Surety

Data Will Speed Surety

Technology will speed up a construction finance reporting requirement that was previously manual and tedious.
By: | August 29, 2017 • 8 min read

Construction surety is about to get significantly more sure. Two trade groups, the National Association of Surety Bond Producers (NASBP) and the Surety & Fidelity Association of America (SFAA) are working with two standards-setting organizations and several underwriters to develop a whole new online protocol.

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In trials, the new protocol reduced input time on contractor work-in-progress (WIP) reports from 30 minutes to about two seconds, and reduced transcription errors to zero. That new system is being rolled out for commercial scale testing later this year.

“Our industry has been way behind in this regard,” said Greg Davenport, senior vice president of global operations for Liberty Mutual Surety, and chair of the implementation subcommittee under NASBP that is a collaborative function with SFAA. Prior to his current position, Davenport was chair of the SFAA e-business advisory committee for 10 years.

As far back as the ’70s, the insurance business implemented standards established by the Association for Cooperative Research & Development (ACORD). Similar standards were brought into surety in 1996, Davenport recalled.

“We had always wanted to implement other standards, including those for financial data, and we thought of XBRL for those.”

XBRL is the organization that established the standards by which publicly traded firms report their financial data to the Securities and Exchange Commission. It is also used by banks reporting to the Federal Deposit Insurance Corporation.

“We have only been able to connect with XBRL in the past few years,” Davenport noted, “but are now ready to launch with the XBRL financial data standard as well as four new ACORD standards: report of execution [on a bond], construction bond requests, commercial bond requests, and addenda for those forms.”

A Giant Leap Ahead in Technology

He is optimistic that the financial data standards will be a compelling improvement that will drive the adoption of other standards across the business.

Robert Coon, chairman of the automation and technology committee of NASBP and vice president of surety at Scott Insurance, emphasized the speed, efficiency and accuracy of the XBRL system.

Greg Davenport, senior vice president, global operations, Liberty Mutual Surety

“It is a significant improvement in that surety has historically been a manual process. When I joined an agency from underwriting in 1999, the first thing that I did was buy a typewriter.”

Every contractor provides WIP reports to its surety every quarter.

“That is a huge effort to input,” Coon lamented. “It is tedious and extraordinarily error prone. We tried to get a broad cross-section of industry so that we had all data elements.”

He noted that there was also input from the Construction Financial Management Association.

“Now that we have this XBRL standard,” said Coon, “the focus will be on getting sureties to accept data in that format and to get some software vendors to be able to implement it as an export option just like a PDF or spreadsheet.

“Every software provider has indicated that this will be a fairly easy addition. Hopefully we will see full implementation across the industry over the next two to three years.”

Consensus was the key, said Joe Orgovan, director of information technology at SFAA.

“We have been looking at data standards for decades. Our members have their systems, contractors have theirs, agents and brokers have theirs. The ACORD standards have been in place since the ’70s and there was a big push in the ’90s to fine-tune that for surety, including construction. Just in the last two or three years have we been able to make use of the existing XBRL financial standards.”

There is an initial investment in coding time, but after that it’s all gravy.

“One member told me his developers took eight hours to do the programming internally. That is one day of work. Now intake of WIP reports takes two seconds, versus what used to take half an hour.”

“We have been looking at data standards for decades. Our members have theirs, contractors have theirs, agents and brokers have theirs.” — Joe Orgovan, director of information technology, SFAA

The arithmetic is compelling. After 16 reports, the new protocol is saving time. Considering that one small contractor can submit a few dozen reports each quarter, and a large contractor can file hundreds, that is about as close to instant return on investment as possible.

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“A few obligees will always stick with their own process, but SFAA has always been very vocal in supporting data standards. With the proof-of-concept trials we are now moving into the education phase across the industry.

“There is a huge potential return on investment here. The current process is time consuming, requires rekeying of data which increases chance of error, increases response time and ultimately costs more money. The XBRL standard is seamless. It increases efficiency, and reduces errors, expense, and response time.”

Rick Ciullo, COO for The Hartford Bond, said that his firm “went all in on the XBRL technology” for accuracy and efficiency, but also because it enables better deployment of capacity.

“When we have transparency through the WIP reports to the contractor, we can be sure of the correct amount of capacity for each client. Everyone benefits from that transparency. When underwriters have the best information, they can price correctly.”

John Gray, director of digital transformation for The Hartford’s specialty commercial operations concurs with the importance of consensus.

Robert Coon, chairman, automation and technology committee, NASBP

“We toyed for years with the idea of our own system for WIP ingestion, but decided against it without adoption by contractors. Our interest in the SFAA and NASBP initiative is that they pushed it as an industry need. They had the working group develop the taxonomy with XBRL. We provided the resources of The Hartford information technology department to the proof-of-concept trials.”

Gray elaborated on the distinction between the two types of data standards. “ACORD is the standard for transmitting transactional information. This is booking-level information. That was expanded to support surety standards, but there was no major uptake. As we talked about WIP data and taxonomy, we realized there was a better alignment with established financial reporting.”

He recalls a demonstration at a recent NASBP meeting.

“We had a shoddy wi-fi connection and the WIP upload took about five seconds. We thought it was embarrassing, but all the delegates were impressed.”

The human element also benefits from the tech wizardry, said Ciullo.

“Customers expect their underwriters to know them. We want to spend our time and effort and money thinking and analyzing risks, not inputting data.”

Gray confirms that The Hartford “is committed. We are testing internally now. We have quarterly upgrade cycles, so we expect to implement on one of those cycles, either later this year or early in 2018.”

In addition to The Hartford and Liberty Mutual, Travelers, AIG, and Zurich are involved in the project, said Michelle Savage, vice president of communications for XBRL. She estimated that implementation would pay for itself after 110 WIP reports.

XBRL originally stood for extensible business reporting language. Savage notes that there was more efficiency sought than just adopting an existing standard. When XBRL was first developed, the initial taxonomy built out of definitions in generally accepted accounting principles grew to 15,000 terms. The special taxonomy for contractor surety reporting only had to add 70 new terms to that.

“It is a significant improvement in that surety has historically been a manual process.” — Robert Coon, chairman, automation and technology committee, NASBP

“There is a lot of financial data, a huge amount of information,” said Savage. “Up to this point it has mostly been in portable-document format [PDF] or in a spreadsheet. The goal is to have a XBRL format for exporting documents.”

Even though the change in data standards and format is revolutionary, the emphasis from the start has been to evolve and expand from the existing practices.

Joe Orgovan, director of information technology, SFAA

“We followed the ACORD standards, but I believe that we and Travelers were the only ones to implement those fully,” for construction surety, said Liberty Mutual’s Davenport.

He was quick to add that was just an observation, not a criticism. “There were lots of enhancements that people wanted. Things like electronic transfer for requests for bids, for bid results, financial standards. But there was no point in going on with the other standards when only a few were implementing the most basic reports of execution. What has changed now is that we have XBRL on the scene.”

Davenport is confident that the adoption of a simple fix to a ubiquitous problem with a compelling business case will lead to further electronic upgrades. “My hope is that we, as an industry, can build more adoption and implementation for other standards.”

Once the materials have been made available, Davenport sees natural uptake. “The standard forms will allow contractors to send their information to carriers with the push of a button. At the other end, they will be converted to the carriers’ own systems.

“This is groundbreaking in surety. But frankly it is hard to believe that here we are in 2017 and we are still rekeying. That can now change.”

There is more to the change than just saving time and money. Davenport emphasized the importance of responsiveness.

“Carriers can better manage exposure. They can allocate appropriate capital to specific clients.”

Coon, of NASBP, also noted the benefits.“This not just about savings. XBRL is already the financial standard worldwide, and surety is very financially focused.”

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It is also important that while the new process is a data standard, it does not limit use of the data by insurers.

“This is a reporting standard, not software,” said Coon. “It does not affect what anyone does with the data.

“We tried to get a broad cross-section of the industry to get all data elements, define the sets and standards,” he continued. “Now we are out there trying to educate contractors and sureties to gain adoption. This is a huge enhancement.”

As part of that effort, XBRL will hold a free, half-day forum on Nov. 1, “Smart Data, Better Results” for investors, analysts, and regulators, as well as data and analytical tool providers. The event is hosted by Baruch College’s Zicklin School of Business in the Newman Conference Center, in Manhattan, with sponsorship by CFA Institute and CFA Society New York.

The program will emphasize practical information on using structured, automated smart data to perform better analysis. Speakers on the agenda include representatives from CFA Institute, Morgan Stanley, and the SEC, as well as several XBRL startup analytical tool providers. &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

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R&I Profile

Achieving Balance

XL Catlin’s Denise Balan stays calm and focused when faced with crisis.
By: | January 10, 2018 • 6 min read

In the high-stress scenario of kidnap or ransom, the first image that comes to mind isn’t necessarily a yoga mat — at least, not for most.

But Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin, who practices yoga every day, would swear by it.

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“I looked at these opposing aspects of my life,” she said. “Yoga is about focus, balance, clarity of intent. In a moment of stress, how do you respond? The more clarity and calmness you maintain, the better positioned you are to provide assistance in moments of crisis.

“Nobody wants to be speaking to a frenetic person when either dealing with a dangerous situation or planning for prevention of a situation,” she added.

“There’s a poem by [Rudyard] Kipling on that,” added Balan’s colleague Ben Tucker. “What it boils down to is: If you can remain calm, you can manage through a crisis a lot better.”

Tucker, who works side by side with Balan as head of U.S. terrorism and political violence, XL Catlin, has seen how yoga influences his colleague.

“The way Denise interacts with stakeholders in this process — she is very professional and calm in the approach she takes.”

Yin and Yang

Sometimes seemingly opposite or contrary forces may actually be complementary and interconnected. In Balan’s life, yoga and K&R have become her yin and yang.

She entered the insurance world after earning a juris doctor degree and practicing law for a few years. The switch came, she said, when Balan realized she wasn’t enjoying her time as a commercial litigator.

Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

In her new role, she was able to use her legal background to manage litigation at AIG, where her transition from law to insurance took place. She started her insurance career in the environmental sector.

In a chance meeting in 2007, Balan met with crisis management underwriters who told her about kidnap and ransom products.

She was hooked.

Because of her background in yoga, Balan liked the crisis management side of the job. Being able to bring the calmness and clearness of intent she practiced during yoga into assisting clients in planning for crisis management piqued her interest.

She then joined XL Catlin in July 2013, where she built the K&R team.

As she became more immersed in her field, Balan began to notice something: The principles she learned in yoga were the same principles ex-military and ex-law enforcement practiced when called to a K&R-related crisis.

She said, “They have a warrior mentality — focus, purpose, strength and logic — and I would say yoga is quite similar in discipline.”

“K&R responders have a warrior mentality — focus, purpose, strength and logic — and I would say yoga is quite similar in discipline.” — Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

Many understand yoga to be, in itself, one type of meditation, but yoga actually encompasses a group of physical, mental and spiritual practices. Each is a discipline. Some forms of yoga focus on movement and breathing, others focus on posture and technique. Some yoga is meant to relax the mind and create a sense of calmness; other yoga types make participants sweat.

After having her second child and working full-time, Balan wanted to find something physical and relaxing for herself; a friend suggested yoga. During her first lesson, Balan said she was enamored with it.

“I felt like I’d done it all my life.”

She dove into the philosophy of yoga, adopting the practice into her daily routine. Every morning, whether Balan is in her Long Island home or on a business trip, she pulls out her yoga mat to practice.

“I always travel with my mat,” she said. “Daily practice is the simplest form of connection to routine to maintain my balance — physically and mentally.”

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She said the strangest place she has ever practiced was in Lisbon. She was on a very narrow balcony with a bird feeder swarming with sparrows overhead.

After years of studying and practicing, Balan is considered a yogi — someone who is highly proficient in yoga. She attends annual retreats with her yoga group, where she is able to rejuvenate, ready to tackle any K&R event when she returns.

In 2016, Balan visited Tuscany, Italy, where she learned the practice of yoga nidra, a very deep form of meditation. It’s described as the “going-to-sleep stage” — a type of yoga that brings participants to a state of consciousness between waking and sleeping.

“It awakens a different part of your brain,” Balan commented. “Orally describing it doesn’t quite do it justice. One has to practice Nidra to fully understand the effect it has on your being.”

Keeping a level head during a crisis is key in their line of business, Tucker said. He can attest to the benefit of having a yogi on board.

“I’ve seen her run table-top exercises where there is this group of people in a room and they run an exercise, a simulation of a kidnap incident. Denise is very committed to what we’re doing,” said Tucker.

“She brings that energy. She doesn’t get flustered by much.”

Building a K&R Program

When Balan joined XL Catlin, she was tasked with creating the K&R team.

Balan during a retreat in Sicily, Italy, 2017

She spent time researching and analyzing what clients would want in their K&R coverage. What stuck out most to Balan was the fact that, in these situations, the decision to purchase kidnap and ransom cover is rarely made because of desire for reimbursement of money.

“I asked why people buy this type of coverage. The answer was for the security responders,” she said.

“These are the people who sit with the family. They’re similar to psychologists or priests,” Balan further explained. “Corporations can afford to pay ransom. They buy [K&R] because it gives them access to these trained and dedicated professionals who not only provide negotiation advice, but actually sit with a victim’s family, engaging deep levels of emotional investment.”

“I’ve learned to appreciate all moments in life — one at a time. The ability to think clearly and calmly guides my work, my practice and my personal life.” — Denise Balan, senior VP and head of U.S. kidnap & ransom, XL Catlin

Balan described these responders as people having total clarity of purpose, setting their intentions to resolve a crisis — a practice at the very heart of yoga. She knew XL Catlin’s new kidnap program would put stock in their responders.

“I’ve worked closely with the responders to better understand what they can do for our clientele. These are the people who run into danger — warrior hearts married to dedication to our clients’ best interests.”

But K&R is more than fast-paced crisis and quick thinking; Balan also spent a good deal of time writing the K&R form and getting the company’s resources in order. This was a huge task to tackle when creating the program from the ground up.

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“A lot of my day-to-day is speaking with brokers and finding ways to enhance our product,” she said.

After a few months, she was able to hire the company’s first K&R underwriter. From there, the program has grown. It’s left her feeling professionally rewarded.

“People don’t often get that opportunity to build something up from scratch,” she said. “It’s been an amazing experience — rewarding and fun.”

“She brings groups of people together,” said Tucker. “She’s created a positive environment.”

Balan’s yogi nature extends beyond the office walls, too. Her pride and joy, she said, are her kids. And while it may seem like two large parts of her life are opposite in nature, Balan’s achieved balance through her passions.

“[Yoga] has given me the ability to see beyond only one aspect of any situation” she said. “I’ve learned to appreciate all moments in life — one at a time. The ability to think clearly and calmly guides my work, my practice and my personal life.” &

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]