Verisk Analytics, Inc. (VRSK) Earnings Call Transcript & Summary

Hello, everybody. I'm Andrew Steinerman. This is the Verisk discussion. This is the Ultimate Services Investor Conference. At this conference, I update our information services data book, which is our primary Verisk and benchmark against the whole info services industry. With me today is Saurabh Khemka. He's the President of Underwriting Solutions at Verisk. It's a 30-minute fireside chat. Of course, we want you to jump in with your questions. I'll start with maybe 20 minutes of my questions.

Saurabh, welcome. Good to see you here. Just start out with what is your role now that you're sole President of Underwriting Solutions, you were Co-President. Does that change anything kind of day-to-day? And what are your kind of your top priorities?

Absolutely. Thanks for having us here. So yes, I think, look, from the role perspective, what underwriting solutions encompasses is our Core Lines business, our global underwriting data.

The thing they call ISM, right?

Yes, exactly, our Life Solutions business and our marketing business and our international underwriting business. So previously, as Co-President, my P&L responsibility was more focused on the Core Lines and the Life Solutions business. Now it encompasses everything. But obviously, I was working very closely with my counterpart across the overall business.

Okay. Something that I associate a lot with you, maybe if you could to say yes, yes, yes or no, no, no, the whole vanguard of Core Lines Reimagined. This is something that we started hearing about in '22. We saw evidence of it at the Analyst Day in '23. But given the Analyst Day is coming up again in '26, we will see an update of all those modules that has been rolled out. So maybe say, where are we in Core Lines Reimagined. I surely remember it was a 5-year journey. So give us a sense of that.

Yes, absolutely. Just as background, Core Lines Reimagined was and is our one of our biggest investments made in that core ISO forms and loss costs business. I would say we are probably in the last quarter of the journey. We started with customer feedback on that front, and we heard from customers that the way they were using our product has changed, and we needed to evolve, and that's why we launched this program. It was a complete overhaul of our business, starting with our internal technology, internal processes, and then we kind of added on a lot more new analytics for our customers, and then we put all of that on this digital platform so that they can better consume our data. So that's that overall journey. I think what you are seeing now is more and more of those digital content being put on the platform and then new analytics being put on the platform. So that's what you're seeing with the modules as we're kind of putting more stuff on the platform.

And as more modules are adopted, is that more spend with the customers as modules drive spend? Or maybe another question is, has organic revenue growth already been enhanced because of Core Lines Reimagined, is it module? Is it price or something else?

Yes. I think I would think about it in multiple ways. One, it drives value. It drives higher value realization by our customers because they're able to use it in different ways and they're able to consume more of it, and that obviously drives better price realization. I would also say that because the underlying product is better, some of our associated analytics and workflow solutions are getting more adoption because our customers are seeing the benefits of those. So I think it's driving both those elements of the kind of growth equation, if you might.

Okay. And just say it again, when they adopt more modules, do they spend more?

So difference, if it's an existing module where they're just getting more analytics for the underlying subscription, they're not necessarily spending more on that. It's more that our renewal conversation, our price realization is better. There are tools that we offer as a separate product that are associated with the core subscription where the spend does go higher.

So again, just going back to the '23 Analyst Day. When I looked at Core Lines at the '23 Analyst Day, I didn't feel like it was a modern digital user experience. Like should I expect kind of a modern digital user experience when I go to Analyst Day in '26?

You can go to core.verisk.com today and see the modern digital experience. But yes, look, I think when you saw it, a lot of what we're doing upfront was kind of changing our internal technology, modernizing our tech stack and starting to build these new analytics. Now what you're seeing is this new -- all of that being put on the new platform, so I think if you go to the platform now, there's a lot more that you can do. There's a lot more interactive analytics that you can play around there.

What percentages of your customers have migrated to core.verisk.com? And my next question is when they've migrated, do you see that they're spending more time consuming more data because the platform is just more conducive?

Yes. So the platform is available to all our customers, and what we are -- where we are in the journey is we're starting to put all our content on, not all our content is on there. So customers are probably spending time on both platforms, but what we've seen is if we kind of look at the overall numbers, more than half of our customers are already using some kind of content on the new platform. In terms of what the new platform does in consumption and engagement, where we have examples of and analytic that used to be on the old platform and we've digitized and created a new experience and brought it to the new platform, and it has matured like it's been there for a year or so. We're seeing 2 to 3x more engagement from customers on that. And the other piece that I would add here is now that we are actually enhancing the digital experience even more with Gen AI in one of the instances where we've actually added a Gen AI layer on top of our content, we're seeing even more interaction because customers are finding it easier for them to work with our content. So we're excited about not only just digitizing and bringing to the new platform, but also thinking about how do we put Gen AI layers on top of it.

So thinking about putting Gen AI layers on top of forms, rules and loss costs, like, first of all, when you think about forms, rules and loss costs, like would you consider that a database? Like what would you think of how you get the data, how you curate the data? Is it proprietary? And then putting AI on top of it, how does it enhance the value proposition?

So I would think of it as a content. I think we have proprietary content, whether it's coverage forms, rules, data analytics like loss costs, and in some way or fashion, it is databased from a technology perspective, but it is at the end of the day, it's proprietary content that we deliver. And what we're able to do with things like Gen AI is provide customers a natural language way of querying that content and getting summaries much faster in an easier way for them to consume.

So, this is kind of a curveball question because I don't know if this is in underwriting or claims. But I surely heard Verisk talk about trying to build up new consortiums in anti-fraud and excess and surplus. I'm not sure if it's in your side of the house. But I would like to hear more about Verisk's interest in meeting and building more consortium databases.

Yes. So one of it is in underwriting. So that I will answer from that perspective. But I would say that the philosophy is similar across Verisk, right, which is, we want to build new contributory data sets where we are solving a real customer problem. right? So where we see opportunities for us to aggregate data sets and create value for our customers, we will do so, and when we do that, it creates a significant network effect for our customers because they're able to participate in that value. So let's take the excess and surplus as an example. It's a part of the market that has grown rapidly. It's an important part of the insurance market.

Could you just define it for us?

Yes. So it's excess and surplus. A lot of insurance is admitted, which is regulated. So you have to file your coverage, you have to file your rates. Excess and surplus is more -- is not regulated as much, and so you can do more proprietary programs on it, so that's the difference there. And on the excess and surplus lines, what we heard from our customers is that you have this amazing database on the admitted line side with ISO. We don't have something like that on this part of the market, which would be good for us to do benchmarking. And we took that on and we said, yes, this is something that we can work on, and we started talking to customers, and we've already had some customers give us data to start building that data set. And one of the interesting things there is the way we talk to customers there is we went to them and we said, look, if you give us your data, we can benchmark your experience against our admitted data, and you can see what your experience in the E&S line is versus the admitted line. And that was a great first use case for them. And then as we build that up, we can kind of create an industry database from that.

Okay. And to go back to pricing, as we're successful in Core Lines Reimagined and we've rolled out these new modules, should our price increases be higher or the same as historical in underwriting Solutions?

So the way I look at it is we're always pricing for value. And what Core Lines Reimagined has enabled us to do is to get a better price realization of our pricing methodology. So as long as we can continue delivering value to our customers, we should be able to go with our existing pricing methodology. Obviously, I know the questions around net written premiums and how that flows in is there. But that's one component of our pricing, but it's all about pricing for value with our customers, and remember, a lot of our customers are signing long-term contracts. So they're looking at it as an investment or as a commitment to us for a longer term than just potentially 1 year if you like.

Let's -- I know it's a fair caveat to put in the net written premium, the 2-year lag. But let's put that aside. Putting that aside because through the cycle, that's going to work itself out. Do you think price increases within Underwriting Solutions will be the same type of price increases that you've had in the past? Or because of Core Lines Reimagined and other innovation, it could be a little higher than your price increases in the past over a 3- to 5-year period?

Yes. I mean, look, I think we've had good price realization over the last 3 to 5 years. And I think to sustain that, we need to continue innovating, and we see no reason why that should be different going forward. Again, if we're able to drive even more value, we strongly believe in getting that upside if we can.

Okay. Do you see any AI risks to underwriting solutions, places where customers could either do this better in-house, spend less takeout point solutions that they might be currently using or considering an AI-enabled competitor?

Yes. I mean, look, AI, we think of it -- first of all, we think of it as an opportunity for us to use AI, both internally in our product development, in our software development, in our training, et cetera. So we're going to use AI internally. As I mentioned, we're also thinking about and actually in market with AI experiential layers on our proprietary content that's driving usage of our existing content. And then as you think about new AI solutions, we are also out in market with new AI solutions. So I think that's the gamut of kind of how we think about our AI strategy. Now the question comes around proprietary data and can AI replace the analytic that we have or the proprietary data sets we have. And the way we think about it is a lot of what we do is contributory and/or self-sourced and it's proprietary. And there's some element of external or website-oriented data, but that's not how we start at end kind of our product set. We start with the data. We bring the data in, we process it, we validate it using our unique methods. A lot of times, we find signals in that data through our unique methods and then we go and file some of our risk analytics. So by the time, even when you take some of the third-party data sets or external data sets, by the time we are selling an analytic, it is a proprietary and highly differentiated analytic that we're selling to the market.

Right because it's all bundled together. But if you would just break that down for me, when you think about just within underwriting solutions, what percentage of the data is contributory, what percentage is self-sourced and what percentage is third-party sourced?

So I know we've shared kind of the overall mix of where underwriting is.

You have shared total Verisk, right?

We've shared total Verisk and we've shared kind of how much of that is underwriting, the forms, rules, and loss costs. So think about forms, rules and loss costs, that's mostly contributory data sets, right? If you think about underwriting data and analytics, the UDAS part of that business, there's a large part of that is self-sourced proprietary. So this is we're going out and sourcing that data. There are some elements of getting external data in that business, whether it's aerial imagery or other third-party data. But even there, we're mostly taking that data and we're creating analytics on top of it, which is proprietary to us. And then there's an element of underwriting data solutions, which is software. So you think about the Life Solutions business, that's a software business, so there's no kind of data there.

Yes, I know that. Okay. So I don't know if you finished the last question, like do you see any new AI-enabled competitors that are worth noting in the underwriting solutions space?

I think there's a number that are coming up, but what I have seen is the solutions that they're offering, right? The biggest pieces where the most places where we've seen is kind of that underwriting assistant kind of solution, which is a solution we already have where they're taking the workflow of submission data, ingesting it very quickly and then kind of using that as a way for underwriters to kind of do quotes much faster, and we have a solution there as well. So I think we've seen some of these competitors kind of on that ingestion piece, if you mind.

And when you just talked about that ingestion piece, did you mean for auto insurance or more broadly for P&C insurance?

Broadly for P&C. I mean the place where we are going in is on the commercial property side. So think about a broker coming to you with a commercial property submission has many locations, you're providing a lot of unstructured data. It can take days for someone to kind of put all that together into a structured format. With Gen AI, you can do that in minutes. And we've shown that with customers.

A little bit ago, you talked about using AI internally for underwriting solutions. Do you think that you'll be able to grow your revenues without growing your headcount, just doing more with the same staff? Or do you think over the next few years, your headcount should grow?

So I'll answer with what our observations has been with the use cases that where we've seen AI being helpful, and we are seeing it being beneficial. So take, for example, on Core Lines Reimagined, a lot of what we're doing is we're taking our historical content and digitizing it and bringing it into the new platform, and what we've seen good value in AI is AI can do the tagging, the metadata, the summarizing of that content and bring it to a digital format without us having to hire more people to do that. So there's an element of we can do more with the people we have right now, and there's also an element that we can do things faster. So I think we are seeing the benefits there, and I think we will continue kind of investing behind AI. I'll just say that overall, as you think about our history over the last few years, we've made some big technology transformations. We've gone to the cloud. We've also invested in Core Lines Reimagined. And we've done all of that at an overall Verisk level, did all of that with margin expansion. So we have a history of investing in the business, but doing it in a diligent fashion.

Yes. Maybe I'm going to say, it's the same question, but I'm going to ask it a little different way. So margins have expanded. When margins expand, it typically means that the margin level is closer to the incremental margins, and so sort of like one of the reasons I was asking about headcount is I'm wondering if you're raising or what you're doing to raise the incremental margin, of course, your margin is coming up.

Yes. I mean we have that leverage, right, in the business, and to the extent we can use AI to kind of drive that leverage, we will continue doing that, and then all I will say is that we -- again, we want to bring that investment back into the business as much as we need to because at the end of the day, if we can get -- if we innovate for the industry, we get better price realization, that provides more room for your incremental margin expansion in the line.

Okay. That's fair. Two things that are current headwinds on underwriting. One is a talk of asserting government contracts. I feel like Verisk was not so specific about that. And then also, Elizabeth called out competitive pressure in personal lines auto business. Could you just say anything about the government business? Like was that a contract loss or reduction? Or just anything about the government business that's the current headwind so that we just understand it a little bit better.

Yes. It wasn't a contract loss. It was a reduction in spend.

Okay. No problem. Okay. So you can imagine I'm going to switch over to the personal lines auto. I think it's very honest that Elizabeth called out that we win some, we lose some. But I'm sort of used to that LightSpeed product just sort of innovating in the industry. I know it's not your only personal lines, auto underwriting solution. I know you have A+ and you have a couple of other products. But I'm still surprised given LightSpeed still is a unique product in the space, going to bindable quotes quickly. It just seems like something that is kind of hard to walk away from once you're using LightSpeed. Maybe I'm sort of ignoring the fact that you have other products in personal lines auto. My question is, where did this pressure come from? And what are you doing about it?

Yes. So there are 2 drivers to that. So one is the business just is facing some year-over-year growth headwinds, right? So in '23 and '24, we were in a market environment where there was -- premiums were going up, and that drove a lot of shopping, and what happened is -- and you know this, that we are a challenger brand business, and what happened in '23.

I'd say close challenger.

Absolutely. In '23, '24, the segment of the market that kind of took part in that new business shopping were our customers. So our customers were leading in terms of bidding for that new business. There were a lot of quotes that helped us. Now where the market is, everyone is looking for growth, and so it's more distributed. So we -- that's kind of a little bit of the headwind from that shopping experience. The other is, we have a product which is kind of a noncountercyclical product where customers use our service in that '23, '24 time period to do some non risk check, right? Now as we look at the next 3 years with the rates being adequate, we see that the demand for that product not being as high.

I agree with the market.

So I think that's one group. The other is, as you said, other is around products that I would say are not clearly differentiated from our competitors, parity in terms of like our ability to offer that product, our ability to match the functionality, but it's not differentiated.

LightSpeed is differentiated, right?

Well -- and so without getting into the details...

Simple question, is LightSpeed differentiated?

Well, LightSpeed is, but as you said, where the challenges are coming from are in places where we don't have LightSpeed.

Right.

So I think we are seeing that challenge, and what we want to do there is, I want to go talk to our customers and understand how we can differentiate our products and serve them differently and focus on that.

Okay. And like how long do you think we'll be talking about this competitive pressure?

Look, I think it is -- you win some, you lose some. And depending on which point in that equation you're talking, there might be that headwind. But again, the focus is going to be in the auto business and looking at ways for us to differentiate. And we do have examples. You mentioned LightSpeed. We also have examples in our Coverage Verifier product where we are innovating, and we have good feedback on that.

Right. Okay. The only thing I really worry about is when competing against LexisNexis Risk Solutions is like it's not that the biggest. They just have a broad breadth of products. That's what I worry about. Like isn't it just easy to go with one provider? Or do you think this is a type of market that's naturally a multi-provider market in a given customer?

We also have a pretty good breadth of -- from a product perspective, I do think that it is it is a market where the solutions are very well embedded in the marketplace, and you have to have a real differentiation for customers to think about switching to you or moving some business to you. So we will continue engaging with customers and seeing what's the best way to kind of build a sustainably differentiated product here.

Great. So you mentioned about both rate adequacy that's really kind of happened already in the marketplace in the insurance marketplace. And you also mentioned net written premiums, which growth surely seems like it's moderating from peak. My question is, I know it doesn't make a massive difference, kind of hard versus soft market for Verisk. But if we're heading into a market where there's a little less tailwind, where could Verisk underwriting try to kind of make up the growth difference into, let's say, the next couple of years?

Well, I mean, you said it, like I don't see a huge difference in the core set of products that we offer with respect to the cycles. What I hear from our customers when I talk to them, even as we're going to the soft market, they still want to grow. They just want the right business. They want to write new business. They want the right business. They're still looking for underwriting excellence. They're still looking to be more automated, more efficient in how they write business, and so whether it's our data, our analytics or our workflow solutions, I think the demand for it is there. We just have to continue making our case to our customers.

Okay. Great. Open for questions.

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Yes, absolutely. So look, I think we work with Guidewire and all other policy admin system vendors because our content is critical for our customers as they kind of use that system to write business. So I would say that we work very closely with Guidewire, we sell our product through their accelerators. Our content goes into their rating engine. They use our electronic rating content. So I would say there are areas where there's some competition because they bought some analytic data companies, and so I don't think that has changed in my mind. I think we continue to work with them. The key is to work with them for the better of our customers. Like our customers want...

Still from the insurer, right? Like you say, hey, we're putting it on Guidewire, but it's still the insurer who's paying you, right?

Yes, yes. Absolutely.

Did he answer your question?

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Yes, there was a press release recently.

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So yes, there's -- yes, so I would think that customers will use several platforms or many ways to kind of do their underwriting, like underwriting work benches and stuff, right? What we're providing is we're providing the data that goes in there for them to kind of work through. So it might be a workflow software that you're using, but it could be Guidewire, it could be several other providers. We're providing the data analytic, and in some instances, we're also providing the software. So much like when we work with customers, we're okay on whichever policy admin system they use, we will provide the content, as long as they're using our content, we're okay with it.

But you don't view them as a data company, do you?

Guidewire?

Yes.

Not necessarily. I think -- look, their biggest business is the policy admin software business, right? I think there are specific places where they have acquired some data companies, but largely, I think their business is -- and where we interact with them is in the policy admin space.

Okay. Other questions? How about -- right now, there's a lot of focus on the AccuLynx acquisition that's pending, and I know that's the claims side of the business. What's the appetite for M&A on the underwriting side of Verisk?

Yes. Look, the appetite is there, but the M&A actions come from our strategy. Our strategy is to look for good stand-alone companies where together we can serve the industry better and where we can create solutions that create more efficiency in the industry. Just an example on the Life Solutions side, we bought a company called SuranceBay. So just as background, SuranceBay sells to agents and they are the leading agent onboarding and compliance system in the life insurance segment. We have the leading admin platform in that business, and we, together, can serve the industry in a better way because we're making it more efficient to how you buy and sell insurance because you need the connection between the agent database and the admin, and we're making that more efficient. So this is an opportunity where we saw we can come together with SuranceBay and create more value for the industry.

Do you mind if we just -- we really only have 45 seconds. We rotate back to core.verisk.com? And I heard you say, hey, about 50% of the clients are using us, but they're also using legacy platform. Like when do you think it will be all converted over? Or do you think it's going to -- it's not -- we're not just -- we're not going to do a forced conversion, so it's going to be like this for a while.

So one, we -- what we did not want to do was a forced switch on, switch off conversion. Our customers told us very clearly, they do not want that. So I do think that it will be a process. I don't think it will be an endless process. I do think it will be a process. My view is that once we put all our content on the new platform and customers see...

Is that -- that's not so far away, right?

I would say in the next 12 to 18 months, largely all our content will be there. And then once you have that, there will be some transition. But when customers see the efficiency that they gain by consuming the data in the new platform, they will all be looking at that platform.

Okay. That's where we'll end. Thanks, Saurabh.

Thank you. Thank you very much.

I appreciate the dialogue.