A Wealth of Data Is Key to Improving Risk Management

What’s needed to stay innovative in auto finance risk management today?

Data, data, and more data, according to Preston Cecil, vice president of risk management at Innovate Auto Finance in Fort Worth, Texas.

Cecil spoke about how to not only use existing data, but also find new data, during yesterday’s Center for Auto Finance Excellence webinar, entitled “Fundamentals of Auto Finance Risk Management.”

“It’s important to always look for new data, we’re never satisfied,” Cecil said. “We’re always looking for that competitive edge.” More data, when used appropriately, equals better decisioning.

The webinar was the first in a series of four in 2015 presented by the Center for Auto Finance Excellence and sponsored by Fiserv.

“We always want more and more data and we always want different data than we have,” Cecil said during the webinar. “We’re trying to predict, to get smarter, and reduce our errors.”

Use what you already have, Cecil advised, and turn that into data, such as customer questionnaires. Questions such as ‘What time of day is the best time to call you,’ can be captured, analyzed, and structured into data, he said. In other words, turn qualitative data in quantitative, he said, and once the qualitative is defined, monitor it.

To do that, executives should remember that creativity among a company’s staff is necessary to innovate, and relationship management has become more important in the search for new data. For example, it is not enough to know that one dealer is performing better than another, he said but also to know why.

A company can use its sales staff to perform dealer grading, and gain insight into the dealer’s reputation, then see if that qualitative information can be turned into quantitative data.

The salesman essentially becomes the messenger: the point of contact between the company and the marketplace, Cecil said. His incentive should then be aligned with the company’s interest, bringing in data could lead to compensation. The qualitative data can be structured to create new policies for the dealer, or help explain performance that could not be explain before.

Qualitative data is changing underwriting too, Cecil said, allowing underwriters to better assess risk and go beyond just a consumer’s credit score.

Defaults don’t happen because of number assigned to them, he said, but rather what happens to customers. Underwriters should dig deeper and find the root cause — was it income, education, a negative life event, or can it even be quantitative in nature? Underwriters then become analysts.

Collectors can even use their role as the only vocal link between the customer and the company to build the wealth of data, Cecil suggested. Turn collectors into counselors, analyze conversations, go deeper, and ask about things that are not on the script, then use that information to see how it correlates to payment. Cecil suggested collectors go off script about 20% of the time, and use a script the other 80%, though it should be noted off-script conversations will be closely studied by regulators.

Cecil’s advice can be heard in the full webinar recording below.