Certain industries and sectors do more than their share to undergird the U.S. domestic economy. Within these sectors you can find many of the companies whose risk management needs are met by the Zurich in North America unit Mike Halvey leads, Middle Markets. The division is every bit as Main Street as its name.
Within this portfolio, financial institutions have lately held a particular prominence for Zurich. That’s due in part to the common language of risk spoken by bankers and insurance people. It’s also because community banks now find themselves at a crossroads of technological advancement, expected to drive growth for some even as it marginalizes others. The data, analytics and expertise the Zurich team brings to this dynamic are potential difference-makers, Halvey would argue.
“A lot of what we do involves helping businesses recognize exposures that are evolving within their industries,” he says. “Some of the risk models we present will carry an upside potential. Meaning: The category will experience change that our customer could prosper from. That’s one of those moments when you’ll see people’s eyes light up.”
While retail banking has rewritten its lending guidelines in the post-2008 environment, risk that stems from the normal conduct of branch operations has been “not that tough an exposure to manage,” according to Halvey. Zurich’s services to financial institutions include orchestrating indemnification of risk from a vendor’s errors and omissions. An example would be a check-printing company that loses a large cache of names and account numbers to hackers in some faraway locale.
Looking forward, Halvey notes that brick-and-mortar risks “would naturally be reduced as the physical footprint gets smaller, responding to a steady rise in banking via laptops and mobile devices.” But there’s more to this risk-management story than reducing square footage.
“Person-to-person transactions are about to happen,” Halvey recently observed—he was discussing payments such as a consumer might make to an auto detailer or a personal trainer. Check-writing, a mainstay of retail bank operations, appears due for even faster decline under that scenario. “You will see banks investing in software and staff to compete in that end of the transaction-settlement market,” Halvey expects. “It’s up to us to find the gaps in coverage that such a trend will open up, really before they happen, so we have appropriate products to address it.” Meanwhile the person-to-person interface that has been customary in community banking is flocked by question marks: Who will cross-market products to patrons who do all their banking online? The banking industry is largely based on the opportunity for tellers and managers to promote jumbo mortgages and 36-month CDs to checking-account customers standing before them.
E-commerce in general is a game-changer, one that Zurich risk engineers are continually building new models of to measure and forecast. In doing so, they bear in mind that for most actions in this world, many of the consequences are unintended. Not every surprise is unpleasant, but Halvey and company prefer not to be surprised. “Whenever a function within a marketplace shifts, risk shifts along with it,” Halvey says. “Take something like security for cash assets. When an armored truck or a bank vault is providing it, we understand the parameters. What does it mean when encrypted software takes over that job?”
There is yet another set of unknowns weaving its way through consumer financial services. This one involves the individual customer and their risk appetite or aversion. “There are even significant optics to the disappearance of bank branches, if that’s indeed what is going to happen,” Halvey muses. “Ideas about borrowing to buy a home or setting up investments and savings appear to be generational, and influenced by many factors.” One that gets attention lately is the heavy debt burden borne by newly minted college graduates.
“This comes down to how financial assets move through the economy at the granular level of the individual,” he says. “How do you go about defining convenience, service and trust on a mostly digital platform?” Where economy meets society, in other words, there is risk plus opportunity to account for, and outcomes that go beyond community banks to the communities themselves.