Hi, hello everyone. I'm Heather Balsky, B of A's Business and Information Services Analyst, and I'm pleased to be here with Elizabeth Mann, Verisk's Chief Financial Officer. Elizabeth, thank you so much for joining us.
Thanks, thanks for having me, and thanks, thanks for joining.
Yeah, so you are about a year and a half into your role at Verisk, and Lee's been in his CEO seat for almost two years. What do you think your and the Verisk management team's biggest accomplishments have been over the last year and a half or so?
Yeah, so it's been it's been quite a year and a half since I joined. If you can remember, when I joined in September of 2022, we were still a multi-segment company, and we still had the energy business in it. We had announced that we were intending to divest it, but we honestly didn't know how that would go, you know, in the midst of a credit crunch and.
Yeah.
Selling a business, we were very happy to sell that successfully, so we executed on that sale. We closed on that. We returned the proceeds to shareholders. So then we were kind of re-forming who we were as an insurance-focused company. And that's been a very exciting time. I think we worked through it, thought about the opportunity set in front of us, developed the strategy, and then kind of lay it out to employees and organized our leadership team to get some momentum around it. We laid it out for investors at the Investor Day about a year ago in March, and then we've been executing on it since then.
Yeah.
I think 2023 was a year where we did have some environmental opportunities that contributed to the growth, but I'm very proud of the fact and how we organized as a leadership team and as a company to be able to capitalize on those opportunities that presented themselves.
Yeah, so then from here, what are you most excited about over, over the midterm?
Yeah, over the midterm, what really excites me about our opportunity is the secular opportunity to be the partner, the strategic partner to the insurance industry as they address the challenges that are facing them. And the biggest challenges for them currently are technology and how to better integrate and use technology to address their fundamental challenges, including how to best, you know, select, price, and underwrite risk, to identify fraud, and to operate most efficiently, as well as addressing the challenges for them from a workforce standpoint of, you know, decreasing expertise in the workforce as the population moves out.
That's interesting. You know, Verisk is taking a more customer-centric approach than it has in the past. You know, you've talked about wanting to be seen as a partner, not just a vendor. Can you talk about how that goal is influencing your innovation and go-to-market strategies?
Yeah, so it has changed both of our innovation strategies and our go-to-market strategies. So I think we are engaging with our customers on much more of a holistic level. Yes, we talk about it as we used to be more of a product-centric organization, and really talk about, you know, here's the product set that we have, and engaging with our customers at the user level for those product sets. Now we're engaging in much more of a senior-level dialogue. What are their strategic priorities? What are they trying to achieve? How are they trying to use technology, and how can we help them with that, which is a much better way to come at the conversation than just, "Here's the product I have this year. You know, do you like it? Yes or no?" So that's changing the overall dialogue.
In terms of how it changes our innovation cycle, it means that our customers are much more involved upfront and at earlier stages of the product development cycle. So we've got many more customer development partners, many more, joint innovation opportunities as we engage with our customers, really to get their input, before we innovate as to what the industry most needs and most wants to see. And then from a go-to-market standpoint, part of it I covered already with that more senior-level strategic engagement.
Yeah.
More generally across the sales force, as we scale, I think we're thinking about ways to better bring our full sales force behind that go-to-market and behind that senior-level engagement.
That's really helpful. And it, you know, it just seems like, you know, insurance. I don't know if it's necessarily known historically for being technology leaders. So that seems like it's a change that you're seeing right now that you're leaning into.
Yeah, I think many of our customers, I would say there is a wide range of sophistication in the industry. There are some highly sophisticated, very technology-enabled players, and there are some that are more challenged. And there are some that may be forward-leaning conceptually but are also saddled with some tech debt and some legacy workflow or legacy systems. So we are really trying to engage with the industry kind of wherever they are at that stage of evolution and bring opportunities to them that can help them engage with it.
That's really helpful. And so you, you kind of touched on this, but 2023 was a very strong year for Verisk, you know, with nearly 9% organic sales growth, and your annual target 6%-8%. So during the year, you called out several items that you referred to as non-recurring or one-time. You know, help us assess how the underlying business is growing, you know, and and break down the factors that were specific to 2023.
So, you know, 6%-8% organic constant currency revenue growth is sort of our long-term or our steady state revenue growth, and our targets through 2025. It coincides, you know. It is also the rate at which we have grown historically, nearly every year going back to our IPO 15 years ago. So a lot of historical consistency around that revenue growth range.
Yeah.
2023 was unique for a number of different factors that were tailwinds. And really, there was a bunch of puts and takes in the different quarters, but fundamentally, there were three key factors that drove strength in 2023. Number one was the pricing environment for us in a hard insurance market with net written premium growth in the high single digits, so above historical average. Number two was the recovery of transactional revenue growth, which was in the low double digits for most of the first three quarters of 2023, really showing some transactional rebound from lower levels in 2022, and in particular, driven by very active environments of auto insurance shopping, which drove our revenue on the auto side. And the third factor was very active weather patterns in 2023.
Even though there wasn't a single, you know, large-scale hurricane to hit, you know, the U.S. or elsewhere globally, there was a very high level of activity of secondary, what we call severe convective storms or just very heavy thunderstorms. You may have experienced them during the year, tornadoes, ice storms, and other activity that drove fairly high claims activity in the property space.
Okay, that's helpful. And so then drilling into the insurance shopping piece, you know, how can you put in perspective how meaningful the lift was for twenty, you know, to your 2023 sales? You know, J.D. Power's data, you know, for the fourth quarter showed that it was still at fairly elevated levels. What's the dynamic going on with carriers and consumer shopping for insurance, and how much longer, you know, can this persist?
Yeah, so the dynamic going on, the pricing environment, in 2023 for auto insurance was fairly high, driven by losses that the carriers experienced, in 2022 and early 2023. All of the supply chain issues and the inflation issues impacted the claims that were filed.
Yeah.
So, the carriers had profitability challenges. The way you typically remedy that is by increasing the premium pricing. Clearly, the risk was more expensive than what you had originally underwritten. So they had to raise prices. It took a while. Most of those price increases need to be approved by the regulators in each of the different states and jurisdictions. It took a while for those price increases to go through, but throughout 2023, they largely were going through. You as a customer may well, probably did experience an increase in your auto insurance policy. I know I did. And so that drove consumer shopping behavior, to look for, "Can I find a better deal on auto insurance?" Our LightSpeed product helps the carriers quote prices in real time for consumers shopping for auto insurance.
And so that shopping activity drove transactional revenue for us.
So, you know, it seems like there's still some catch-up on the pricing side. Is that a tailwind for 2024, or how are you thinking about that?
Yeah, so, so the carriers do continue to that price impact is continuing to work its way through the system, but I would say it's by and large anniversaried the impact. It really started to be felt at the beginning of 2023. So from our perspective, from a year-over-year perspective, we've largely anniversaried that behavior, and we would expect the consumer shopping levels to go back down to a more normalized historical level.
Okay, that's helpful. And can you talk about you talked about this a little earlier with net written premiums last year. What's the pricing environment for 2024 relative to 2023? And it does get complicated because you have contracts that are tied to net written premiums, and then there's the pricing that you take as a business. So I kind of wanna talk about both separately just to keep it easier. So let's start with the net written premium side. I think you've previously said 20%-25% of your business is contractually tied to net written premiums in some way.
In some way, yes. So I know more or less 20%-25% of our revenues are on contracts that have some input from net written premium. It's an input to the contract. It's not a.
Okay.
Driver of the sole driver of the price increase.
That makes sense. And so how does that help you in 2024? What do you see, or I said it's a year lag, so what did you see two years ago, and what does that mean for this year?
Yeah, so I, I would say, you know, there, there has been strong net written premium growth in the industry really starting in 2021, which was a benefit in 2023 for us. That, that fairly high net written premium growth continued in 2022, which is now impacting 2024 and continuing and would continue has continued so far, at least the data would show, for the first nine months of 2023, though the numbers are not yet final.
Got it.
So it should be a multi-year, you know, tailwind. I've said, you know, from a long-term historical basis, our 6%-8% revenue growth, if you look at it historically on average, probably about half of that, so about 300-400 basis points annual growth would roughly come from pricing. I think I've said that the 2023 pricing impact was above that long-term historical range, not necessarily by much. So I think we would expect for 2024, the pricing to be also above the long-term historical range but maybe not quite as much as it was in 2023.
Okay, that's helpful.
I think and then the final point is, as we go into, you know, multi-years of a premium cycle, fundamentally, Verisk is not looking to tie our revenues very closely to the premium growth cycle. It's more that was a conceptual tie of our business will grow as our customer's business grows, but we view it as a long-term relationship and a steadier relationship that shouldn't have the cyclicality as much of their premium growth. So we are looking much more, as we price our products, to really talk about pricing to value and demonstrating for our customers the value proposition that we're delivering for them and the costs that we're enabling them to save elsewhere.
That makes sense. And it's not one in the net written premium side, it's not one-for-one. So, you know, that I think that's something that's important.
Yes, that's important for people to understand.
Okay, okay. And so let's see here. It catches up on Core Lines Reimagine. You know, it is my understanding is there's many projects underway that fall under that initiative, so it's, it's a big bucket. You know, maybe, maybe kind of taking us sort of the high level, what are the key goals under that strategy, and where are you along that journey?
Yeah, so Core Lines Reimagine is an umbrella title that we use for a bunch of different projects. It's something like 20 different projects overall, but here's the goal of them. The Core Lines business, or otherwise known as our Forms, Rules, and Loss Costs business, is our largest single business and the part that goes back to the historical formation of ISO as an industry consortium to share data. That's the Core Lines piece of it. The Reimagine piece of it is for us to ask ourselves we had to reimagine. We had to challenge ourselves to, "What should this business look like in 2024 if you think of it as a data-first, technology-first, modern technology stack kind of business? What should the delivery mechanism look like to our customers? How should they be using our content?
How can we be delivering our content in a more efficient way?" So all of that is part of the Reimagine. It's, you know, the many different projects. It doesn't matter what the 21 different ones are. The themes are around fortifying the existing business, modernizing the technology stack, and then growing the business. So it's around the quality and granularity and recency of our data. It's around particularly the delivery mechanism to our customers, you know, more APIs, less PDF content. And it's about the platforms under which our customers use that data and then increased industry leadership, thought leadership, benchmarking using all of the data that we have to really drive insights.
So all of that is part of the Reimagine umbrella, which we're pretty excited about in terms of driving growth in the core business, in the Forms, Rules, and Loss Costs business, in a long-term and sustainable kind of way. You asked, "Where are we on that journey?
Yeah.
It was a five-year investment. Kind of when we started it, we said we're about a third of the way through, so, you know, just under two years into it. Even before we started the Core Lines Reimagine journey, I should add, there was what I call step zero. It wasn't even part of Core Lines Reimagine, but it was almost a prerequisite, which was we had to move the participatory database, which underlies that Core Lines, that Forms, Rules, and Loss Costs content. We had to move that from the mainframe to the cloud.
Yeah.
We started that six years ago. We finished, you know, it was a five-year journey, so about a year ago, we announced that we had switched off the mainframe to great rejoicing, I think, at Verisk overall. So we migrated the database to the cloud. That then enabled a lot of this reimagining of what you could do with the data and the content. I said we're about a third of the way through that five-year investment cycle now, again, not counting the work that we did to shift it to the cloud, and so we're now at the point we've built a lot of the ingredients. We've built some of the underlying platforms. 2024 is gonna be a year where we anticipate being able to turn on a bunch of the different new modules and different new innovations to our customers.
Some of it will be initially in beta form. We can have, you know, customer partners being experimenting with us, but we've been showing them the journey and what we anticipate doing, kind of along the way.
So you, Lee, talked about turning on some of the customer-facing modules in 2024. I think that I'm guessing that's what you just referenced there. You know, can you share a little more color on some of the changes your customers might see?
Yeah, and you can start to look at some of it at core.verisk.com. To the extent there is going to be sort of public-facing content, you know, most of it, honestly, will be behind a customer paywall, and for the subscription customers. But to the extent there are industry thought leadership reports, some of which are on there now, looking at, you know, aggregate loss-type information by line of business, across the different geographies. Also starting to bring in some of the current issues sites, so issues, everything from, like, PFAS and forever chemicals, which is a big topic of focus in the insurance industry. We've got content and thought leadership there. We've also got our legislative monitoring tool, which enables customers to assess what have been the legislative developments.
Remember that insurance is regulated not once nationally, but in each state by state, and so each state legislature can take actions that will affect the insurance industry and the policies they write in that state. Our Legislative Monitoring tool, we've always had the content that enables them to track that, but it was much more effort for them to read and go through, you know, figure out which states they're monitoring. Now we've got a much more visual reference to that, you know, a clickable map and cross-referenced and hyperlinked content and others that significantly increases the ease of use for our customers.
Okay, and then what's, what's on in terms of Core Lines Reimagine, what's kind of next in the pipeline after the customer-facing modules?
you know, it will be continuing to expand behind that. I mean.
Okay.
You know, the different customer-facing modules will continue, and then I think continuing to enrich the dataset, and then what's next after that will be a function of our increased engagement with our customers to kind of get their input.
That makes sense. I guess what's been the feedback so far on this transformation?
It's been pretty positive. They are excited to see what we're doing with it and generally have given us pretty good positive feedback on the time it will save them and the increased efficiencies that it will be able to bring them to use our content.
Okay, that's helpful. And so, you know, about a year ago, Verisk held its Investor Day, and highlighted new growth vectors in, in life insurance, marketing, and international. Can you update us on, on each of those opportunities and, and how they performed last year?
Yeah, so the life insurance business—so our product there is a software-based, a SaaS-based policy administration workflow tool. It helps the life insurers manage the entire kind of life cycle of a policy as they underwrite it. Very successful product. We mentioned the fact that we accelerated the growth of the business since we acquired it, you know, from mid-single digits to very strong growth since the acquisition. That continues, and there's a lot of excitement around the opportunity of those, you know, low-code, no-code, and microservices platform, which enables the carriers to implement it, you know, quite quickly and get the benefits pretty soon. So strong growth in that segment, continued opportunity to expand into that market, you know, pretty strong TAM opportunity there.
On the marketing side, we've talked about that one is one that has had some industry challenges throughout 2023. We already talked about the dynamic on the personal lines auto insurance space. The carriers had challenges in profitability, so they, you know, they responded by that. Obviously, marketing is a discretionary spend, but more generally, if you are trying to achieve profitability in your book, then, you know, you're mainly focused on price increases.
Yeah.
It's exactly the opposite of the focus you would want to be marketing, you know, against your competitors to be competing for customers.
Mm-hmm.
They were trying to drive profitability off their existing customers. So that business had some near-term challenges in 2023. We do continue to think that the secular opportunity there is strong. You continue to see insurance carriers being strong users of advertising. Finally, on the international side, strong growth in our businesses there, and you've seen us add on particularly in the claims space. We've added on some international acquisitions since then. We've been building out the product set, particularly in Germany and Western Europe, starting with our initial acquisition of Actineo, which was the leading bodily injury claims platform. And we've built on that with Krug, which has some auto claims data and then other data providers, including Rocket more recently, actually in 2024.
Mm-hmm.
So we're sort of building out an end-to-end claim solution set within the German market, adding to that, you know, our strong presence in the U.K. market, which was originally built off the Sequel acquisition many years ago, but that's now become the foundation of our specialty business solutions business that serves the Lloyd's or excess and surplus industry market. And we're pretty excited with the developments there, including the Marsh deal that we talked about on our fourth-quarter call where they are using that business's platform as a platform to use to transact risk between them and their insurance carriers.
That's helpful. So maybe switching to margins for a bit.
Mm-hmm.
You know, you narrowed your range to 54%-55% for 2024. It'd been 54%-56%. Part of that was international M&A, you know, investments in your sales force and investments in GenAI. You know, can you just talk about, you know, broadly sort of the decisions that kind of went into each of those buckets and kind of, you know, just thought process around that?
Yeah.
Yeah.
So in each of those areas are ones that we saw opportunities to support long-term growth and expansion, so we were pretty excited about that. The international M&A, I think I talked about a little bit, you know, primarily the acquisitions that we did around Germany and Western Europe and the concept of, you know, starting with one platform but building on top of it and building some organic growth around it to create kind of an end-to-end opportunity for the customers in that market. So that's the model for international expansion. And each of the tuck-in acquisitions that we make, they while they tend to be small, they also tend to come in at a margin headwind.
Yeah.
So we, you know, we support that, and put pressure on each of our businesses to expand margin, but we'll have some mix-shift headwind as we acquire businesses. That's on the international side. On the sales force side, I think I already touched on our go-to-market approach, our more senior-level engagement with our customers. And so we wanted to build around that and be able to scale that dialogue and support that dialogue with some investments in our sales force to kind of have a more robust customer engagement. And some of it, we mentioned that we worked with an outside-in with a third-party consultant with a lot of expertise in the pricing and packaging space as well as kind of the sales force composition and compensation approach.
We took, we listened to their input and some of the kind of industry best practices and made some adjustments to our sales force. Some of it has been expanding capacity so that folks have more bandwidth to really give the full attention due to each of their customer sets that they cover. Some of it has been targeted focus in specific areas around compensation. There may be places where either the mix of our compensation package or just the total quantum of our total compensation package, we wanted to bring up to be more competitive with respect to market. We always wanna be getting kind of the A players on our sales team 'cause we think that will be driving the most growth going forward.
That makes sense. And then on the investments on the GenAI side, I guess, where are you investing there?
Yeah, so I, I kind of think of 2024 as a as a business development year, in the GenAI piece. First of all, you know, we don't have a sort of central lab here at Verisk, doing GenAI projects. It is very much, in, in the business involved in the business and very much in dialogue with our customers. And so that, that, business-first approach has enabled us, to go to market in, in some cases, fairly quickly. You know, we, we do have we have, one product in the claims business, which is already in the market, earning revenue, with a GenAI-based product, which is the Discovery Navigator product, which enables, a quick executive summary of a large and often handwritten, medical file, that, that comes as part of a workers' comp claim. So we already have some stuff in market.
In other parts of our business, we've done some pilots or some proof of concepts. In other cases, we've worked with customers to start to hone in on what are the real use cases that can drive the most value for them. So we've been doing this very much in partnership with our customers. And that's what the work that we continue to do right now. So from a cost perspective, it's really primarily the people that we have today that are working on this and engaging with our customers. There is some amount of technology cost as we actually use the tools. First of all, you know, data integrity, data privacy, and, you know, no hallucinations is all very high priority for our customers. So, we're not using public versions of the tools.
So some of it has come from, you know, private licenses and the tokens or the coins or whatever the usage metric may be across the different tools. Some of that is the expense. But until we have significant amounts of usage, as in we have a product that's in market and has volume going through it, the technology costs are gonna be more incremental.
Okay, and I mean, when you think about the investments you need to make from a headcount perspective, or the infrastructure side of things for GenAI, do you think it's a multi-year journey, or, you know, do you think you have what you need right now?
I think, as we develop a more specific business case for specific opportunities, then yes, it could turn into a multi-year journey.
Okay, that's helpful. You know, it feels like we're very early stages of.
Yeah.
Of all of this, right?
Yeah, yeah.
Yeah, so we're excited. There's a lot to be excited about. Are you looking at things from, you know, internal efficiency perspective too with GenAI? Is that part of it?
Yes, that is part of it. It can increase, you know, the efficiency of our coding and development team. So there's some of that. Yeah, there are some use cases. We're not a company with, you know, large amounts of, you know, a large call center or a large customer service operation for which a chatbot would, you know, take out a meaningful portion of expense pool. So we continue to look at it, but it's not an immediate needle mover.
Yeah, that makes sense. It makes sense. You know, broadly, you've talked about wanting to balance profitability with investments in growth. How does that inform your investment decisions and, you know, how you think about your margin expansion, you know, after 2024?
Yeah, so we've, you know, when I joined, we've been on a margin expansion trajectory. Our original margin targets that I signed onto when I joined the company was that we would expand margins by 300-500 basis points between 2021 and 2024. We achieved the low end of that a year early in 2023, so we achieved; we expanded margins by 150 basis points in 2022 and 150 in 2023. And so we're continuing, I guess, our guidance for 2024 would be 100 basis points at the midpoint. So a very healthy trajectory there of margin expansion. That's come from a specific focus on efficiency opportunities. So we've had that trajectory of expansion. On a go-forward basis, given the investments that we see strong opportunities behind, we don't expect to be expanding margins at that trajectory.
Mm-hmm.
We do want to reinvest some of the core operating leverage in the business for growth. But fundamentally, we believe, I believe that, you know, each of our businesses should be delivering some operating leverage and should be expanding their margins, kind of whatever their starting point is. Obviously, we have a wide range of businesses, some being more mature, some being newer and more greenfield businesses with more software-like investment profiles. So each of those will continue to expect to deliver some operating leverage over time. I think we've said, we said at the Investor Day that we would expect 2025 to have, say, 25-75 basis points of margin expansion off of 2024.
Yeah.
That seems like a healthy, you know, 2025 is a long way away, but that seems like a healthy, healthy range.
Yeah, yeah, that's fair. You know, thinking about capital allocation and capital return, you know, you've done some tuck-in M&A. Recently, we talked about Germany. You know, but you also generate a significant amount of cash, and you return a significant amount of cash. You know, how do you think about the priorities there?
Yeah, I think we will. So we are primarily a returns-focused company. We drive; we are fortunate to drive very strong free cash flow and to have a very strong balance sheet. Between those, we will invest in our business where we see strong opportunities, and we benchmark ourselves very strictly to the returns on invested capital, whether organic or acquired. So we will continue to look in the market for attractive M&A opportunities. They have to be a fit with our insurance-focused business, and they have to have a reason to coexist inside the Verisk franchise. But assuming we see, you know, opportunities there for synergy, we will continue to be active in the M&A space.
Beyond that, if there is excess capital that we don't see strong returns for either organically or inorganically, we will continue to return that to shareholders.
And just, just quickly within M&A, is there a tuck-in versus larger acquisitions within insurance? Is there a policy there, or are you just looking for whatever's the best fit?
We're looking for the, you know, the great businesses that can drive strong return. There isn't a particular size target.
Okay, that's really helpful. Thank you so much. Thanks so much.
Thank you.
Thank you, everyone.
Bye-bye.