National Flood Insurance Program Installment Payment Plan

<RULE> DEPARTMENT OF HOMELAND SECURITY <SUBAGY>Federal Emergency Management Agency</SUBAGY> <CFR>44 CFR Parts 61 and 62</CFR> <DEPDOC>[Docket ID FEMA-2024-0030]</DEPDOC> <RIN>RIN 1660-AB16</RIN> <SUBJECT>National Flood Insurance Program Installment Payment Plan</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Federal Emergency Management Agency, Department of Homeland Security (DHS). <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> 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. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This rule is effective December 31, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> The docket for this rulemaking is available for inspection using the Federal eRulemaking Portal at <E T="03">https://www.regulations.gov</E> and can be viewed by following that website's instructions. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Kelly Bronowicz, Director, Policyholder Services Division, Federal Insurance Directorate, Resilience, Federal Emergency Management Agency, (202) 557-9488, <E T="03">Kelly.Bronowicz@fema.dhs.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> <HD SOURCE="HD2">A. The National Flood Insurance Program</HD> 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 <E T="03">et seq.</E> 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. <E T="03">See</E> 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. <E T="03">See</E> 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. <SU>1</SU> <FTREF/> 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 would align. <SU>2</SU> <FTREF/> 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)  <SU>3</SU> <FTREF/> 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 <E T="03">et seq.;</E> 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. <SU>4</SU> <FTREF/> 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. <FTNT> <SU>1</SU>  Policyholders must also pay policy fees and statutory surcharges at the time of application or policy renewal. <E T="03">See</E> 44 CFR 61.10. </FTNT> <FTNT> <SU>2</SU>  The NFIA requires FEMA to account for administrative costs when setting rates. <E T="03">See</E> 42 U.S.C. 4014(a)(1)(B); 42 U.S.C. 4015(b)(3)). <E T="03">See also</E> 44 CFR 61.5(c) (2018) (restricting ability to refund premium due to seasonal nature of flooding). </FTNT> <FTNT> <SU>3</SU>  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. </FTNT> <FTNT> <SU>4</SU>   <E T="03">See e.g., Insufficient Premium or Rating Information at</E> 44 CFR part 61, appendix A(1), art. VII.D. </FTNT> <HD SOURCE="HD2">B. Installment Plans Reduce Barriers To Purchasing Flood Insurance</HD> 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. <SU>5</SU> <FTREF/> In this scenario, consumers will need to either finance their purchase of flood insurance through debt ( <E T="03">e.g.,</E> 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. <FTNT> <SU>5</SU>   <E T="03">See Lending Club, 9.3 Million More Consumers Ended 2022 Living Paycheck to Paycheck Than in 2021,</E> Jan. 30, 2022, <E T="03">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</E> (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). </FTNT> 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. <HD SOURCE="HD1">II. Final Rule</HD> FEMA is revising 44 CFR parts 61 and 62 as follows to add an installment plan payment option for NFIP policies. <HD SOURCE="HD2">A. 44 CFR 61.4: Special Terms and Conditions</HD> 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 § 61.4, as that section is unrelated to installment plans, will undesignate paragraph (a), and will rename § 61.4 “Properties in violation of law, regulation or ordinance” as this more accurately describes the contents of this revised section. <HD SOURCE="HD2">B. 44 CFR 61.10: Requirements for Issuance or Renewal of Flood Insurance Coverage</HD> 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 spe ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 75k characters. 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