Emily Edwards is vice president of data and analytics products at Verisk’s PowerAdvocate business. She leads PowerAdvocate’s risk intelligence and spend intelligence teams, delivering actionable market and cost intelligence solutions to energy companies. Before PowerAdvocate, Emily held leadership roles in strategy consulting and supply chain management at a variety of large organizations. She holds an MS in industrial engineering and MBA from Massachusetts Institute of Technology and a BS in chemical engineering from Bucknell University.
Please send your comments to Emily at email@example.com.
Gabriel Cohen 00:20
Hi, I'm Gabriel Cohen host of a new podcast series, Verisk Talks Risk. In today's podcast, we’ll be focusing on building resilience in the changing world and hear from three experts on why tackling fraud, cyber risk, and supply chain risk are increasingly important during these uncertain times. We'll learn more about why digital image fraud is difficult to detect and how it often requires sophisticated technology and extensive industrywide image data to make businesses more resilient. We’ll also find out more about how managing cyber risk, especially in an increasingly digital world, is becoming more and more challenging, and how we can increase cyber resiliency. And finally, we'll chat about supply chain risk, and how we can address the difficulties that customers face as they tackle a variety of risk areas and look for ways to make their supply chains more resilient.
DIGITAL IMAGE FRAUD
First, we'll be chatting with Josh Louwagie, product innovation director with Verisk’s ISO business, who will talk with us about fraud, and digital image fraud in particular, and we will understand why it's critical to have fast and efficient fraud checks to mitigate risks.
Thanks for joining us today. Josh. Welcome.
As everything around us becomes increasingly more digital-based, image fraud is a real concern. Why is now the time to tackle digital image fraud, and fraud in general?
Josh Louwagie 1:35
Thanks for having me, Gabe. Over the past several years, insurers have been increasingly using policyholder and third-party claimant loss photos to estimate their claims. In 2020, as the pandemic spread, virtual loss inspections skyrocketed, with claims staff working remotely and policyholders very understandably uncomfortable with that close contact with appraisers and wanting to social distance. Any plans insurers had to adopt virtual inspections with loss photos rapidly accelerated as a result. Now, there’s really no turning back.
But this acceleration really left no time for insurers to put processes in place to check for potential fraud within these digital loss images, potentially leaving them exposed. It’s actually easy for an individual to commit fraud by submitting an image from a prior loss on a new claim, especially if they’ve switched carriers. Likewise, we’ve seen schemes as simple as submitting a property damage photo that was downloaded from the web. More sophisticated fraudsters can use Photoshop to manipulate images to pad damages. Most of the carriers don’t have the time or the technology to detect these schemes, especially when you need to do it at scale.
In general, fraud needs to be a greater focus across the industry. There’s been a shift in the industry to faster, more efficient claims processes to try to improve the customer experience with greater automation. These automated processes need automated fraud checks to protect insurers from unnecessary leakage. So, as we see greater automation—such as these photo-based loss inspections—there needs to be a greater emphasis on anti-fraud technology to close the gaps.
Gabriel Cohen 3:25
That's pretty interesting. So how does digital image fraud and, and even fraud in general, affect the world around us?
Josh Louwagie 3:29
Fraud isn’t just a problem that insurance carriers have to deal with. Sure, it affects their profits and loss adjustment expenses due to leakage, but that also has an impact on policyholders, individuals, and business owners.
When carriers are victims of fraud, they often offset those losses with higher premiums, which impacts consumers and business owners, and ultimately, the economy. In fact, FBI estimates show that the average U.S. family pays between $400-$700 per year in the form of increased premiums as a result of this fraud.
Gabriel Cohen 4:04
So what are we doing? How is the insurance industry and other industries evolving? What solutions are they bringing in to help combat this fraud and allow the industry to become more resilient? And what does the future hold?
Josh Louwagie 4:18
Some insurers have been exploring advanced technologies like AI, machine learning, and predictive fraud analytics to help them detect and prevent this kind of potential fraud, but other organizations just are not mature in that area. There is a tremendous opportunity with these technologies and solutions are coming to market now to help insurance carriers leverage them.
To give you an example, AI can now analyze both structured and unstructured data to detect anomalies and provide insurance professionals with critical insights to make better-informed decisions. But these capabilities require massive amounts of quality data, and most insurance companies just don’t have it. Sure, insurance companies have the historical claims data from their own book of business. But that’s really limited, especially when you compare it to the vast amounts of claims that happen across the industry. And that’s why the most effective solutions analyze that industrywide data, which can find connections across carriers that individual carriers by themselves would not be able to detect.
We see this evolution with our digital media database, in which participating carriers contribute their loss images to the industry’s all-claims database. It not only allows them to review prior-loss photos from other carriers to check for preexisting damage, but it also uses image forensics to help expose anomalies and digital manipulation within those photos.
In the future, we’ll likely see a greater use of this virtual inspection technology, such as automated repair estimates from digital loss images and future-state videos, which will pave the way for a straight-through claim processing scenario. You know, where there’s no-touch claim handling, no adjuster involved in the claim. But those advancements really need anti-fraud technology to keep pace with the speed of that claim processing. Otherwise, the gains that the industry sees from these processes will be negated by leakage from fraud.
Gabriel Cohen 6:15
Josh, what does some of these changes mean for the way that insurance carriers have managed their business, like how they've managed claims for decades and decades. How is this changing their world for some of the people that work in those organizations?
Josh Louwagie 6:30
It's really resulting in a shift in where the resources need to go. The traditional model of having appraisers go out and look at vehicles has really been impacted by the movement to this virtual claim adjusting process. And those resources need to be reallocated in other areas within the insurance claim industry. The changes that have been expedited from the COVID pandemic are going to be permanent. The process where insurance companies send out those appraisers, it's not coming back. Fortunately, there's plenty of work to be done within the insurance industry that those resources can be reallocated to, but the traditional sense of appraisals being done by a person from the insurance company going out and looking at the house or the vehicle at scale. Those days are gone.
Gabriel Cohen 7:17
Are we planning for the industry, overall, to give certainty to the executives that all of these insurance carriers feel confident in moving ahead with this new normal?
Josh Louwagie 7:28
I think Verisk is playing a very key role. The insurance industry has had to be very resilient over the last year and they've had to make a lot of changes very quickly. Verisk sits at the epicenter of the industry and we're a very closely trusted provider and partner of the industry. And as they have uncovered gaps in their processes, as it pertains to this new digital world, it's on us to find solutions to help bring products to the market quickly to try to close those gaps and to give peace of mind to those executives who realize that vast change in movement from the traditional world into this new virtual world is going to leave them exposed. They're looking to close those gaps as quickly as possible, and we sit in a very prime position to help them do that. It's our responsibility to move as quickly as possible to help be the good partner that we are.
Gabriel Cohen 8:22
Josh, when we think about this revolution that's happening across all of insurance, and the importance of digital imaging, this is part of the industry having to keep pace with consumer demands across all aspects of their lives. This really is going to be touching every part of insurance. Can you give us some other examples?
Josh Louwagie 8:40
Absolutely. Image forensics goes far beyond just your automobile and your property insurance claims. It has significant implications on other parts of insurance. Think for example health insurance and all the documents that come through a health insurance claim department or all of the bills that come through. Image forensics have the ability to inspect each of those documents to ensure that they're authentic and that they haven't been manipulated in any way, whereas $100 was changed to $1000 or something of that nature.
It also has the ability to look at those documents to ensure that they're not being used in a repetitive nature—that the same documents are not being submitted 100 times to the insurance company with just a simple name changed. Other industries that have really made a lot of gains over the last several years, within the insurance realm, include pet insurance. Pet insurance has grown significantly over the past 10 years. But, again, they don't have the necessary checks and balances to ensure that fraud is not being committed, whereas photos of animals may be downloaded from the internet. Ownership isn't being supported properly with documents. So, the ability to inspect all of the supporting documents, as well as the photos, using forensics will have a major implication on those particular pieces of the insurance industry that will help them mitigate their own fraud exposure.
Gabriel Cohen 10:08
Well, that's fantastic Josh. I appreciate so much the work that you and all the team are doing and appreciate you being with us today, covering a lot of ground on a very important topic.
Next, we'll be joined by Prashant Pai, Verisk’s cybersecurity expert and vice president of cyber solutions. Prashant is going to talk to us about cyber risks and challenges around the growing number of global hacks during these uncertain times, and why it's more important than ever for business to prepare for cyber threats.
Well thanks for joining us today Prashant. Cyber risk is a topic that obviously has been in the news for years and years. Lots of high-profile companies have been impacted. What's the current state of things? How has the pandemic impacted the world of cyber risk?
Prashant Pai 11:07
Thank you for having me today Gabe. You know, as a society and an industry, we are becoming more reliant on digital systems. So, imagine if COVID-19 had struck say 15 years ago. So back in the early 2000s, we wouldn't have been able to go into our offices. Our businesses and the overall economy would have come to a standstill. However, due to technology and connectivity advances in the past decade, we are able to mitigate this impact for businesses. But this also means we are now exposed to greater cyber risk. With more reliance comes more risk. Hence, it is more imperative than ever for us to acknowledge, understand, and take steps to manage that risk.
Gabriel Cohen 12:03
So, so tell us a bit how cyber risk affect the world around us?
Prashant Pai 12:11
We used to think of our desktop computers being connected via the internet and that was our only connection. However, these days, it's hard to say what is not a computer. Laptops, phones, watches, and now even cars, coffee makers, and children's toys all have internet connections. Just as we live in a physical world, and are exposed to physical risks, we have created a digital economy, and are now facing growing cyber risk. Cyber risk is everywhere and it's only going to get bigger.
Let me share a bit of a personal story. So there was an incident with my daughter. She's eight years old. Her teacher e-mailed to let us know she had not submitted her homework. As I'm sure much of our audience is painfully aware, many schools are operating virtually these days. So we had a conversation with my daughter, and she said, “Daddy, that's because you remember, the internet wasn't working yesterday.” So, I started thinking. Huh. It's really the new, “the dog ate my homework.” Now shifting gears back to work, these are absolutely the kind of events, we model with our Cyber Risk Navigator platform to better understand the impact of cyber disasters on businesses, and the economy, events such as spreading ransomware, or a data breach, or cloud outages. And unfortunately, we see one of these in the news, almost every day.
Gabriel Cohen 13:49
So how's the insurance industry and even other industries evolving, with solutions to increase cyber resiliency and minimize risk. And what does the future hold?
Prashant Pai 14:00
That’s a great question, and this truly is a rapidly morphing area. Given all the high-profile cyber incidents over the past decade, it is safe to say that every senior executive out there is thinking about cyber risk. Every organization is investing in digital transformation, but also in cybersecurity, or teams technologies and processes.
Now, from an insurance standpoint, I think of cyber risk in two parts. There is the insuring cyber or digital assets, such as data, networks, and applications. And then there is insurance for cyber as a peril that can damage physical assets, as I mentioned before—computers, cars, and even power plants for example.
So the first one, I think we in the cyber insurance industry have made a lot of progress in developing the right coverage for cyber or digital assets. They've also made a lot of progress in developing sophisticated tools for better evaluating cyber risk and resolving that cyber exposure data challenge. Verisk provides a Cyber Underwriting Report that provides all of this data neatly packaged together. We have a database of insights on more than 100 million organizations, globally, and their cyber scores. And this, we truly believe can help the industry drive better risk selection. Now, market dynamics, the way the market is today, can prevent individual cyber insurers from collecting information at the point of underwriting. But, partnering with the cybersecurity industry, gives us that opportunity to develop better insights and better data sets. Insurers have been talking for some time now about sharing data from their claims experience. And this is an area where Verisk is leading the change. We are welcoming a bunch of insurers into the Cyber Data Exchange that enables all of them to contribute their data in a way that provides them value, but at the same time, preserves their privacy and gives them access to their secret sauce.
From the second viewpoint, cyber as a peril. I think at this point, we are only now acknowledging it exists. And you know, that's always the first key step so many carriers are going through an overhaul of their coverage language and looking at a new claim to identify risks to exposures they may not have recognized before. Now, only a couple of weeks ago, you have that news article about a hacker looking to poison the water supply of a Florida city, and this pointedly highlights this issue. Overall, we're going to say that there is a lot of progress, and maturation that we'll see in this space, which, you know, makes it so exciting to be part of.
Gabriel Cohen 17:06
So, is it fair to say that in some circles, cyber is still viewed as an exotic product, and if so, while large organizations are now accustomed to having cyber insurance, what about the rest of the market?
Prashant Pai 17:19
So I would agree that cyber is looked at as an emerging paradigm if you will, and I’ll use the word emerging, because I think there is a part of it that we recognize and we are starting to get our arms around, which is cyber as an exposure—protecting data, protecting systems. But there is also the aspect now that we have digital controls in a lot of structures, automobiles, and that's the part I don't think we have completely gotten our arms around, because it's not something that's off to the side. It's something that impacts the entire property and casualty space.
Gabriel Cohen 18:05
What type of conversation do you think we're going to be having in 10 years down the line, especially around how big this industry is going to be?
Prashant Pai 18:11
So today's cyber insurance by itself is about $5 billion in overall premium. The projections are it's going to be up to $20 billion by 2025. So, you know, in five years, it's going to quadruple. By 10 years, it's definitely going to be at the $40 to $60 billion range so that's tremendous growth. It presents a unique, and one of the largest sources for growth for the property and casualty insurance industry. But at the same time, it's something that we have to be careful and deliberate about, so that we can build a robust market and help our end customers, the insurers, better manage their risk.
Gabriel Cohen 18:59
Do you have any views as to where some of the largest segments are and where that growth is going to come from that is sort of underleveraged today?
Prashant Pai 19:11
That's another great question. So, if you look at the cyber insurance space today, it largely is focused on the largest organizations—the Targets, Home Depots, and they've all had their own breaches. It's really going to be down-market, it is going to be in the mid-market and we are seeing growth there today. It is going to go to small and medium enterprises, and then potentially down into individuals. We are having conversations with a lot of our customers about expanding their coverage and standardizing their coverage into the small and medium space, as well as into, for example, the high net worth individuals. And I think that's where standardization is key because those organizations do not have the wherewithal to dissect and digest a cyber policy. We need to lead in the form of a standardized coverage so that they can understand what they really require and enable them to make an apples-to-apples comparison.
Gabriel Cohen 20:22
So Prashant, it sounds like there's a lot of evolution, a lot of innovation that's going to happen in the world of cyber insurance, and that the one major challenge that we’ll still have is whether it can help protect us against the excuses and the creativity that our children bring to not getting their homework in on time. Thanks so much for sharing all of your insights with us. We so appreciate you taking the time to speak with us today.
SUPPLY CHAIN RISK
Next, I'm excited to welcome the vice president of supply chain data and analytics expert Emily Edwards, from our PowerAdvocate business, who's going to be sharing some of the challenges and opportunities surrounding supply chain risk.
Welcome Emily, thank you for joining us today. Emily, anyone who remembers back to the nightmare of what it was like to try and buy toilet paper or disinfectant wipes a year ago, I think implicitly understands the importance of supply chain risk. So, now, a year on from the pandemic, why is now the time to tackle supply chain risk?
Emily Edwards 21:26
Well, I think the pandemic has really made clear to a lot of people who previously didn't think about supply chains because they didn't need to right. To your point, at the time they went to the grocery store, toilet paper was there. Perhaps there was a run on milk before a storm, but by and large, they could expect that what they needed was going to be at any given store and the pandemic has made crystal clear to most people that supply chains play a very important, very complex role in our society.
And the reason why is because supply chains today are more global and interconnected than ever, whereas previously that milk you're getting or even that toilet paper you were getting was manufactured locally, or perhaps in a neighboring state. That's just no longer the case. And there are these associated risks that companies often don't have line of sight into because they happen on the other side of the world. Even within those supply chains, companies don't simply need to understand their vendors, but their vendors’ vendors, to better understand the overall risk. And so the challenge is, it's global, it's complex, and it's really opaque and further there are more risks such as political instability, mass human migration, climate change, cybersecurity threats, and pandemics, and because we're more globally linked, risk that used to be localized now echo and reverberate throughout the whole system.
Gabriel Cohen 22:53
So, it's certainly a lot more complex than it ever was and the risks that we have to deal with are more complex. How would the supply chain risk impact the customers who we're working with and what are some of those challenges?
Emily Edwards 23:07
Sure, it's a great question. Customers’ operations are more threatened, either by being directly disrupted by one of the risks I talked about, but also having their lines of supply interrupted, which also compromises business continuity. Some ways that companies have responded to this are to stockpile inventory, which can be cost-prohibitive or introduce new risk and especially when inventory ages and can expire. Another way is to diversify suppliers, but that yields high management costs at times and supply base fragmentation, which also drives higher costs, and can be inefficient. And then lastly, the third way that we see companies try to address this is to vertically integrate, but that's capital intensive and it's operationally complex, so there's no one silver bullet to address this massive complexity and massive risk that comes with an interconnected global supply chain. The main challenges are really interconnection and a lack of visibility down the supply chain, ie your supplier’s supplier's supplier. You just don't have good insight into that.
Gabriel Cohen 24:13
Right, so you have to go like three more levels down as opposed to just your immediate supply. That's pretty interesting. What about the energy industry and other industries evolving with solutions to help combat supply chain risk and make some of the systems more resilient? What does the future hold?
Emily Edwards 24:30
Companies are taking risks more seriously now, and they're investing in supplier risk evaluations during vendor reviews or bid award cycles. However, other players like Verisk are also developing analytical objects to help solve for the problem and new ways by developing proprietary data assets that can analyze supply chain risk more comprehensively—for example, for the energy industry for mapping the operational footprint of the global energy industry supply network. This is a significant investment, but it's required to better understand how local risks are ultimately likely to move through a supply chain, affecting suppliers and ultimately our customers.
Gabriel Cohen 25:09
Emily, when we’ve been talking about how elements of supply chain risk have been accelerated over the last year, we focus a lot on things that relate to logistics and product being where they need to be. What are the factors that have been accelerants with supply chain risk? For example, I know you're focused a lot on ESG as one aspect of that.
Emily Edwards 25:29
Sure, there are many different ways to look at supply chain risk. Certainly, a colossal component of that is getting the right good or service or material at the right place at the right time. But that's also doing so in a way that's responsible and sustainable. So, a number of our customers are very committed to ESG risk so that's the idea of environmental, social, governance. They want to have not only their tier one suppliers, ie, the suppliers they directly do business with, but their tier two and tier three, their suppliers’ suppliers. They want them to be responsible, to be environmentally conscious, to be socially conscious, to employ adults to do their work, and their manufacturing facilities. And so that's a big area of concern for our customers as well, that perhaps wasn't as top of mind, 20 or 30 years ago.
Another area that our customers are very interested in is financial health of a business, ie, how likely is your supplier or your supplier’s supplier to be in business the next week, next month, next year? Do they have a fair number of outstanding liabilities that you're not aware of? Are there any other potential impediments on them being able to deliver your goods or service on time, and so that's another big pillar that our customers look into.
Diversity is a big area of interest for many of our customers, specifically U.S.-based utilities have probably the most robust interest in this among my customer base. And the idea there is to have a very diverse supply chain to do business with—small businesses with minority-owned businesses, veteran-owned businesses. And that's something that previously they didn't really have a direct line of sight into. And as they want to do more business with those kind of companies, it's really interesting to them to both get a handle on what their current footprint is, but also to get different opportunities and different suggestions of how they might expand that.
Gabriel Cohen 27:35
So, with all of these new areas, especially the ones that have been accelerant over the last 12 months, what are you working on today that you weren't working on 12 months ago to help customers with some of these challenges?
Emily Edwards 27:46
Probably the thing that I'm most interested in Gabe and most energized about that we've been working on in the last 12 months is the idea of geoanalytics, and that's being able to take any given item, any given service, any given material in your supply base, to pair it with the exact supplier, and to know where it's coming from—not only what part of the world, but down to almost a three by three block, where is that item coming from. And to be able to get that level of granularity and that level of insight gives you unparalleled access to really be able to assess the risk of that specific item from that specific supplier, not only by being able to examine the geolocation components, but then to perhaps go into the political instability of the country. How likely is that supply base to be disrupted by events, outside the scope of your control that they're happening in that area. So, it's getting to that level of specificity on any of the items or services you’re procuring that enable you to do that.
Gabriel Cohen 28:50
It sounds like this is an area of risk that is going through a lot of innovation, if you will, keeping up with certain trends. What do you see ahead over the next three to five years?
Emily Edwards 29:02
In the next three to five years, if I had to pick one singular item that I think is going to become of paramount importance to customers in regards to risk for supply chain, I think it's carbon. Environmental concerns are continuing to grow throughout the world, and more companies want to have a better overall assessment of their carbon footprint, and they want to understand how their specific operations are impacting the globe. And so, we're working on tools at PowerAdvocate in conjunction with Wood Mackenzie, our sister company, and helping customers really get a handle on what their carbon footprint is and how they might be able to mitigate some of that.
Gabriel Cohen 29:45
Emily thanks so much for sharing your insights with us. So appreciate you taking the time to speak with us today.
To learn more about these timely risk topics, be sure to follow us on LinkedIn, Facebook, and Twitter, and visit us at verisk.com. Keep an eye out for new interviews that we have. We hope you enjoyed the podcast and we invite you to join us next time when we discuss preparing for the impacts of climate change. Until next time.