Data Automation for Sureties and Agents: What to Look for in a Technology Solution


April 2, 2018

By Mark A. Blosser, CPA; David G. Olson, CPCU; Kevin B. Rzepczynski; and Kristen N. Sharpe, CPA

Improvements in data automation capabilities, coupled with the advent of big data and artificial intelligence, have created opportunities for sureties and agents to improve the outcomes of their underwriting and production processes.

By implementing data automation solutions that take advantage of today’s advanced capabilities, many organizations are finding they are able to manage their portfolios more efficiently by streamlining and simplifying data submission while at the same time reducing errors, rework, and corrections. Moreover, the ability to create visual reports and benchmarks has helped organizations enhance their understanding of their customers, making it possible for them to underwrite risk more accurately and effectively.

The Surety Industry’s Data Challenges

The traditional processes that sureties and agents use to obtain financial statements and job schedule data from their contractors are well-established – but they are prone to some predictable weaknesses and opportunities for error. In most instances, contractors create work in process (WIP) schedules using their accounting software. They then transmit that information to their agent who must manually enter cost, billings, revenue, profit, and other contract data into their own systems. The agent then transmits that information to their sureties, who in turn has to enter the same information into their systems.

In addition to the time-consuming challenges of data entry errors and rework, the system used for analysis can be cumbersome and inconsistent. There is often an incomplete audit trail back to the original submission, which raises doubt about the validity of analysis when information is passed from one party to the next. The result is the rework of entering the original document in multiple systems. Bond producers are burdened with the added job of monitoring customer compliance with data submission deadlines and other requirements, including verifying that customer reports provide the appropriate level of detail and reconciling WIP schedules to the financial statements.

The traditional data collection process offers numerous challenges and pain points, including:

  • Unclear expectations regarding necessary documentation
  • Lack of auditability or a clear, visible data path
  • Lack of secure submission capabilities for sensitive data
  • Lack of alerts or reminders for missing or delayed submissions
  • Inconsistent submissions
  • Wasted time due to duplicative data entry
  • Inconsistent or error-prone data entry
  • Lack of end-to-end tracking encompassing the entire submission and data entry process
  • Inconsistent document organization
  • Difficult hand-offs of data submissions to other interested parties

In many instances, the entire process must be repeated at the next level, as the bond producer submits required information to the bonding company for underwriting consideration.

Developing a Solution

The weaknesses and inefficiencies of the traditional data collection process come as no surprise to most sureties and agents. Moreover, industry professionals identify manual data entry procedures as the underlying cause of many of their systemic weaknesses.

In a recent webinar for surety professionals conducted by Crowe, participants were asked to identify the shortcomings that affected them most acutely. As illustrated in Exhibit 1, nearly half (47 percent) of those responding pinpointed issues related to conventional 10-key data entry processes (such as excessive data entry time and errors) as their leading cause for concern.

Exhibit 1: Data Collection Challenges for Sureties


Source: Crowe online survey, Jan. 23, 2018

Fortunately, data automation solutions are now available to address this critical issue, allowing contractors to submit WIP schedules and financial statement data directly to a secure portal. These portals allow submissions of various file formats and automatically convert files and produce standard deliverables that can be consumed by other software systems. Using these data automation solutions, sureties and agents can import data directly into their systems, eliminating the need to manually re-enter contractor data.

What to Look for in a Data Automation Solution

Sureties that are preparing to implement a data automation solution should look for systems that offer certain critical features, including:

  • Elimination of hand-keying data entry
  • Consistent, auditable end-to-end document tracking
  • Automated alert system for pending and late submissions
  • Clear visibility into data submission status by the submitting and receiving parties
  • Data encryption and security capabilities
  • The ability to convert and deliver data in standardized formats
  • Clear traceability back to source documents

Such a solution also can offer other advantages that add further value to a data automation solution. Among the most significant of these features is the ability to use the system as a submission tracker and portfolio management tool. Properly configured, such a solution can provide bond producers and underwriters with the real-time status of every submission and pending submission, document the submission history of each document, and identify any exception resolution or other action that needs to be taken.

A truly effective system also will display an updated work queue, enabling each producer or underwriter to view an up-to-date list of needed actions. It can help streamline document searches and other actions by providing quick visibility into the history and status of every customer, as well as every required data submission.

Industry Responses and Advances

In addition to verifying that a proposed data automation solution offers the full range of capabilities just described, sureties and agents should also make sure the chosen solution is consistent with current data formatting and standardization trends. The surety industry is currently working toward standardizing data formats for financial statements and other required reports, so any data automation solution must support and be compatible with these efforts.

More specifically, the National Association of Surety Bond Producers and the Surety & Fidelity Association of America, through their Joint Automation Committee, have developed and supported programs designed to help the industry eliminate unnecessary manual data entry. The organizations support the use of standardized tools and formats such as XBRL-formatted reports or preformatted XBRL spreadsheet templates, along with surety forms that use standardized data fields that are consistent with Association for Cooperative Operations Research and Development (ACORD) terminology.

At a minimum, any data automation solution selected should be fully compliant with these industry-recognized standards.

Advanced Analytic Capabilities

Beyond streamlining data entry, standardization of formats, and submission tracking, the most desirable data automation solutions can also empower sureties and agents to carry out advanced analytical processes that would be difficult or impossible to achieve using conventional spreadsheet and financial statement analysis. Data visualization techniques and intuitive, easy-to-use dashboards can enable deeper contractor and job performance insights that go beyond traditional measurements such as gross profit, backlog, and overbillings or underbillings.

Effective data automation solutions can produce detailed job analysis through tracking of job profits, profit fades, change orders, cost estimate anomalies, automatic analysis of jobs at risk, and other performance indicators. On a broader scale, such solutions also enable a more comprehensive account and portfolio analysis, including contractor profitability comparisons and trending, client performance benchmarking, and overall portfolio monitoring and analysis.

In the Crowe online webinar survey mentioned earlier, an overwhelming majority of the participating surety professionals said such analytical tools would be helpful to their businesses. They expressed particularly strong support for tools that highlight job performance issues (Exhibit 2).

Exhibit 2: Perceived Value of Job Performance and Portfolio Oversight Tools


Source: Crowe online survey, Jan. 23, 2018

As the analytic capabilities of data automation solutions continue to grow, industry support for data automation can be expected to intensify even further. By evaluating proposed data solutions against the criteria listed here, and by implementing systems that take full advantage of today’s advanced data automation and analysis technology, sureties and agents will find they are able to handle data collection with much greater efficiency and accuracy, and manage their portfolios with a much better understanding of their customers and underwriting risks.

As that happens, all stakeholders in the process – contractors, bond producers, and underwriters – ultimately will benefit.

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