Industry Expertise | Savvy Decision Making through Rear and Windshield Views
AFSA’s Industry Expertise allows Business Partners to provide thought leadership and best practices information directly with AFSA member companies. For more information about taking part, contact Dan Bucherer.
Savvy Decision Making through Rear and Windshield Views
By: Suzi Straffon, Director, Finance Company Markets | Allied Solutions
Will we see a recession?
Is the housing market going to crash?
Are auto loan originations tanking?
These are questions the industry asked during the financial crisis of 2007-2009, and here we are asking them again in 2023. What’s the difference between then and now? Today we have more consumer behavior data! Consumer data – or big data – steps outside of FICO scores and demographic information to not only identify but also predict risk factors. Here’s how consumer behavior data is leading the way for the future.
Here are four ways that consumer behavior data is leading the way for the future:
- Follow the leader.
Think back (maybe way back) to high school economics class and lagging indicators versus leading indicators. More prominent industry factors like originations, delinquencies, and repos, are lagging indicators. Their effects won’t be felt immediately, and they are important for the overall picture of portfolio health. On the other hand, analytics centered around consumer behavior are leading indicators. These indicators can proactively predict consumer buying habits and saving trends.When it comes to making decisions with indicators, lagging indicators are the rearview mirror view and leading indicators are the windshield view. Both indicators are important, but on their own they don’t provide the whole picture. Making decisions based on only leading or only lagging indicators is like driving without either a rearview mirror or windshield. Combining leading and lagging indicators strengthens strategic planning. - Silos are only good for grain.
Silos have their place in the agricultural world but not in information technology and decision making. The goal of data analytics is not to piecemeal multiple data solutions into your core processor. This will create siloed information. When one set of consumer data resides in a different silo than the rest it’s nearly impossible to accurately piece the right information together at the right time to make the right decision. A single source of data truth is needed to integrate data from your core processor to a pool of industry data analytics. A single data engine will power smarter credit decisioning and strategic planning by reducing conflicting information. - Don’t neglect compliance.
In our industry it’s hard to forget compliance because it’s woven into nearly every business decision. Is this a possible UDAAP violation? Is that decision going to come back to negatively affect us in an audit? Add on changing regulations such as the ones impacting CECL or refunds on GAP waivers and it’s clear that there’s a heightened importance of compliance-centric data integrations. Data integrations that can track the entire lifecycle of a loan and reduce or remove adverse selection will enhance regulatory compliance. - Actionable intelligence, finally.
What if decisions didn’t have to be made with only a partial picture anymore? How would your risk appetite change if your executive teams could make decisions with both lagging and leading indicators? The key to increasing your risk appetite is leveraging predictive forecasting.With a single source of data, decisions can be endorsed with more than intuition and best guesses. Stress testing and forecast modeling provide the actionable intelligence needed for confident, compliant, and data-backed decisions possible.
Data analytics are leading the way for the future of risk management. Are you in the driver seat?
About Allied Solutions
Allied Solutions is one of the largest providers of insurance, lending, risk management, and data-driven solutions to auto finance companies and financial institutions in the US. With their consultative approach and commitment to the market, Allied Solutions uses technology-based solutions customized to meet the needs of 4,000 organizations. Allied Solutions is headquartered in Carmel, Indiana and maintains several offices strategically located across the country. Allied Solutions is a wholly owned and independently operated subsidiary of Securian Financial Group. Together, Allied and Securian boast 100+ years of industry experience.
April 12th, 2023 by Dan Bucherer
