ITC Vegas Update: Leverage Big Data Better to Increase Transparency and Reduce Risk – Workers Comp Forum
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An engaging session at ITC2022 discussed big data practices and how Insurtechs can work with insurers to incentivize risk reduction. A panel of experts representing the legacy perspective and the burgeoning Insurtech space led a robust discussion within the data & analytics track in this popular morning session.
The speakers on this forward-thinking panel were Diyaa Shridi, CTO at SOMPO Digital Labs; Eugenio Gonzalez, partner at Plug & Play Ventures; Hemant Sarma, SVP, global digital IoT lead at Chubb; and Jeroen Morrenhof, CEO and co-founder at FRISS. Elad Tsur, CEO at Planck, moderated the session.
The panel focused on the goal of improving risk reduction, a vision shared by providers across the risk and insurance ecosystem. The idea of incentivizing preferred consumer behavior isn’t new to the insurance industry. Think of discounts on auto insurance for policyholders who remain accident-free or those who share telematics data to prove they are safe drivers.
Elad Tsur, CEO, Planck
But now, the availability of big data has created a world where insurers can use data insights to incentivize risk reduction. With the proliferation of literally millions of data points of potentially helpful information available to carriers, the battle becomes determining what data is significant — and how to use that data proactively to make better risk reduction and underwriting decisions.
The leaders on the panel discussed how their solutions are benefiting legacy carriers.
Tsur spoke about the need for more accurate data insights: “Planck’s AI and machine learning algorithms have provided commercial insurance carriers a much faster, more thorough, and more accurate depiction of business risk. Underwriters can now expand, deepen, and interpret the range of available data sources, making commercial risk more searchable, accessible, and rapidly actionable.”
He also discussed how Planck’s solution helps carriers reinvent their big data practices: “Being able to easily navigate big data in real-time allows insurance carriers to own the story and close the risk knowledge gap without the need for lengthy forms or repeated customer outreach. And the Planck platform provides additional predictive intelligence for risk data that can’t be found through a traditional search.”
Hemant Sarma, SVP, global digital IoT lead at Chubb, spoke about simplifying the customer experience by expanding on how big data can be used to improve outcomes and incentivize risk reduction.
He said, “We have been using big data as well as trying to break down underwriting for small commercial risks. We reduced the questionnaire down from 20 questions to two by using available data instead of asking the customer questions we already have the answer to. From the customer experience to back-end processes, all of these aspects are being touched by using big data and AI.”
One central theme from the session was how big data and analytics could help create and strengthen a culture of transparency and drive innovation through partnerships. By combining internal and external data, companies can see new trends and patterns through the power of data analytics.
CTO of SOMPO Digital Lab, Diyaa Shridi, explained further: “We’re bringing real data from outside of SOMPO — data generated by people and machines — to bring greater efficiencies and unlock new value for the customer experience and new business domains.”
Eugenio Gonzalez, partner at Plug & Play Ventures, discussed examples of big data capabilities that arise through the development of strategic partnerships. He recommended carriers partner externally to accomplish goals.
“It’s very important to partner internally but also externally through working with startups.” Gonzalez ended his comments by reminding the audience of the tried-and-tested adage, “If you want to go fast, go alone. If you want to go far, go together.”
The speakers reinforced the importance of consumer trust, especially regarding how trust may be earned through a culture of transparency. Shridi reinforced the idea of transparency and having a “what you see is what you get” focus with customers. He suggested having a detailed proof of concept and plan of action is one way to earn trust through being transparent.
Sarma said, “The biggest use case (of IoT), as well as the biggest challenge of adoption, is trust.” Talking about transparency, Sarma commented on proving the benefits of customer-facing solutions and ways to incentivize risk reduction in policyholders: “We can track the ROI and prove to the customer the solution is useful. Then we can incentivize consumers with IoT devices through premium reductions and lower deductibles, which lead people to more IoT devices.”
Continuing the discussion around consumer trust, Jeroen Morrenhof, CEO and Co-Founder at FRISS, expanded, “Insurance is about trust, from both the consumer and carrier perspective. Expectations from consumers are higher now. They expect instant help and support. Many of these consumer interactions are based on mistrust by default. Trust is very important and is easily shaken and hard to regain.”
Morrenhof talked about how FRISS solves the trust challenge: “We believe a better way is through trust automation. We can know everything about a customer and when to trust or not to trust — and then make decisions moving forward. We believe insurers who can instill this trust with consumers can grow faster and be more profitable.”
Creating a trusted relationship with a customer that allows certain unique benefits isn’t a new concept in business. Think of banks with known customers who enjoy the advantages of being trusted, like having immediate access to deposited funds, or travelers with a Global Entry pass proving they are trusted visitors, allowing them faster access through international borders. But applying the concept to insurance — and automating it — is an innovative idea that could improve customer satisfaction while speeding up interactions.
Big data and risk reduction go hand-in-hand when carriers have the tools and technology to analyze the millions of data points they have accumulated. Insurtechs are filling this technology gap to help carriers manage, analyze, and use their data to incentivize risk reduction and improve outcomes. &
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George Weaver, age 37, is a fourth-generation executive with the family business, Jefferson Foods. He’s the CFO of a food processing business that began as a farmstand on his great-great grandfather Franklin Weaver’s farm near the town of Jefferson, just a few miles from the Susquehanna River in York County, Penn.
With assets of $750 million and annual sales of $200 million, Jefferson Foods has thrived as a supplier of canned and frozen vegetables and baked snacks to grocery store chains and other vendors in the Mid-Atlantic Region of the United States.
It’s a stable business. They don’t do organics, but they make a darned good can of corn, harvested within a perimeter of a 50-mile radius from where George now stands on the seventh tee of the Hanover Country Club. Teeing off ahead of him is Grady Miller, also the scion of a venerable York County food processor, Red Lion Snacks. They do potato chips and pretzels, made with local ingredients, and have been making money at it almost as long as the Weavers have.
It’s a beautiful late June day, not too hot, with cumulous clouds above. But George has worries on his mind.
The global pandemic was a shocker in terms of what it did to smaller businesses in Pennsylvania, Maryland, Delaware and New Jersey, the geographic sweet spot of Jefferson Foods’ sales base. The bigger grocery store chains held on okay, but many a small grocer went under, never to return. To date, pandemic-related issues knocked out 20% of Jefferson Foods’ customer base.
Adding to it all, inflation is reaching rates George has only heard about and never experienced as a business executive. Labor shortages are a prominent topic of conversation when he’s on the phone with his customers.
The East hasn’t seen droughts like those that have hammered Midwestern farmers. But what if? What if all these conditions further deteriorate and the chickens come home to roost at the same time, or close to it?
George is on the phone with his banker when he hears something that worries him even further. The banker shares the story of another well-known local business that just saw its credit terms hardened.
This is an auto dealer. Different business with a different set of problems. However, a number of economic factors (global supply chain issues related to microchip manufacturing the most visible culprit, plus inventory limitations due to the knock-on effect of lower sales volume), have caused the bank to tighten the auto dealer’s credit terms.
The conversation with the banker haunts George, almost subconsciously.
That same week, George picks up the scent of trouble with two of his largest supermarket clients. Customer demand is still strong, but labor shortages are chipping away at sales volumes.
The labor issue affects Jefferson Foods in multiple ways. Farmers in the Mid-Atlantic are struggling to find enough workers to harvest important crops such as tomatoes, corn, green beans and potatoes.
That’s pinching the amount of processed food products Jefferson can produce, which is eroding sales. In the past two quarters, Jefferson Foods’ sales were off an average of four percent.
In addition, driver shortages in trucking are hampering the ability of regional supermarkets to stock inventories. As a result, they’re not moving as much product as they normally would, which is pinching not only their top-line numbers, but also their cash flow.
It’s now that a move that seemed right on point three years ago seems less glowing. Jefferson Foods borrowed $20 million in 2019, pre-pandemic, to upgrade its manufacturing processes, including an entirely new, state-of-the-art canning line. That debt seemed manageable back then. It’s looking less so now.
Like gathering storm clouds, within a span of another six weeks, the picture darkens. A major grocery chain, representing 10% of Jefferson Foods’ business, unilaterally changes its terms from 45 days to 60 days and in a few cases longer on the payment of their invoices. The change in terms results in Jefferson having to use its own operating line of credit to manage cash flow effectively. Yet more bottom-line erosion!
George and the rest of the leadership team huddle. What to do? The consensus is to grant the more lenient terms. These customers have been with Jefferson Foods for decades. “Things will turn; we need to do what we can to keep them going,” the team reasons.
It’s late September and Grady and George are where fate determined generations ago that they should be. As the oak tree leaves turn red and the locust tree leaves turn brown-mustard yellow, they are again on the 7th tee at the Hanover Country Club.
This time, though, Grady can’t help but notice that George is not in a good space. The usually even-tempered, peaceful George bears a dark, worried expression.
Grady is going through his practice swings but then stops himself and turns to George.
“Okay, what is it?” Grady asks the guy he’s known since they played Little League baseball together in the fourth grade.
George looks at his friend and shares that Jefferson Foods is facing pressures he’s never known it to face. Key customers are running afoul of 60-day terms that were granted just three months ago.
For the first time ever, George might end up having to go to his bank in an attempt to extend the terms of a $20 million, 10-year loan.
“Asking to go to a 20-year term with all the extra interest is going to hurt,” George says.
Grady pauses and looks out into the distance.
“So I’m going to take a wild guess here and conclude that you don’t have any accounts receivable insurance in place,” Grady says.
“No,” says George, feeling even more out of his depth and feeling tweaked by the condescending tone Grady can slip into sometimes.
Grady lowers his head and resumes his practice swings, almost dismissively.
“Accounts receivable insurance,” he says again. “I think of it like an aspirin to keep my banker’s nerves steady. You pay a manageable premium and the insurer acts as your backstop if your customers have a case of the slows and your banker is getting edgy. It pays for flat-out losses too if a customer goes under.
“I’ve never had to use it for that but still received a benefit,” Grady continued. “It provides my bank comfort that I have my accounts receivable protected and therefore, my cash flow is protected against a sudden bump in the road caused by a customer’s default.
“It’s tailor-made for exactly what you’re going through,” Grady says.
Grady lowers his head and smacks a monster drive down the center of the fairway. George watches the small, bouncing white ball like somebody seeing a vision in a nightmare.
When George can finally speak, he asks, “How did you find out about it?”
“Jenks Graham,” Grady says.
Jenks was George’s doubles partner when they won the city tennis tournament in York. Seems like forever ago. Now he’s an insurance broker in Baltimore. Doing very well by all accounts.
Despite the worries choking him, George starts to breathe a little bit better as he tees up his shot.
“Maybe he can help me yet,” George says to himself. “Man, I need it.” &
Risk & Insurance® partnered with Allied World to produce this scenario. Below are Allied World’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®
Recognizing that outstanding payments are often the largest asset on a balance sheet, securing against a loss should be mission critical. Accounts Receivable Insurance is an important safeguard, designed for protecting a company’s accounts receivables.
At its core, Accounts Receivable insurance offers indemnification for an event that results in a loss due to nonpayment, including insolvency. However, this coverage offers many additional benefits for companies facing circumstances similar to those featured in this scenario.
Accounts Receivable insurance aims to allow companies to grow and protect earnings and creates potential for enhanced financing. Here are some real world examples of how Accounts Receivable insurance can provide credit certainty during an uncertain economy:
By building Accounts Receivable Insurance into their program, CFOs and Risk Managers are better prepared to secure their balance sheets AND manage risks that are critical to their organization’s bottom line.
This case study is for illustrative purposes only and is not intended to be a summary of, and does not in any way vary, the actual coverage available to a policyholder under any insurance policy. Actual coverage for specific claims will be determined by the actual policy language and will be based on the specific facts and circumstances of the claim. Consult your insurance advisors or legal counsel for guidance on your organization’s policies and coverage matters and other issues specific to your organization.
Coverage will be underwritten by an insurance subsidiary of Allied World Assurance Company Holdings, Ltd, a Fairfax company (“Allied World”). Such subsidiaries currently carry an A.M. Best rating of “A” (Excellent), a Moody’s rating of “A2” (Good) and a Standard & Poor’s rating of “A” (Strong), as applicable. Coverage is offered only through licensed agents and brokers. Actual coverage may vary and is subject to policy language as issued. Coverage may not be available in all jurisdictions. © 2022 Allied World Assurance Company Holdings, Ltd. All rights reserved.
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