FEMA Makes Changes to NFIP WYO Program

Last week, FEMA published changes that will impact the WYO program, the private-public partnership through which the majority of NFIP policies are sold.

Every year, private insurers that participate in the WYO program must sign an operational contract with FEMA called the WYO Arrangement. FEMA’s latest changes, which apply to the FY2019 WYO Arrangement effective Oct. 1, include, among other things, eliminating the WYO non-compete and revising the methodology for calculating WYO compensation, which is used to pay agent commissions.

Previously, WYO companies were not permitted to directly sell standalone private flood insurance—they had to sell flood via an affiliated company or as part of a multiline product. Under the new changes, WYOs are still prohibited from using NFIP resources or funds to sell private products, but they are no longer prohibited from directly selling standalone private flood insurance. The Big “I” supports eliminating the non-compete from the WYO arrangement and is pleased that FEMA took steps within its authority to do so.

FEMA is also changing the way it calculates the WYO reimbursement ratio. Although it will still calculate the ratio based on an A.M. Best-weighted average of the expense ratios from five lines of property-casualty insurance, FEMA will no longer add an additional percentage point to compensate for program complexity. This means for FY2019, the expense ratio will be 30% instead of 30.9%.

In addition, FEMA is changing how it will calculate growth bonuses for the WYOs. FEMA is allocating approximately $60 million in additional funds to bring new business into the program—more than 10 times the amount that was previously available to companies for growth bonuses. It is important to note these changes are within FEMA’s regulatory authority, and FEMA changes the WYO expense ratio on a semi-regular basis.

The arrangement also contains new reporting requirements for WYO companies, which include general information on their salesforce. The Big “I” has been working closely with FEMA and will continue to do so as the agency takes steps to modernize NFIP rating methodology and update NFIP policy forms.

Jennifer Webb is Big “I” federal government affairs counsel.