Background
Part of my work as a CEO for a startup insurance brokerage involved taking a holistic view of the company’s risk profile – what I mapped as the three key pillars in this work was credit management, premium setting and risk management processes. The company specialized in offering guarantees to small and mid sized firms in the Nordic region. How would I go about implementing or improving these pillars?
Credit management is the art of understanding and properly analyzing financial reports, credit scores, reading between the lines and either give a yes or no to approving a line of credit. As an external party, you only get a glimpse into the inner works of a company when you read such reports – reports that are usually comprised of outdated data; an annual report can be up to two years old before it has been audited, approved and then publicly released. You would need supporting data and tools in order for your credit management process to be relevant and for it to mitigate risk.
Another key pillar of a well functioning insurance firm and brokerage is premium setting. Setting the wrong premium can put you at a great risk of defaulting should a crisis occur – premiums are your main income, and cushion for future losses. A premium that is set arbitrarily high poses a reputational risk, which can mean you losing clients. Being able to set a premium tailored to an individual client’s risk is the best scenario, albeit not the easiest. Traditional premium setting is based on using statistics on a group level. What if you could automate the premium setting process, using relevant data? It is doable, using data mining coupled with qualitative data relating to your clients and the market you are in.
In parallel with setting a good credit management and premium setting process in place, you would also need to implement a risk management one – setting the foundation for handling the Black Swan’s I mention in the About page.
Challenges and how Amira helped
My starting point was a “manual” company, one that was just getting started in the sector and focusing on growth. The very first thing I did was to digitize the company, and implement a new CRM system.
As part of making the credit management, premium setting and risk management processes more efficient, I took use of data mining processes collecting data relating to the industry at hand (in this case the travel industry) and compared companies with similar financial situations and product mixes. Applicants also got to answer qualitative and quantitative questions relating to key factors affecting their cumulative risk. I set to tailoring a risk management process that used quantitative tools as well as qualitative ones (“soft knowledge”).
New automated risk management processes were also deployed, to catch warning signs automatically and in time. Such warning signs could be, but were not limited to:
- A client being in one or several court battles with suppliers or the tax authority
- A client having its credit score reduced by one or several scoring agencies
- A client repeatedly failing to pay suppliers in time (cash flow issues or fraudulent behavior)
- A company frequently replacing its auditor or board members
I asked for and received RFPs (request for proposals) from several external service providers of automatic risk alert services and implemented the ones most relevant for the business. Internal tools, such as the CRM system I had implemented, also helped keep track of risks using notifications and tasks set per client and at continuous and repeated intervals.
This was the story of how I took a “manual”, small company and turned it into a digital one, one with a sound risk mitigation process in place.
Oh and how about the growth part? I achieved a growth of 40% during my year in the company, 7% above budget.
SERVICES
– Credit management
– Mapping risks
– Creating and implementing a risk management process
– Reviewing and improving premium setting processes
– Digitalization and automation