HSFE60-17-I-0003_Background_and_Requirements_-_Risk_Rating_&_Classiification_Capabilities.pdf

HSFE60-17-I-0003 Page 1 of 2

Department of Homeland Security (DHS)

Federal Emergency Management Agency (FEMA)

FEDERAL INSURANCE AND MITIGATION ADMINISTRATION (FIMA)

Nation Flood Insurance Program (NFIP)

Actuarial and Catastrophic Modeling Branch (A&CM)

HSFE60-17-I-0003

Risk Rating and Classification Capabilities

Background and Requirements

January 2017

1. Background:

The National Flood Insurance Program (NFIP) was created in 1968 as a result of the continuing periodic flood disasters experienced by communities throughout the US that damaged or destroyed infrastructure, buildings, and homes, making it difficult for the communities and their residents to recover. The mission of the NFIP is to (1) identify the special flood hazard areas (SFHAs), (2) develop standards for effective floodplain management in those SFHAs and (3) provide flood insurance to building and home owners.

In the wake of Hurricane Sandy, the Federal Insurance and Mitigation Administration (FIMA) conducted an assessment on the NFIP to ensure that the customer’s experience aligns with FIMA’s survivor-centric vision, mission and approach. Out of the customer-experience assessment, FIMA identified the following gaps within the NFIP: (1) policyholders didn’t understand their flood risk and (2) coverage-to-value varied person to person. Therefore, FIMA is redesigning and modernizing their current risk rating approach, in order to address these gaps and improve overall customer experience.

The NFIP’s current risk rating approach is the result of collaboration between industry, government and academia during the 1960’s and 1970’s. These methods for rating risk have changed little of the past 50 years, despite substantial improvements in technology and catastrophic risk modeling utilized in the insurance industry. Due to the complexity of the current risk rating method, many homeowners face a risk of flood that they do not fully understand.

FIMA is conducting market research in the fields of catastrophic risk classification and rating capability in support of the establishment of the Risk Rating 2.0 Program.

2. Scope:

The purpose of the acquisition is to secure expertise in catastrophic modeling and pricing to assist FIMA in the redesign of the NFIP’s Risk Rating approach. The contractor shall provide support to FIMA in

HSFE60-17-I-0003 Page 2 of 2 modernizing its risk rating approach in order to deliver accurate, cost-effective ratings of flood risk to property owners.

The vision of the redesigned Risk Rating approach is to improve the NFIP insurance product and policyholder experience, by accomplishing the following:

a) Improve accuracy of the NFIP’s risk classification system and Risk Rating model to inform policy, pricing decisions, and cost

b) Increase agility by adapting to new methods and data that is current with industry standards

c) Increase cost-effectiveness by using purposeful, value-driven approach to collecting, analyzing and communicating flood risk

d) Improve customer experience by improving policyholder understanding of their risk and the delivery of the pricing to the policyholders

e) To continue support of sound floodplain management by more clearly communicating risk at both the community and individual level.

3. Objectives:

Phase 1: Develop

Objective 1: Develop a baseline of NFIP’s current risk rating approach for purposes of comparison to alternative approaches;

Objective 2: Design an alternate risk rating and classification model;

• Gather and evaluate data output from catastrophic risk models, internal FIMA modeling capabilities, stakeholder input, and other tools and technologies,

• Develop a proposed NFIP risk rating and classification approach, across the following areas: data collection, risk classification, risk rating, and pricing;

Objective 3: Test and evaluate the current and alternate risk rating and classification approaches;

Objective 4: Develop final report with recommendations.

Phase 2: Implement

Objective 5 (Option): Support the implementation of new risk rating model or improvement of current risk rating model.