-01 V(B)(2). FEMA has
therefore determined that this rulemaking is categorically excluded
under both Catex A3(a) and (b) of DHS Instruction Manual 023-01-001-01,
Appendix A and no further NEPA analysis or documentation is required.
F. Privacy Act/E-Government Act
Under the Privacy Act of 1974, 5 U.S.C. 552a, an agency must
determine whether implementation of a proposed regulation will result
in a system of records. A ``record'' is any item, collection, or
grouping of information about an individual that is maintained by an
agency, including, but not limited to, his/her education, financial
transactions, medical history, and criminal or employment history and
that contains his/her name, or the identifying number, symbol, or other
identifying particular assigned to the individual, such as a finger or
voice print or a photograph. 5 U.S.C. 552a(a)(4). A ``system of
records'' is a group of records under the control of an agency from
which information is retrieved by the name of the individual or by some
identifying number, symbols, or other identifying particular assigned
to the individual. An agency cannot disclose any record that is
contained in a system of records except by following specific
procedures. The E-Government Act of 2002, 44 U.S.C. 3501 note, also
requires specific procedures when an agency takes action to develop or
procure information technology that collects, maintains, or
disseminates information that is in an identifiable form. This Act also
applies when an agency initiates a new collection of information that
will be collected, maintained, or disseminated using information
technology if it includes any information in an identifiable form
permitting the physical or online contacting of a specific individual.
In accordance with DHS policy, FEMA has completed a Privacy
Threshold Analysis (PTA) for this rule. DHS/FEMA has determined that
this rulemaking does not affect the 1660-0006 OMB Control Number's
current compliance with the E-Government Act of 2002 or the Privacy Act
of 1974, as amended. As a result, DHS/FEMA has concluded that the 1660-
0006 OMB Control Number is covered by the DHS/FEMA/PIA-011--National
Flood Insurance Program Information Technology Systems (NFIP ITS)
Privacy Impact Assessment (PIA). Additionally, DHS/FEMA has decided
that the 1660-0006 OMB Control Number is covered by the DHS/FEMA-003
National Flood Insurance Program Files, 79 FR 28747, May 19, 2014,
System of Records Notice.
G. Paperwork Reduction Act of 1995
Under the Paperwork Reduction Act of 1995 (PRA), as amended, 44
U.S.C. 3501-3520, an agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless the
agency obtains approval from OMB for the collection and the collection
displays a valid OMB control number. See 44 U.S.C. 3506,3507. This
rulemaking does not call for a new collection of information under the
PRA. There is an existing collection of information, 1660-0006,
[[Page 87307]]
the NFIP Policy Forms, Public Law 90-448 (1968) (expanded by Pub. L.
93-234 (1973)), included in this rulemaking. BW-12 and HFIAA required
modifications to the NFIP. Program changes resulting from BW-12 and
HFIAA necessitated revision of the NFIP Policy Forms to assure proper
classification of properties for rating purposes and to rate and issue
the policies in accordance with the provisions of BW-12 and HFIAA.
However, this rule will not impact this collection because the forms
have already been updated as needed.
H. Executive Order 13175, ``Consultation and Coordination With Indian
Tribal Governments''
Executive Order 13175, ``Consultation and Coordination with Indian
Tribal Governments,'' 65 FR 67249 (Nov. 9, 2000), applies to agency
regulations that have Tribal implications, that is, regulations that
have substantial direct effects on one or more Indian Tribes, on the
relationship between the Federal Government and Indian Tribes, or on
the distribution of power and responsibilities between the Federal
Government and Indian Tribes. Under this Executive order, to the extent
practicable and permitted by law, no agency shall promulgate any
regulation that has Tribal implications, that imposes substantial
direct compliance costs on Indian Tribal governments, and that is not
required by statute, unless funds necessary to pay the direct costs
incurred by the Indian Tribal government in complying with the
regulation are provided by the Federal Government or the agency
consults with Tribal officials. Nor, to the extent practicable by law,
may an agency promulgate a regulation that has Tribal implications and
preempts Tribal law, unless the agency consults with Tribal officials.
This rule involves no policies that have Tribal implications under
Executive Order 13175.
The purpose of this rulemaking is to implement the statutory
requirement that FEMA offer policyholders the option of paying their
flood insurance premiums in installments. FEMA lacks discretion to
change course based on public comment which applies to comments from
Indian Tribal governments. Further, the benefits anticipated for the
general public are similarly shared amongst Indian Tribal Governments.
Allowing Tribal Nation citizen policyholders to pay in smaller
installments reduces barriers to entry in the flood insurance
marketplace. The ability to pay in installments may also result in more
Tribal Nation citizen policyholders retaining their flood insurance
protection.
Under the NFIP's current annual premium payment requirement, a
Tribal Nation citizen policyholder who is making annual payments
typically only interacts with their flood insurance coverage at the
time of initial purchase or renewal. Additionally, the Tribal Nation
citizen policyholder must consider the full cost of flood insurance all
at once, creating a different trade-off dynamic than when the cost is
spread out. Facing a one-time annual payment, the policyholder may
rationalize a decision to not renew on grounds that they perceive their
risk to be low or that they will instead save the money spent on
premium to self-fund repairs. In contrast, Tribal Nation citizen
policyholders who make more frequent flood insurance payments will have
an ongoing relationship with their insurer and a consistent reminder
that they are protected against flood, and may be more aware of flood
alerts, news about flooding, and more accurately perceive their risk.
This rulemaking would benefit Indian Tribal governments subject to
the NFIP, offering existing Tribal Nation citizen policyholders the
option of paying their premiums in monthly installments rather than in
one annual lump sum. The rulemaking would not have substantial negative
direct effects on citizens of Tribal Nations, on the relationship
between the Federal Government and Indian Tribes, or the distribution
of power and responsibilities between the Federal Government and Indian
Tribes.
I. Executive Order 13132, ``Federalism''
Executive Order 13132, ``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, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government.'' For the
purposes of this Executive order, the term States also includes local
governments or other subdivisions established by the States. Under this
Executive order, Federal agencies must closely examine the statutory
authority supporting any action that would limit the policymaking
discretion of the States. Further, to the extent practicable and
permitted by law, no agency shall promulgate any regulation that has
federalism implications, that imposes substantial direct compliance
costs on State and local governments, and that is not required by
statute, unless the Federal Government provides funds necessary to pay
the direct costs incurred by the State and local governments in
complying with the regulation, or the agency consults with State and
local officials. Nor, to the extent practicable by law, may an agency
promulgate a regulation that has federalism implications and preempts
State law, unless the agency consults with State and local officials.
FEMA has reviewed this rule under Executive Order 13132 and has
determined that it does not have substantial direct effects on the
States, on the relationship between the National Government and the
States, or on the distribution of power and responsibilities among the
various levels of government, and therefore does not have federalism
implications as defined by the Executive order. This rulemaking
implements the statutory requirement that FEMA offer policyholders the
option of paying their annual flood insurance premiums in monthly
installments. As such, it would not have substantial direct effects on
the States or participating communities, on the relationship between
the National Government and the States or participating communities, or
the distribution of power among the various levels of government.
J. Executive Order 11988, ``Floodplain Management''
Executive Order 11988, 42 FR 26951 (May 25, 1977), as amended by
Executive Order 13690, ``Establishing a Federal Flood Risk Management
Standard (FFRMS) and a Process for Further Soliciting and Considering
Stakeholder Input,'' 80 FR 6425 (Feb. 4, 2015), and Executive Order
14030, ``Climate-Related Financial Risk,'' 86 FR 27967 (May 25, 2021),
requires each Federal agency to provide leadership and take action to
reduce the risk of flood loss, to minimize the impact of floods on
human safety, health and welfare, and to restore and preserve the
natural and beneficial values served by floodplains in carrying out its
responsibilities for (1) acquiring, managing, and disposing of Federal
lands and facilities; (2) providing federally undertaken, financed, or
assisted construction and improvements; and (3) conducting Federal
activities and programs affecting land use, including but not limited
to water and related land resources planning, regulating, and licensing
activities. In carrying out these responsibilities, each agency must
evaluate the potential effects of any
[[Page 87308]]
actions it may take in a floodplain; ensure that its planning programs
and budget requests reflect consideration of flood hazards and
floodplain management; and prescribe procedures to implement the
policies and requirements of the Executive order.
Before promulgating any regulation, an agency must determine
whether the proposed regulations will affect a floodplain(s), and if
so, the agency must consider alternatives to avoid adverse effects and
incompatible development in the floodplain(s). If the head of the
agency finds that the only practicable alternative consistent with the
law and with the policy set forth in Executive Order 11988 is to
promulgate a regulation that affects a floodplain(s), the agency must,
prior to promulgating the regulation, design or modify the regulation
to minimize potential harm to or within the floodplain, consistent with
the agency's floodplain management regulations. It must also prepare
and circulate a notice containing an explanation of why the action is
proposed to be located in the floodplain.
FEMA regulations at 44 CFR part 9 implement E.O.s 11988 and 13690
by establishing an 8-step decision-making process for actions which
have the potential to affect floodplains or their occupants, or which
are subject to potential harm by location in floodplains. Under 44 CFR
9.5, actions affecting floodplains include actions which have the
potential to result in the long- or short-term impacts associated with:
(1) the occupancy or modification of floodplains, and the direct or
indirect support of floodplain development; or (2) the destruction and
modification of wetlands and the direct or indirect support of new
construction in wetlands. Pursuant to 44 CFR 9.5(f), FEMA generally
must apply the 8-step process for program-wide actions under the NFIP
such as regulations, procedures, or other issuances making or amending
program policy. This rulemaking implements the statutory requirement
under the NFIP that FEMA offer policyholders the option of paying their
annual flood insurance premiums in monthly installments. FEMA has
determined that the changes in this rule do not meet the definition of
an action as outlined in 44 CFR 9.4 and the rulemaking therefore does
not trigger the requirements of 44 CFR part 9 as described in 44 CFR
9.5, including those outlined in 44 CFR 9.5(f).
K. Executive Order 11990, ``Protection of Wetlands''
Executive Order 11990, ``Protection of Wetlands,'' 42 FR 26961 (May
24, 1977), sets forth that each agency must provide leadership and take
action to minimize the destruction, loss or degradation of wetlands,
and to preserve and enhance the natural and beneficial values of
wetlands in carrying out the agency's responsibilities. These
responsibilities include (1) acquiring, managing, and disposing of
Federal lands and facilities; and (2) providing federally undertaken,
financed, or assisted construction and improvements; and (3) conducting
Federal activities and programs affecting land use, including but not
limited to water and related land resources planning, regulating, and
licensing activities. Each agency, to the extent permitted by law, must
avoid undertaking or providing assistance for new construction located
in wetlands unless the head of the agency finds (1) that there is no
practicable alternative to such construction, and (2) that the proposed
action includes all practicable measures to minimize harm to wetlands
which may result from such use. In making this finding, the head of the
agency may take into account economic, environmental, and other
pertinent factors.
In carrying out the activities described in Executive Order 11990,
each agency must consider factors relevant to a proposal's effect on
the survival and quality of the wetlands. These include public health,
safety, and welfare, including water supply, quality, recharge and
discharge; pollution; flood and storm hazards; sediment and erosion;
maintenance of natural systems, including conservation and long-term
productivity of existing flora and fauna, species and habitat diversity
and stability, hydrologic utility, fish, wildlife, timber, and food and
fiber resources. They also include other uses of wetlands in the public
interest, including recreational, scientific, and cultural uses.
This rulemaking implements the statutory requirement that FEMA
offer policyholders the option of paying their annual flood insurance
premiums in monthly installments. FEMA has determined that the changes
in this rule do not meet the definition of an action as outlined in 44
CFR 9.4 and the rulemaking therefore does not trigger the requirements
of 44 CFR part 9 as described in 44 CFR 9.5, including those outlined
in 44 CFR 9.5(f).
L. 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), as amended by Executive
Order 12948, 60 FR 6381 (Feb. 1, 1995), FEMA incorporates environmental
justice into its policies and programs. The Executive order requires
each Federal agency to identify and address disproportionately high and
adverse human health or environmental effects of its programs,
policies, and activities on minority populations and low-income
populations.
This rulemaking will not have a disproportionately high or adverse
human health or environmental effect on low-income or minority
populations.
M. Congressional Review of Agency Rulemaking
Before a rule can take effect, the Congressional Review of Agency
Rulemaking Act (CRA), 5 U.S.C. 801-808, requires the Federal agency
promulgating the rule to submit to Congress and to the Government
Accountability Office (GAO) a copy of the rule, a concise general
statement relating to the rule, including whether it is a major rule,
the proposed effective date of the rule, a copy of any cost-benefit
analysis, descriptions of the agency's actions under the Regulatory
Flexibility Act and the Unfunded Mandates Reform Act, and any other
information or statements required by relevant Executive orders.
FEMA will send this rule to the Congress and to GAO pursuant to the
CRA. This rule is not a ``major rule'' within the meaning of the CRA.
It will not have an annual effect on the economy of $100,000,000 or
more or result in a major increase in costs or prices for consumers,
individual industries, Federal, State, or local government agencies, or
geographic regions. Nor will it have significant adverse effects on
competition, employment, investment, productivity, innovation, or on
the ability of United States-based enterprises to compete with foreign-
based enterprises in domestic and export markets.
List of Subjects
44 CFR Part 61
Flood insurance, Reporting and recordkeeping requirements.
44 CFR Part 62
Claims, Flood insurance, Reporting and recordkeeping requirements.
For the reasons stated in the preamble, FEMA amends 44 CFR chapter
I as follows:
[[Page 87309]]
PART 61--INSURANCE COVERAGE AND RATES
0
1. The authority citation for part 61 continues to read as follows:
Authority: 42 U.S.C. 4001 et seq.; 6 U.S.C. 101 et seq.
0
2. Revise Sec. 61.4 to read as follows:
Sec. 61.4 Properties in violation of law, regulation, or ordinance.
No new flood insurance or renewal of flood insurance policies will
be written for properties declared by a duly constituted State or local
zoning or other authority to be in violation of any floodplain,
mudslide (i.e., mudflow), or flood-related erosion area management or
control law, regulation, or ordinance.
0
3. Revise Sec. 61.10 to read as follows:
Sec. 61.10 Requirements for issuance or renewal of flood insurance
coverage.
(a) Issuance or renewal of flood insurance. FEMA will not issue or
renew flood insurance unless FEMA receives:
(1) The full amount due, which is:
(i) Either:
(A) Presentment of the full premium; or
(B) Presentment of the first of a series of monthly premium
installment payments; and
(ii) Presentment of the full amount of surcharges, fees, and
assessments; and
(2) A complete application, including the information necessary to
establish a premium rate for the policy, or submission of corrected or
additional information necessary to calculate the premium for the
renewal of the policy.
(b) Impact of installment payments. (1) FEMA will not reduce
coverage or reform the policy for any policyholder who makes timely
installment payments in accordance with the terms identified in
paragraph (a)(1)(i)(B) of this section. In the event of a claim
occurring prior to a policyholder completing all installment payments,
the policyholder must remit the balance of payment. The policyholder
may settle their balance out of claim proceeds in accordance with the
Standard Flood Insurance Policy.
(2) FEMA shall require payment in full in the next policy term for
any policyholder who fails to make all installment payments in
accordance with the terms identified in paragraph (a)(1)(i)(B) of this
section.
PART 62--SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS
0
4. The authority citation for part 62 continues to read as follows:
Authority: 42 U.S.C. 4001 et seq.; 6 U.S.C. 101 et seq.
0
5. Revise Sec. 62.23(h)(7) to read as follows:
Sec. 62.23 WYO Companies authorized.
* * * * *
(h) * * *
(7) Premium payment plans must be offered by the WYO Company under
the terms prescribed by the Administrator in Sec. 61.10(a)(1).
* * * * *
Deanne Criswell,
Administrator, Federal Emergency Management Agency.
[FR Doc. 2024-25213 Filed 10-31-24; 8:45 am]
BILLING CODE 9111-52-P