Hi. Good morning. This is Heather Balsky, BofA's Business and Information Services analyst. I want to welcome you all now to the fireside chat with Verisk's CFO, Elizabeth Mann. We are just on the back of Verisk's recent Investor Day. Elizabeth, we greatly appreciate you being here.
Happy to, happy to be here.
Before we start, if anyone does have any questions, we'll pause with fifteen minutes left just to check. I, you know, plenty of questions. I just want to get started.
Great.
To kick off, Elizabeth, you are celebrating six months at Verisk?
Yes. six months yesterday.
Congrats.
Thank you.
Six months and a day then.
Yeah.
Can you talk about what attracted you to the company and what you're most excited about?
Yeah, great question. Couple different areas for why I was excited to come in the six months, and I feel like I've already lived, we've done a fair amount in those six months, so it feels like about six years. No, sort of on the personal front, I mean, well, personally, it was a great opportunity. I was excited about that. Also personally, you wanna particularly as a CFO, you wanna be partnering with a management team and a CEO that you're kind of well aligned with in terms of ideas, goals, objectives, and so Lee was seemed to be that great partner.
I was excited to come and work with him and kind of help in the new vision on Verisk. The second point is related to that, but more in detail. It was clear, you know, Verisk was in a moment of transition with the final divestiture of the energy business last year and really kind of refocusing on the insurance business, which is a great underlying business. I was excited. It's always exciting to be kind of part of a new start, sort of establishing a new strategy, telling that story, as we just did on Investor Day two weeks ago.
It has been exactly that fun journey and a chance to kind of set a stage for what we think is gonna be a new leg of growth. Oh, the third point was simply as a shareholder, which I am as an employee, you know, I thought it was a great opportunity.
Great. Your Investor Day on Tuesday, each sector head at Verisk presented initiatives to improve organic sales growth over the next three years, compared to, you know, a lot was compared to sort of the 2018, 2022 period. You know, bigger picture, what's the unlock to this accelerated growth? Like, what's different today versus that prior period?
Yeah. Good question. Let me take that in a couple different parts. Particularly on the what's different today to the prior period is maybe different for each of the three main businesses that gave an overview. I'll come back to that kind of business by business.
Yeah.
The other main change for us, not unlike many companies, but, you know, the pandemic period hit our different businesses in a number of different ways, particularly on the transactional revenue side, on the claims side as driving activity stopped, then in the kind of recovery period, but as the auto shopping industry was disrupted by the supply chain issues. There were a number of pandemic-related headwinds that we now think will, you know, won't be impacting us in the same way going forward. That is a. That kind of cuts across, obviously, across the different businesses.
In more detail, kind of business by business by business, on the underwriting side, again, well, one of the pieces is kind of eventually the removal of the headwinds from the auto industry. Also on the underwriting side is the impact of the Core Lines Reimagine program, which is investing in our primary or our largest Forms, Rules, and Loss Costs business, also sometimes affectionately called Core Lines. We, They change the names on me. I think I've finally gotten all the different names of all the different products, old and new. Yeah, whether Forms, Rules, and Loss Costs or Core Lines, the Core Lines Reimagine sort of CapEx program. We have largely completed the transition, the replatforming of that product onto the cloud.
That sort of enables new investment off of it, including the Core Lines Reimagine program, which is improving mainly the delivery mechanism of the great underlying data and forms in that business, which today is delivered mainly by PDFs. There's so much more opportunity to do that in a more API-focused way, in a way that gets embedded into the customer's workflows. You know, up until this moment in time, it's not clear that our insurance industry customers were ready to receive it in that way. I think that that is the opportunity for them going forward. That's on the underwriting side. On the claims side, you know, a couple different pieces.
We talked about the transaction recovery, but also, you heard Maroun Mourad at Investor Day. He talked about the property estimating solutions business, formerly sometimes referred to as Xactware, which is their, you know, the main product. So it estimates repair costs in, when there's been property damage for insurers. There is both greater opportunity to penetrate the existing market through more partnerships in the ecosystem, which... Those are particularly helpful in that claims business. About 54% of the revenues come directly from insurance carriers. A significant portion of the revenues come from contractors, small businesses or individuals, or from independent adjusters or third-party administrators.
To distribute to that customer base in an effective and a cost-effective way, we think the partnership ecosystem can really help us expand there. There's also opportunities to bring the product directly into the construction market. Right now they use it on the sort of insurance repair side when they are partnering with an insurance carrier to fix a claim. There's no reason that a general remodeler couldn't use the same products and get a benefit from that. That's a market that we are not tapping as much today as we could. That's an opportunity for growth to sort of expand the market, improve the go-to-market and thereby expand the TAM side on the claims side.
Finally, for extreme events, that product is also being the Touchstone product will be delivered by SaaS. I think that opens up new customer opportunities and new ease of use for it, ease of implementation. You know, continued improvement on the model side and updating the models is a revenue generation for them. Then the ESG risk analytics business called Maplecroft in there, which we refer to as, you know, it's a fairly small product in there, but is seeing great uptake and growth. They just won an award as the best independent ESG provider, beating out S&P and a couple others. Not that I'm taking different sides there, you know, it was good strong growth from that product causing tailwinds.
That's helpful. Very helpful. Thank you. You know, another key message from the Investor Day is that Verisk is trying to make a more customer-centric approach. You talked about wanting to be seen as, you know, a partner, not just a vendor. What is Verisk doing to better serve its customers today?
Yeah. Great question. I think our previous focus we had, Lee had said it as we were a great product organization. We had great products and great relationships with sort of the immediate users and the buyers of those products. That, you know, primarily call it the chief underwriting officer or the chief claims officer at an insurance company. We hadn't done as much, you know, real engagement with the industry. This is something that, you know, Lee and I have talked about. We both, at different times in our careers, have background as bankers, and we're used to covering CEOs, CFOs, sort of the strategic leaders within a company. Lee saw a real opportunity there in engaging with the industry.
Part of it was natural as he moved into the CEO seat, but he engaged with a lot of insurance industry CEOs and customer CEOs. I think he was struck by the fact that the dialogue, they of course knew us as a vendor, but they, or, you know, they knew that they used our services, but it wasn't clear that they had the deeper dialogue and understanding of what we provide for them today, but also what that means and what problems we can solve for them in the future.
Going to them with a perspective of here's what's going on in the industry, here are the pressures that our customers are under, which, you know, broadly speaking, are in two main categories, you know, cost pressures as everyone is trying to be more efficient. Modernizing their technology, digitization, which is, you know, also a way to help typically on the cost pressure side. Going to them with a, you know, with a perspective on those two problems. The products that we provide to them today, can help them solve those problems.
More importantly, some of the new things and the new products that we're doing may help them solve those problems in ways that you can only start to get to if you have that dialogue of what they need and what we can do for them. It's that engagement that I think has been helpful.
That makes sense. It's interesting. you know, I was gonna ask you a question about Core Lines Reimagine initiative, and you, and you touched on it. if there's more to elaborate on, that would be really helpful. The other thing is that you, made a comment too earlier that customers hadn't been ready for kind of the way that you were providing them the information, and it sounds like now they are. I'm curious about that a little bit and what's changed.
Yeah. It's not, you know... It hasn't been a binary point in time and it for any of our customers or for us, but it's more, you know, you've seen the industry, the insurance industry, is not the most tech forward, I think it's fair to say. You know, before I worked in strategy at Goldman and thinking about the financial services and the banking industry, realizing how much they had to catch up in terms of technology adoption in coming from a TMT background was really striking. Coming here and seeing the insurance industry as just themselves at the beginning of that curve.
That's what I meant by, you know, 5 years ago before we'd migrated the platform to the cloud, it's not like our customers were calling us up and saying, "I don't want this by PDF. I want you to send me an API." That wasn't in their vocabulary. They're starting to be at that point now or, there's more receptivity to it. Maybe to make kind of concrete on the Core Lines Reimagine and the kinds of things we're doing, You know, the Forms, Rules, and Loss Costs just to make it more, a little more concrete for you 'cause it, you know, it can be abstract. I'm not sure I understood it before.
In your, in your insurance policy, if you go, you know, if you go to your homeowner's policy or an auto policy, it'll probably say on it ISO form, and then it'll have a number or a code. I mean, we, you know, we develop, maintain, help our customers get those forms approved. Insurance is regulated at the state level, so there's fifty different regulators, plus, you know, a couple other regions. We, we help them maintain those forms. When we, you know, when we would send it by PDF, they keep it. They, they may modify it, they have it in their workflow, they do their own things with it. That then kind of creates...
They have, and we give them those forms, not only just the fifty different states, but numerous lines of business, numerous products. They may modify it, and then, and then when there's been a regulatory change that gets pushed through, they spend a tremendous amount of time maintaining, tracking, monitoring all of those changes. Even to do something as simple as, you know, basically the, a version of track changes as time and cost to maintain. The just small feature and implementations like that creates a tremendous amount of value, in the industry, and then there's more on top of that.
You said when you started off, you know, about sort of they wouldn't necessarily be asking for an API five years ago.
Right.
You know, I mean, it's fair, right? Technology has become such a big part of our lives. There's this common theme that a lot of these sort of legacy industries just, and the adoption of technology is.
Yes.
-slow.
Yeah.
You know?
Yeah.
It takes time. It's hard to change, that makes a lot of sense. You know, I was also gonna ask, there's a focus on opportunities in newer areas of insurance for the company, including life insurance, including marketing in insurance. You know, I was hoping you could kinda touch on each of these and what Verisk's value proposition is in these new areas.
Yeah. Yeah. On the, on the life insurance side, you know, large industry and Verisk of course, traditionally had its strength in the property and casualty industry. You know, the life industry, interestingly, even though it may be sort of historically one of the most innovative in terms of developing actuarial tables in the 1700s, hasn't evolved as much as it probably should have from a technology side after that. The, the FAST product that we talked a bunch about, at our investor day, is a software platform, a SaaS-based platform, for... It's a, it's the policy administration life cycle. Everything from underwriting through to claims. It, it manages the entire life cycle for them. Brings down the total cost of ownership, drastically, for them in terms of...
is mainly competing against homegrown or legacy platforms and replacing those. We saw an opportunity to go into the life market, not in as broad a way as we do in the P&C, but with this specific software platform. It's, you know, it's a low-code, no-code solution, so it's very easy for them to implement. That business has done, you know, was a great business, was a great underlying product. When we bought them in 2019, they were growing kind of mid-single digits. They were slowly working their way into the industry and bringing their products to customers. We accelerated their growth. We bought it at the very end of 2019.
It's been a 28% CAGR since we bought it, because we bring the credibility with their customers, who again, is a conservative base. There's also a fair amount of overlap. I think about 40% overlap between the P&C customers have a life arm or vice versa. You know, they've been able to kind of drastically accelerate their uptake. I think they have a 90% RFP win rate since they've been under our umbrella. We're really excited about the opportunity to continue bringing that sort of policy administration software through to the life market. You also asked, I won't go as long on it, Specialty Business Solutions.
Yeah.
-software platform for the Lloyd's specialty market. That is insurance for a particular set of risks is what defines the specialty market. It's sort of anything that's kinda off the run. You know, it is space exploration or oil rigs. It's sort of any new. It also includes, you know, E&O insurance. Any kind of new insurance risk that's not as standardized as the typical P&C or life is, it can go through the Lloyd's market or other markets, but the Lloyd's is the biggest. This is...
That business and Stacy and I were actually in London last year and went on a tour with the guy who runs that business of Lloyd's, and it is literally, it's like a trading floor, you know, but fifty years ago. It was up until the pandemic, it was primarily literally brokers and underwriters sitting in tables and walking around, you know, just like syndicating an IPO or syndicating a deal. They would syndicate a book of risk with a piece of paper and going to other desks and kind of getting people to sign up. Yeah, I'll take $100 million of this, of this $2 billion policy. You know, that was happening in 2019. It is still happening today.
There are still people in that room today. But today, you know, many of them are on. Sequel is one of the main software platforms that allows those folks to connect. By the way, they're in that building today because there's always a value in face-to-face. They can walk over to each other, they can discuss the risk, the pros and cons, but they don't have to syndicate it on a piece of paper. They can have it automated, and then automated the insurance and the broker can then have the workflow of the risk going into their system and into their book and portfolio management.
And so-
Yeah.
Maroun, what about the marketing piece too?
The market? Yes.
Yeah.
Yeah. The marketing business.
Let's have Specialties.
Yeah. Yeah. Oh, right. Okay. Sorry.
Sorry.
That was on my mind. Yes. The marketing business. The marketing business is an opportunity. Insurers have a large marketing spend. You see it on TV, you see it digitally. One of their most significant costs is the customer acquisition cost for their policies. We are the only sort of vertically focused insurance data provider from a marketing side. We help them with typical customer lead generation, shopping activities. You know, as a consumer, how do you actually find insurance? You probably Google, you do some comparison shopping online, and you're trying to get quotes from a variety of different insurers.
You know, our marketing services business helps the insurers track those leads, monitor those leads, all in a privacy, you know, protected way and compliant with all regulations. It helps them identify... It helps them identify not just, you know, what are the leads, who's shopping, but which will be the most attractive leads from an insurance perspective. The other thing, and we've talked, you've heard us talk about, in the market in twenty two and continuing into twenty three, as carriers are potentially looking very carefully at their discretionary spend, and some of them are cutting down on their marketing costs.
For a lot of them, it's cutting down on the new customer acquisition costs, particularly so on the personal lines auto underwriting side, as they've had more profitability challenges and lower, higher loss ratios on the auto side. Some of them have stopped underwriting new business. If you're not underwriting new business, you're not going to have marketing spend to go find new customers. What the marketing service business does, it also helps them retain their current customers, and tell and, you know, identify when a customer is going out shopping to switch policies, so that our customers, our insurance carrier customers can retain their own customers, in this market.
Yeah.
The business has still grown even in that contracting market.
With marketing and it being part of Verisk, is the opportunity... I mean, you talked about this with FAST, but your relationships with the insurance industry in general are adding...
Yes.
Okay.
That's right. Yeah. Our customer relationships have opened doors for the marketing services businesses just, you know, just as it had on the life side. The other comment that Matt made on when we were talking about his business is probably one of the largest spends for that marketing business as a tech-heavy user is just their cloud costs, their AWS expense. By being on a large enterprise platform, which most marketing services providers are not, they have just a more efficient margin.
Cool. International has also been another area of outsized growth for you guys. It's interesting because out to the U.S., Verisk doesn't have the contributory data set that they do in the U.S. I'm curious, you know, one, can you just talk about key business lines internationally and the competitive positioning there too?
Yeah. Yeah, absolutely. It's, you know, our international strategy has been to look for opportunities that are platform players in a particular market where we see opportunity to expand from something there. To your point, we don't have the contributory data set. You know, we don't have as large a business internationally as we do in the U.S., but we've been looking for what we think of our kind of great beachheads to grow from. The Sequel, the Specialty Business Solutions that I talked about for the Lloyd's market was one such beachhead where we started with the Sequel acquisition, did a couple other bolt-ons, and now kind of have a much broader platform for that particular market that can benefit from the Verisk data, even in the U.S. Other businesses.
There's some international businesses in the underwriting side and some international businesses on the claims side. On the underwriting side, there's a business called Opta in Canada, which we acquired about just over a year ago now. That is underwriting for property. They have a property database that is, it is probably a leading, the leading product, just like Verisk's underwriting property businesses in the U.S. but in Canada. That's kind of the leading property database in Canada. That's been exciting. The other elements in the underwriting side, there is a life health and travel business, which is based in the U.K.
Travel insurance, if you, if you live in the U.K. or, anywhere in continental Europe, your health insurance just comes to you kind of nationally because of where you live. If you're going on vacation, if you're in the U.K. and you go on vacation for two weeks to France, you're not going to be covered unless you get a one-off policy. That, you know, that business has actually been growing with the recovery of travel, call it in 2022 post-pandemic. That business had tremendous growth off of, off of a, you know, pretty quiet levels in 2020 and 2021. Is expanding into Australia, and the APAC region.
On the claims side, the claims business, the kind of the platform or the beachhead that we've taken has been a business called ACTINEO in Germany. It is a bodily injury claims business that is a leader in that market. We're sort of expanding and penetrating that network, starting in Germany, but other places in Europe. They have a partnership in France and just acquired a software business in Sweden.
Got it. Thank you. I'm just gonna pause and check just in case if anyone has a question. We're gonna keep going. New logos are expected to comprise... Well, actually, just stepping back, at your investor day, you had a slide, and it kind of broke down sort of some of the key drivers of organic growth from new customers, pricing, all that. One of them is 50-150 basis points of your 6%-8% annual sales goal comes from new logos. You know, what's that opportunity? It's interesting, like who are the potential customers who aren't already serving today? How much of that is international?
Yeah. Great question. I mean, in the US, we have, you know, 100 of the top 100 P&C carriers are our customers, so there's no logos in that top area. There are, you know, there are still smaller players that may come into market, particularly in times of disruption. You know, we've talked about there may be some carrier liquidations, but then there's new formed capital that comes in to take its place. There are, just as there is some kind of carriers that die off, there's new formation in the industry at the same time. That's a piece of it. The larger piece of it is probably these markets that we haven't penetrated yet.
To your point, life, international, marketing, the specialty markets are, you know, primarily the ones that are attacking new logos and new markets.
Got it. Got it. Then Lee Shavel, your CEO, you know, he's consistently been focused on return on investment. I mean, very focused. In 2022, ROIC was added as a management compensation metric as well. You know, how does this returns-focused approach filter through the organization and the company's decision-making process?
Yeah. Great question. It's definitely. You're absolutely right. It's something that he's been talking about, I think, ever since he got here.
Yeah.
Before my time. Yeah, I think it took him a couple years to push to include that as a metric that we're measured and compensated on. We track it, both. How does it filter through? It, it definitely, you know, you can't. The business leaders have learned by now that they can't have a discu ssion about M&A, or about a, you know, a significant CapEx program or others if they don't kind of bring to him with, "Well, what's the actual ROIC from this, from this project?" It's definitely filtered down in that sense. It's tracked not just on. Both tracked on a project basis, whether it's a CapEx program or whether it's an acquisition.
We will definitely like look at those metrics in the decision-making process. It's also tracked, and so that obviously you wanna assess for each individual project, are you generating good returns on that incremental capital? It's also tracked at a business unit level. What is, you know, what is the ROIC by business unit for each of the groups? That gives each of the leaders some accountability, not just for the incremental capital that they're deploying, but for the total. If they're thinking about a portfolio of both their existing business and new businesses, they need to think about not just new investments, what's that doing on an incremental basis, but how does that fit into my whole?
I think that encourages them to build a portfolio that will be value added, at their business level, and then also obviously value added for all of Verisk, and encourages them to look at the base business, not just the incremental new things.
That makes sense. It's helpful. You know, the topic of balancing financial growth and investment also came up a few times. It comes up a lot with all of our companies. You know, where is the company prioritizing investments and what are areas where you've scaled back?
Good question. It's hard to, you know, I think it may be the existential question for finance and for business leaders, right? How do you balance growth and investment? We're, yeah, we're trying to do both. We're trying to invest, but in the ways that we think will generate the most immediate returns and to be efficient in the core business. Part of it is you need to give yourself room to invest by driving efficiency in the core business. You know, on our operating efficiency, we look for places to be more efficient in the core business so that we can create that room to invest. Let's see. Remind me.
Oh, I was asking sort of where are you...
Yeah. Where are we? Yeah. Right.
Investing and where you might be pulling back.
Right. Yeah.
Yeah.
Where are we prioritizing? I think what we're trying to do is while having a balance of investments, we are trying to prioritize investments that have You know, more immediate connectivity to our existing products and more near-term results, even if the investment itself is a multi-year program. Take the Core Lines Reimagine, for example, will be a multi-year investment, but it will start to deliver the benefits of it. It's modular, so we'll get different pieces of it, you know, as we go along. You know, Maroun mentioned, I think he got asked a similar question. You know, when he took over the claims business, there was a list of twenty different initiatives and priorities. His comment was, he said Microsoft only has six.
Like we can't have twenty. He went back to the team and sort of said, "Okay, but really if you were, you know, which are your top five, that really matter here?" They came up with a more focused list and we're, so it's better to spend, you know, the same amount of total investment dollars, but on some concentrated places where you can really drive value as opposed to under-investing into too many ideas.
I wanna ask about capital allocation, just 'cause we're talking about U.S.
Yeah.
You've a big buyback program this year.
Yes.
I'll let you talk about that. You also have, you know, proceeds from the energy sale. You know, when you think about when you get through that, sort of how you think about prioritizing, you know, your excess cash?
Yeah. Great, great question. I think, you know, we will think about it, not surprisingly, given the focus on return on invested capital. We will think about it from an, from an ROIC perspective, but what, you know, where are the places where we can actually generate value from deploying that cash? The first, the first places, the places that we can do it in a way that is the most unique to us and the most value creating will be some of those CapEx investment spends and potentially, you know, tuck in M&A acquisitions where kinda like the life business, we think we can take a business to a different place than where it was before.
Where we see opportunities to deploy cash in those areas that are generating, you know, returns above our cost of capital, we will do that, you know, where as much as we can, while keeping the portfolio focused and our, and our attention focused. Well, I don't... Maybe not like most companies, I would say we are fortunate in that we have more cash available. We generate more cash probably than actual, than it makes spend, than it makes sense to spend on CapEx, for example, or than we see good acquisition targets. We typically have had, excess cash above those investment opportunities.
There, we will probably, we will choose to return it to shareholders and generate a return that's probably, you know, equal to our cost of capital.
That's helpful. Got a couple more minutes. I may ask you a question on the margin side. This is sort of what you talked about at the Investor Day. You had the target of 300 to 500 basis points of improvement into 2024. You've raised to the high end of that range, you're talking 400 to 500. You know, kind of what was, you know, what kind of, you know, put you in the position to raise that guidance?
Yeah. Yeah. We raised, so the target was kind of 53% - 56% by 2024. We raised the low end of the range to 54% - 56%. We, so we had put that target out, about a year ago, just less than a year ago. That was before we separated the energy business. It was before, you know, maybe around the same time as doing the other divestitures. There was a lot of work in front of us in terms of the divestitures. There were, you know, there was particularly with the energy business, there was a separation of employees. Some went with the sale, some stayed with us.
There were a lot of pieces that needed to kind of have the dust settle in terms of those divestitures to be able to see what it could really look like. At the end of the day, we restated, you know, 2021 and 2022 on a pro forma basis as if it was just the insurance business. And so we had, you know, we had delivered 150 basis points of margin expansion into 2022. We gave public guidance for 2023, which was for another 100 to 200 basis points of expansion. Our 2023 guidance is for 53%-54%. We were very happy to be able to hit kind of the low end of our range a year early in 2023.
It was pretty obvious and we were getting questions. Well, if you're already at the low end of your range, you know, it's, we're not gonna sit here and be unambitious. We kind of increased the lower end. We, you know, we have been looking around the company at different efficiency opportunities, different ways to improve. To be clear and to re-emphasize it again, in the trade-off between growth and investments, we are doing that and finding efficiencies in the core business. There has been a bunch of opportunities on the headcount side, on the tech side, on third-party spend. We've been trying just to streamline core processes, not reduce any investment spend to get to those margin targets. We've done that.
We see, you know, we see the path towards there. We're comfortable with where we at, and then we have some operating leverage from the business. That's what makes us comfortable at the 54.
Got it. Thank you. Thank you again. I think we can end here, and I wanna thank you for joining us. You've had a whirlwind six months, not to even say the least, the last few weeks with the Investor Day and coming today and your earnings. We really appreciate it. Thank you so much.
Thank you. Thank you so much for listening.