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Federal Register / Vol. 86, No. 226 / Monday, November 29, 2021 / Rules and Regulations
determining eligibility to participate in the WYO Program.
Further, the APA generally requires that substantive rules incorporate a 30day delayed effective date. 5 U.S.C.
553d. However, the APA provides an exception to the 30-day delayed effective date for rules which grant or recognize an exemption or relieve a restriction. 5 U.S.C. 553d1. This rule relieves a restriction rendering private insurance companies ineligible to participate in the WYO Program unless they furnish information on their financial size. As mentioned above, FEMA does not require this information in practice to determine eligibility to participate, and is therefore updating its regulations to remove this unnecessary restriction upon the public.

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B. Executive Orders 12866, Regulatory Planning and Review and 13563, Improving Regulation and Regulatory Review Executive Orders 12866 Regulatory Planning and 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, of reducing costs, of harmonizing rules, and of promoting flexibility.
The Office of Management and Budget OMB has not designated this rule a significant regulatory action under section 3f of Executive Order 12866.
Accordingly, the rule has not been reviewed by OMB. The following paragraphs explain the need for the updated regulation, the affected population, and the benefits.
Need for Updated Regulation Current regulations require private insurance companies applying to participate in the WYO program to furnish their Bests Financial Size Category for the purpose of setting marketing goals. However, this is no longer a FEMA practice as FEMA does not set marketing goals for participating WYO companies. Instead, FEMA
utilizes the policy growth incentives to motivate companies to utilize their resources in the marketing and sales of new NFIP policies. The purpose and goals of the policy growth incentives is to 1 increase the number of customers with flood insurance policies; 2
increase the financial stability of the
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program by distributing the policy base and increasing focus on lower risk policies; and 3 to act as a reinvestment to advance future growth activities.
The policy growth incentives provide a flat dollar amount for each new policy a WYO company writes. To qualify for the policy growth incentives, the company must have an overall net growth and the new policies must be new to the NFIP and not a renewal previously written by another WYO
Company. The total policy growth incentives paid to WYO companies will not exceed two percent of the aggregate net written premium collected by all WYO companies. FEMA will pay those WYO companies, who qualify for an incentive, at the end of the Arrangement year.
FEMA is issuing this final rule to remove a requirement that a private insurance company applying to participate in the WYO program furnish its Bests Financial Size Category for the purpose of setting marketing goals.
Affected Population This rule affects private companies participating in and applying for participation in the WYO Program.
Currently there are 12 of the 56 WYO
companies who are either Not Rated or have never been rated by AM Best and do not utilize their service. This rule removes the requirement to provide information that FEMA no longer enforces or uses in implementing the NFIP. Although FEMA is no longer enforcing this requirement, 44 WYO
companies continue to use AM Best services. FEMA will no longer require an AM Best rating because FEMA, to the extent necessary, can accurately assess the size of a carrier for marketing purposes without the rating.
Nevertheless, size is not a consideration FEMA uses when formulating marketing strategies. FEMA assumes most of the larger carriers would continue to use AM Best for other purposes, so FEMA
will still be able to review the rating.
Accordingly, FEMA believes this change may have little to no effect on these companies choice to use a rating service.
Baseline FEMA is issuing this rule to align regulations with current FEMA practice.
Accordingly, FEMA is using a no-action baseline to show the effects of this rule compared to current regulations and practice.
Costs FEMA expects the only costs from this rule to be the opportunity cost of time for WYO companies to familiarize
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themselves with this final rule.
Currently, 56 private companies participate in the WYO program. FEMA
assumes that each company will have two Management Analysts 3 spending two hours to read and understand this rule. Using the hourly mean wage rate of $42.62 per hour with a 1.45 wage multiplier 4 results in a total cost of $123.60 $42.62 2 hours 1.45 per company. Based on a total of 44
companies, the total cost of this rule is estimated to be $5,438 in the first year.
Distributional Effects This rule may result in distributional impacts to insurance rating companies by removing a requirement that FEMA
does not impose in implementing the NFIP. This will simplify the Code of Federal Regulations and reduce confusion, and further align the regulations with FEMAs current exercise of its authority.
Rating services are an important part of large insurance carriers business and FEMA believes their use of AM Best is not predicated on the requirement in 44
CFR 62.24d for a size rating. Rather, large insurance carriers use the rating to not only market their company to policyholders but also to potential investors. It can also be required for State regulatory purposes. In most instances they choose to use multiple rating services. Moreover, the size category is not the only service provided by the rating agencies as it is a small part of a larger service. As such, FEMA
does not believe this change will affect large WYO companies use of AM Best.
It is possible that small WYO companies who have continued to use AM Best may to choose to use the services of a competitor. However, FEMA expects that these companies will continue to use the services of a rating company as they have continued to pay for AM Best services despite FEMA no longer enforcing a requirement to do so.
Accordingly, this rule may result in distributional impacts as some WYOs may switch from AM Best to a different rating company or use no rating company at all. There are no impacts to 3 U.S. Department of Labor, Bureau of Labor Statistics, May 2020 National Industry-Specific Occupational Employment and Wage Estimates, NAICS 524120Direct Insurance except Life, Health, and Medical Carriers. Available online at:
https www.bls.gov/oes/2020/may/naics5_
524120.htm mean wage rate for Management Analysts, SOC: 131111, NAICS 524120. Accessed June 8, 2021.
4 Bureau of Labor Statistics, the wage multiplier is calculated by dividing total compensation for all workers of $38.60 by wages and salaries for all workers of $26.53 per hour yielding a benefits multiplier of approximately 1.45. Available at https www.bls.gov/news.release/archives/ecec_
03182021.htm. Accessed June 8, 2021.

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