Risk analysis

Having access to a powerful range of credit scores, like those offered by Experian, can help you gauge whether a new commercial applicant can meet a given payment schedule or if a different offer may be required.  They are also useful in assessing the level of risk contained in your existing customer portfolio, so that you can manage it more effectively. 

When integrated into your systems, business credit scores can speed up applications by identifying the riskiest customers. Smart algorithms can also predict business failures, insolvencies, arrears and defaults that are likely to occur over the coming 12 months. This frees up resources to focus on proactively responding to potential problems.

It’s important to track changes to the businesses in your portfolio to avoid exposure to financial crime. Compliance solutions, like Experian’s Compliance IQ, can spot new risks as they arise, even in complex corporate structures. They also help you establish a company risk policy and stay compliant with anti-money laundering and anti-fraud regulations. 

Detailed insight into your clients’ commercial deals along with their corporate, financial and business circumstances enables you to offer the right products at the right time, and often before your competitors even know there’s an opportunity. Experian’s Market IQ displays all this information in a single interface to simplify the process of gathering and analysing market intel. 

Whether you’re lending to a corporate entity, small business or an individual, credit scores are a vital tool for assessing lending risks. Depending on your needs, you can access consumer or commercial reports from the UK or around the world.

If you want the best joined-up picture of your credit portfolio, you need solid data and a tool like Experian’s Credit 3D. This uses advanced analytics and machine learning to produce transformational insights into customer expenditure, habits and preferences so that you can make robust and fair lending decisions.

Change is inevitable, but by including economic forecasts in your lending plans you can more accurately predict risks. Forecasts can help you understand how much risk your business is exposed to and spot risky behaviour before it damages your business.

If you can’t reach your customers, you can’t offer them the financial support they need or recover debts if that becomes necessary. This is where smart tracing solutions, such as Experian’s Supertrace, can help. It cross-references data from multiple different sources to help you find ‘lost’ customers quickly and easily.

Tracing solutions don’t have to be applied retroactively. They can be employed continuously to verify customers’ contact details so that vital communications aren’t missed. Robust data analysis across multiple sources means you can be confident that you’re dealing with the right customer and can contact them before debts mount up.

Evidence shows that you can improve debt recovery results by adapting your approach according to an individual debtor’s circumstances. Data-driven debt recovery tools, like Experian’s Debt Prioritisation Service, let you understand whether a debtor is unwilling or unable to pay a debt. This enables you to tailor your response to fit the situation, which ensures you treat the customer fairly while maximising recoveries. 

Data-driven debt recovery tools automate the collection process and allocate resources more appropriately than manual recovery methods. This reduces costs and ensures fair, reasonable and consistent treatment of debtors.

One way to protect against insurance risk is by having access to your customers’ claims history using a tool like Experian’s Claims and Underwriting Exchange. This contains data on millions of UK consumers’ household, motor and personal injury insurance claims. These can provide insight at every stage of the insurance lifecycle, from quotations and policy acceptances to renewals and claims.

Knowing whether a damaged vehicle was insured or not, along with the identity of other third-party insurers, is a key part of managing insurance risk. Experian operates the Motor Insurance Database on behalf of the Motor Insurers Bureau (MIB), which lists all UK insured drivers to provide you with instant confirmation of these key facts.

Another insurance risk is unpaid premiums. Joining a data-sharing programme – like Experian’s Credit Account Information Sharing (CAIS) – gives you a more complete view of your customers so you can avoid those with a history of poor credit and debt. You can also choose to share this data with consumer or commercial lenders. 

The key thing you need when evaluating potential risks in your business portfolio are snapshots of its overall health. By understanding your market position clearly, you can safeguard your portfolio against risk in a cost-effective manner.

For smaller banks, it’s helpful to have score distribution and risk level information available when you’re switching between scoring models. A product like Experian’s Credit Risks and Portfolio Insights offers score distribution charts for current and proposed credit risk scores.

Another way portfolio risk management products can help is by identifying share-of-wallet opportunities that enable you to maximise the amount each customer spends within acceptable risk limits (for them as well as you) to boost overall revenue and profitability. 

When you’re managing portfolio risk, it’s also worth investigating whether the tools you use include personalised support. Experian’s Credit Risks and Portfolio Insights, for instance, provides a one-hour call with expert advisors to review your results and offer recommendations tailored to your business.

FICO credit scores can help financial institutions to predict a borrower’s resilience during periods of economic volatility. Lenders can use these simple-to-understand scores to identify and mitigate credit risks – including customers who would be ideal customers in normal times – while continuing to offer finance to more resilient customers. 

At times of financial stress, some lenders try to reduce credit risk by enacting countermeasures at the portfolio level – for instance, by raising credit score eligibility levels or cutting credit limits on existing accounts. But while this may reduce overall exposure, such methods can also damage existing customer relationships and curb growth. Using FICO credit scores enables you to respond on a case-by-case basis based on your customers’ predicted sensitivity to economic downturns.

The pandemic has challenged traditional stress-testing approaches for B2B lenders. But by increasing the frequency of tests and depth of comparative data, it is still possible to mitigate risks even in these unprecedented times. If you’re not sure what the best testing regime should be for your business, Experian’s team of experts is on hand to help.

In response to the health crisis, Experian has developed a range of new tools as part of its Commercial Portfolio Management Solutions platform. These include its COVID-19 Segmentation dashboard, which helps you check your level of exposure to high-risk sectors, and its Commercial Volatility Index, which identifies businesses under stress in your portfolio.

Implementing an HR strategy that reduces employee turnover depends on gaining a deep understanding of your existing workforce and identifying those employees who are most likely to leave. A tool like Experian’s Workforce Analytics for Retention can help with this task by leveraging in-house predictive modelling technology to strategically analyse your employee data for risks.

By understanding the individual factors that drive the risk score for each employee, and then accurately evaluating your employee population, you can make intelligent decisions to protect the future of your workforce and your business.

Workforce planning tools also let you see if incentives, such as pay rises and training, are actively contributing to employee retention. This helps you strengthen future workforce motivation and retention packages.

Retaining skilled workers saves on recruitment costs but evaluating how likely employees are to leave has other cost benefits, too. If you’re able to see which retention strategies work, you can maximise investment in the most beneficial initiatives while simultaneously reducing risk.