Dow’s Cash Flow Increases The Safety Of Its Dividend Yield

On a price return basis, the Safest Dividend Yields Model Portfolio (+4.4%) outperformed the S&P 500 (+3.8%) by 0.6% from June 23, 2022 through July 19, 2022. On a total return basis, the Model Portfolio (+4.8%) outperformed the S&P 500 (+3.8%) by 1.0% over the same time. The best performing large cap stock was up 12% and the best performing small cap stock was up 14%. Overall, nine out of the 20 Safest Dividend Yield stocks outperformed their respective benchmarks (S&P 500 and Russell 2000) from June 23, 2022 through July 19, 2022.

This Model Portfolio only includes stocks that earn an attractive or very attractive rating, have positive free cash flow and economic earnings, and offer a dividend yield greater than 3%. Companies with strong free cash flow provide higher quality and safer dividend yields because I know they have the cash to support the dividend. I think this portfolio provides a uniquely well-screened group of stocks that can help clients outperform.

Since its spin-off from Dupont De Nemours Inc. (DD) in 2019, Dow has grown revenue by 13% compounded annually and net operating profit after-tax (NOPAT) by 65% compounded annually. Dow’s NOPAT margin rose from 6% in 2019 to 13% over the trailing twelve months (TTM), while invested capital turns improved from 0.7 to 1.1 over the same time. Rising NOPAT margins and invested capital turns drive the company’s return on invested capital (ROIC) from 4% in 2019 to 14% TTM.

Figure 1: Dow’s Revenue and NOPAT Since 2019

Dow has increased its regular dividend from $2.10/share in 2019 to $2.80/share in 2021. The current quarterly dividend, when annualized, provides a 5.5% dividend yield.

Dow’s free cash flow (FCF) comfortably exceeds its regular dividend payments. From 2019 to 2021, Dow generated $16.0 billion (43% of current market cap) in FCF while paying $5.7 billion in dividends. Over the TTM, Dow has generated $6 billion in FCF and paid $2 billion in dividends. See Figure 2.

Figure 2: Dow’s FCF vs. Regular Dividends Since 2019

Companies with strong FCF provide higher quality dividend yields because the firm has the cash to support its dividend. Dividends from companies with low or negative FCF cannot be trusted as much because the company may not be able to sustain paying dividends.

DOW Is Undervalued

At its current price of $52/share, DOW has a price-to-economic book value (PEBV) ratio of 0.3. This ratio means the market expects Dow’s NOPAT to permanently decline by 70%. This expectation seems overly pessimistic given that Dow grew NOPAT by 65% compounded annually since 2019.

Even if Dow’s NOPAT margin falls to 9% (vs. 13% over the TTM) and the company’s NOPAT falls 5% compounded annually over the next decade, the stock would be worth $75+/share today – a 44% upside. See the math behind this reverse DCF scenario. Should the company’s NOPAT not fall at such a steep rate, or even grow from current levels, the stock has even more upside.

Critical Details Found in Financial Filings by My Firm’s Robo-Analyst Technology

Below are specifics on the adjustments I make based on Robo-Analyst findings in Dow’s 10-K and 10-Qs:

Income Statement: I made $3.1 billion in adjustments with a net effect of removing $930 million in non-operating expenses (2% of revenue).

Balance Sheet: I made $16.6 billion in adjustments to calculate invested capital with a net increase of $11.3 billion. The most notable adjustment was $9.0 billion (18% of reported net assets) in other comprehensive income.

Valuation: I made $24.1 billion in adjustments with a net effect of decreasing shareholder value by $19.8 billion. Apart from total debt, one of the most notable adjustments to shareholder value was $6.1 billion in underfunded pensions. This adjustment represents 16% of Dow’s market value.

Disclosure: David Trainer, Kyle Guske II, Matt Shuler, and Brian Pellegrini receive no compensation to write about any specific stock, style, or theme.

New Constructs leverages reliable fundamental data to provide unconflicted insights into the fundamentals and valuation of private and public businesses.

Source: Dow’s Cash Flow Increases The Safety Of Its Dividend Yield

Critics by Macrotrends

Dow annual/quarterly free cash flow history and growth rate from 2017 to 2022. Free cash flow can be defined as a measure of financial performance calculated as operating cash flow minus capital expenditures.

  • Dow free cash flow for the quarter ending June 30, 2022 was 2,607.00, a year-over-year.
  • Dow free cash flow for the twelve months ending June 30, 2022 was , a year-over-year.
  • Dow annual free cash flow for 2021 was $4.79B, a 18.72% decline from 2020.
  • Dow annual free cash flow for 2020 was $5.893B, a 48.51% increase from 2019.
  • Dow annual free cash flow for 2019 was $3.968B, a 91.69% increase from 2018.

Dow annual/quarterly revenue history and growth rate from 2017 to 2022. Revenue can be defined as the amount of money a company receives from its customers in exchange for the sales of goods or services. Revenue is the top line item on an income statement from which all costs and expenses are subtracted to arrive at net income.

  • Dow revenue for the quarter ending June 30, 2022 was $15.664B, a 12.81% increase year-over-year.
  • Dow revenue for the twelve months ending June 30, 2022 was $60.129B, a 30.19% increase year-over-year.
  • Dow annual revenue for 2021 was $54.968B, a 42.62% increase from 2020.
  • Dow annual revenue for 2020 was $38.542B, a 10.27% decline from 2019.
  • Dow annual revenue for 2019 was $42.951B, a 13.41% decline from 2018.

Current and historical gross margin, operating margin and net profit margin for Dow (DOW) over the last 10 years. Profit margin can be defined as the percentage of revenue that a company retains as income after the deduction of expenses. Dow net profit margin as of June 30, 2022 is 11.06%.

Current and historical p/e ratio for Dow (DOW) from 2017 to 2022. The price to earnings ratio is calculated by taking the latest closing price and dividing it by the most recent earnings per share (EPS) number. The PE ratio is a simple way to assess whether a stock is over or under valued and is the most widely used valuation measure. Dow PE ratio as of August 03, 2022 is 5.40.

Current and historical current ratio for Dow (DOW) from 2017 to 2022. Current ratio can be defined as a liquidity ratio that measures a company’s ability to pay short-term obligations. Dow current ratio for the three months ending June 30, 2022 was 1.64.

Historical dividend payout and yield for Dow (DOW) since 2021. The current TTM dividend payout for Dow (DOW) as of August 03, 2022 is $2.80. The current dividend yield for Dow as of August 03, 2022 is 5.43%.

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Big Tech Earnings: Microsoft And Alphabet Signal Q2 Could Be A Bottom

Big Tech earnings were off to a solid start on Tuesday when Microsoft and Google reported stable revenue growth and margins that are unchanged from recent macro conditions. The strong margins were especially welcomed as many companies have been missing on operating margins and cash flow. Meanwhile, Microsoft delivered free cash flow of $17.8 billion and net profits of $16.7 billion along with upbeat guidance for the year. Similarly, Google reported strong free cash flow of $12.6 billion and net profits of $16 billion in the recent quarter.

The same was not true for Meta, which primarily stumbled on its Q3 guide. The company reported its first decline in revenue in company history and guidance for next quarter missed due to FX headwinds. Analyst expectations for Q3 were for $30.4 billion, or 5% growth. Instead, the company guided for $26 billion to $28.5 billion, or a YoY decline of 6% at the mid-point of the guidance with the current exchange rates creating a 6% headwind.

Alphabet: Search is Resilient

The company reported revenue of 13%, or 16% in constant currency, for a total of $69.7 billion. The operating margin was flat year-over-year, which is a win. Operating expenses grew 24% yet the operating margin was in line with previous quarters at 28% for $19.58 billion in operating income.

The net margin was a bit weaker than previous quarters in 2021 at $16 billion yet in line with last quarter. The company has free cash flow of $12.6 billion. The company has $125 billion in cash and marketable securities. The company reported EPS of $1.21 compared to $1.36 for the same period last year.

Search was stable given the current environment at 13.5% growth to $40 billion and this provided relief that not all ad spend has been paused. Search was strong last quarter at 24% growth to $40 billion, and was flat sequentially in terms of total dollar amount.

The effects of Google’s large R&D department and advances in AI cannot be overstated when it comes to the resiliency of Search in the current environment. We are getting a very slight glimpse of what’s to come for Google in terms of its advertising dominance.

The expectations were that YouTube would weigh on the report yet YouTube provided a bit of growth at 5% year-over-year. The company was adamant that YouTube growth is low because of the tough comps. The tough comps was touched on many times, such as this: “the modest year-on-year growth rate primarily reflects lapping the uniquely strong performance in the second quarter of 2021.”

Notably, Google Cloud slowed to 35.6% growth down from 43.8% growth last quarter. This means Google Cloud is growing slower than Azure on a lower revenue base. This is something to monitor in the future.

Microsoft: Double-Digit Guide for FY2023

Many tech companies are declining to give guidance while Microsoft’s management provided strong guidance in both Q1 FY2023 and for FY2023. For Q1 FY2023, management provided a 10% guide across product lines for next quarter (this includes FX headwinds) and also provided guidance for fiscal year 2023 ending in June: “We continue to expect double-digit revenue and operating income growth in both constant currency and U.S. dollars. Revenue growth will be driven by continued momentum in our commercial business and a focus on share gains across our portfolio.”

Revenue grew by 12% YoY to $51.9 billion (missed Wall Street analysts’ estimates by 0.94%) and EPS came at $2.23 (missed estimates by 2.9%). The strong US dollar negatively impacted the revenue by $595 million and EPS by $0.04. Microsoft Cloud revenue grew by 28% YoY to $25 billion. The company’s results are good considering the various macro uncertainties, China lockdown, and the strong US dollar. FY2022 revenue grew by 18% YoY to $198.3 billion and net income increased by 19% YoY to $72.7 billion.

The company’s gross income increased 10% YoY to $35.4 billion. The gross margin decreased by 147 bps to 68.2% when compared to the same period last year. Excluding the impact from the change in the accounting estimate, the gross margin was relatively unchanged.

The operating income increased by 8% YoY to $20.5 billion. The operating margin decreased by 187 bps to 39.5%. Excluding the impact from the change in the accounting estimate and FX, the operating margin would be relatively unchanged.

The company’s cash flows continued to be strong in the recent quarter. Cash from operations grew by 8% YoY to $24.6 billion (47% of revenue) and free cash flow increased by 9% YoY to $17.8 billion (34% of revenue). The company has cash and investments of $104.8 billion and debt of $49.8 billion.

Despite weakness in PCs, the company’s other segments continue to grow. Intelligent Cloud grew 20% YoY to $20.9 billion and Productivity and Business Processes segment grew 13% YoY to $16.6 billion. The company also made an accounting change in the useful life for server and network equipment assets from four to six years which will extend the depreciation expenses for the company.

Amy Hood said in the earnings call, “First, effective at the start of FY ’23, we are extending the depreciable useful life for server and network equipment assets in our cloud infrastructure from 4 to 6 years, which will apply to the asset balances on our balance sheet as of June 30, 2022, as well as future asset purchases.

As a result, based on the outstanding balances as of June 30, we expect fiscal year ’23 operating income to be favorably impacted by approximately $3.7 billion for the full fiscal year and approximately $1.1 billion in the first quarter.”

Meta: Misses Q3 Expectations

The market does not need a perfect quarter for Q2 given the numerous headwinds facing tech companies. What the market does need is a sign that a company may have bottomed and is able to guide growth (even if minimal) from Q2-Q3.

In Q2, Meta’s revenue declined for the first time in history. This was expected. However, what was not expected was the lower guide for the next quarter. The company guided for $26 billion to $28.5 billion, or a YoY decline of 6% at the mid-point of the guidance. The guidance takes into consideration the weak advertising demand the company experienced in the recent quarter and also the foreign exchange headwinds of 6%. The investors were expecting a return of growth in the next quarter.

The company had a slight beat on DAUs at 1.97 billion versus 1.96 billion expected. Monthly users were 2.93 billion slightly missed expectations of 2.94 billion. Operating expenses rose 22% YoY to $20.4 billion. This led to the drop in the operating margin to 29% in the recent quarter compared to 43% in the same period last year. It also led to the 36% YoY drop in the net income to $6.69 billion. The EPS came at $2.46 compared to $3.61 in Q2 2021.

The company is looking to further reduce the operating expenses for the year to $85 billion to $88 billion from the last quarter guidance of $87 billion to $92 million and the prior estimate of $90 billion to $95 billion.

Apple: Strong results despite challenges

Apple released strong results despite the challenging macro environment, strong US dollar, and supply chain issues. Revenue grew by 1.9% YoY to $83 billion, which was in-line with the analysts’ estimates. It reported EPS of $1.20, which beat estimates by $0.04 (4% beat).

The product segment revenue declined marginally by 0.9% YoY to $63.4 billion and the services segment revenue grew by 12% YoY to $19.6 billion. The company’s installed base of active devices reached an all-time high. It had more than 860 million of paid subscriptions, up 160 million in the past year.

The company did not give exact revenue guidance for the next quarter. Tim Cook, CEO of the company, said in the earnings call, “We’re going to accelerate revenues in the September quarter as compared to the June quarter and will decelerate on the Services side.”

The company’s gross margin was 43.26%, compared to 43.75% in the previous quarter and 43.29% in the same period last year. It was above the management’s guidance of 42% to 43%. Net income was $19.4 billion or $1.20 per share compared to $21.7 billion or $1.30 per share in the same period last year. It beat the analysts’ EPS estimates by $0.04.

The company had cash and marketable securities of $179 billion and a debt of $120 billion. The company reported strong operating cash flows of $23 billion (28% of revenue). The company returned over $28 billion to the shareholders in the recent quarter in the form of dividends and share repurchases.

Royston Roche, Equity Analyst at the I/O Fund, contributed to this article.

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own Alphabet and Microsoft at the time of writing.

Beth Kindig is the CEO and Lead Tech Analyst for the I/O Fund with cumulative audited results of 141%, beating Ark and other leading active tech funds over four audit periods

Source: Big Tech Earnings: Microsoft And Alphabet Signal Q2 Could Be A Bottom

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Is This Stock A Better Pick Over Schlumberger?

The shares of Baker Hughes (NASDAQ: BKR) currently trade 50% above pre-Covid levels observed in January 2020 while the shares of its competitor Schlumberger (NYSE: SLB) are up by just 3%. Does that make SLB stock a better pick over BKR? Both companies provide oil field services including drilling & completion and production solutions to upstream oil & gas companies in the U.S. and abroad. Due to lower benchmark price expectations in the long term, SLB and BKR incurred sizable impairment charges in 2020.

However, the recent uptick in the oil benchmark due to strong demand, supply constraints by the OPEC, and economic sanctions on Russia, have increased demand for oil rigs across the world. Given Baker Hughes’s lower financial leverage, comparable topline to Schlumberger, and a low valuation multiple, Trefis believes that the stock is a good pick to realize more gains.

We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis, Baker Hughes vs. Schlumberger: With Return Forecast Of 109%, Baker Hughes Is A Better Bet

1. Revenue Growth

Baker Hughes has observed a lower decline in revenues in recent years as compared to Schlumberger. Baker Hughes revenues observed an annual decline of 4% from $22.8 billion in 2018 to $20.5 billion in 2021, whereas Schlumberger reported an annual decline of 11% from $32.8 billion in 2018 to $22.9 billion in 2021. Top line contraction has largely been due to a decline in rig count figures and capital control measures implemented by upstream companies.

  • Schlumberger’s four operating segments, Digital & Integration, Reservoir Performance, Well Construction, and Production Systems contribute 12%, 28%, 36%, and 24% of total revenues, respectively. The uncertain demand environment had persuaded upstream companies to limit capital expenses in the last two years. However, the surge in benchmark prices due to the Russia-Ukraine war has rekindled demand for oil field services – taking worldwide rig count figures from 1,521 in December 2021 to 1,850 at present. Moreover, the company’s digital solutions business is likely to assist margin expansion in the coming years.
  • Baker Hughes’ four operating segments, Oilfield Services, Oilfield Equipment, Turbomachinery & Process Solutions, and Digital Solutions contribute 47%, 12%, 31%, and 10% of total revenues, respectively. The company’s international operations have been assisting the top line in recent times, which observed a 10% contraction from pre-pandemic levels and contributes 80% of total revenues.
  • After reporting relatively flat revenues for FY2021, Baker Hughes and Schlumberger are expected to observe strong growth in FY2022. (related: How Does Schlumberger Make Money?)

2.Returns (Profits)

As both companies incurred sizable impairment charges leading to 25% contraction of the balance sheet, we compare their cash generation capabilities. In 2021, Schlumberger generated $4.6 billion of operating cash from $22.9 billion in total revenues – implying an operating cash flow margin of 20%. Whereas Baker Hughes reported $20.5 billion in total revenues and $2.3 billion of operating cash flow – resulting in a margin of 11%.

  • Schlumberger’s cash generation capabilities have been stronger than Baker Hughes which has resulted in a sizable difference in the P/S ratio. In 2021, Schlumberger and Baker Hughes’ P/S multiple was 1.5 and 1.2 respectively. Historically, it has been observed that there is a difference of 0.5 units between Schlumberger and Baker Hughes.
  • However, the difference between Schlumberger’s non-cash depreciation charges and capital expenditures was higher than Baker Hughes – affecting the operating cash flow margin figures.
  • Before the pandemic, Schlumberger returned 50% of operating cash to shareholders as dividends and invested 30% in property, plant & equipment as capital expenses.
  • Whereas, Baker Hughes had been investing its operating cash in capital assets.
  • Both companies implemented cash control measures and limited capital expenses as well as dividend payouts due to the pandemic. Given Schlumberger’s higher cash generation capabilities and historical dividend trends, it is a good pick to earn consistent dividend income.

3.Risk

Per annual filings, Schlumberger and Baker Hughes reported $13 billion and $6.7 billion of long-term debt, respectively. While a shrinking asset base due to impairment charges is a drag on shareholder returns, Baker Hughes’ lower financial leverage is a boon during uncertain times.

  • Higher financial leverage coupled with continued revenue growth augments equity returns. However, interest expenses weigh on finances as revenues decline – limiting dividend payouts and capital expenses.
  • Schlumberger’s higher financial leverage compared to Baker Hughes, despite similar revenues and a comparable balance sheet size, makes SLB stock a riskier bet.
  • In 2021, Schlumberger and Baker Hughes’ total assets were $41 billion and $35 billion, respectively.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Led by MIT engineers and Wall Street analysts, Trefis (through its dashboards platform dashboards.trefis.com) helps you understand how a company’s products.

Source: Is This Stock A Better Pick Over Schlumberger?

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Critics:

U.S. oil field services company Baker Hughes said Saturday that it was suspending new investments for its Russia operations, a day after similar moves were announced by rivals Halliburton Co. and Schlumberger.

The steps from the Houston, Texas-based businesses come as they respond to U.S. sanctions over Russia’s invasion of Ukraine. In its statement, Baker Hughes, which also has headquarters in London, said the company is complying with applicable laws and sanctions as it fulfills current contractual obligations. It said the announcement follows an internal decision made with its board and shared with its top leadership team.

“The crisis in Ukraine is of grave concern, and we strongly support a diplomatic solution,” said Lorenzo Simonelli, chairman and CEO of Baker Hughes. Halliburton announced Friday that it suspended future business in Russia. Halliburton said it halted all shipments of specific sanctioned parts and products to Russia several weeks ago and that it will prioritize safety and reliability as it winds down its remaining operations in the country.

Schlumberger said that it had suspended investment and technology deployment to its Russia operations. “Safety and security are at the core of who we are as a company, and we urge a cessation of the conflict and a restoration of safety and security in the region,” Schlumberger CEO Olivier Le Peuch said in a statement.

Oil companies ExxonMobil, Shell, and BP, along with some major tech companies like Dell and Facebook, were among the first to announce their withdrawal or suspension of operations. Many others, including McDonald’s, Starbucks and Estee Lauder, followed. Roughly 30 companies remain.

Ukrainian President Volodymyr Zelenskyy on Wednesday asked Congress to press U.S. businesses still operating in Russia to leave, saying the Russian market is “flooded with our blood.”

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 Seven Predictions To Help Insurers Thrive In 2022

As 2021 thankfully recedes from view, 2022 will present insurers with a host of profound changes that we believe will significantly alter the carrier landscape this year and beyond. These changes will be driven by serious pandemic-related challenges, climate change threats, continuing margin pressures and unrelenting incursions from industry outsiders.

Gleaned from conversations with clients, prospects and partners, here’s what insurers need to look out for and respond to in the coming year:

1. Corporate board-level activism will drive strategic planning and operating model change. 

Insurer C-suites have generally had broad latitude in setting their corporate strategies. Now, though, factors that were once an afterthought — climate change, the circular economy, social equity, the connected world — are now front and center.

Under pressure from their boards, most insurers now include environmental, social and governance (ESG) components in their strategic plans and portfolio strategies. Pressure will intensify in 2022, which will impact investment returns, employee hiring and retention, ecosystems and partnerships, and the ability to expand into new geographies.

Recently, the technology head at a large P&C insurer with whom we work began assessing a comprehensive data platform to gain a better understanding of the company’s carbon footprint, climate-related risks, third-party supplier risks and sustainability goals. Companies that respond thoughtfully to ESG concerns will gain significant competitive advantage, including increased customer loyalty, better brand reputation and greater compliance, over those that do not.

2. Heightened M&A activity and private equity infusion will alter the insurance pecking order. 

Armed with trillions of dollars, private equity (PE) firms are snapping up insurance books of business; meanwhile, PE and venture capital (VC) firms are lavishing insurtechs with investment dollars. Concurrently, insurance companies are actively incorporating digital capabilities from insurtechs and startups.

With more acquisitions announced every quarter since the pandemic began (PE insurance sector investments hit $19.28 billion through August 2021, according to S&P Global), we continue to see a shift in the makeup of the insurer landscape. Recent examples include Blackstone acquiring Allstate’s Life insurance business, Apollo’s merger with Athene holdings and Carlyle’s investments in Vantage Risk.

It’s easy to imagine capital, underwriting expertise and customer experience capabilities from non-traditional sources applied to underwrite new risks across industries. This year may be the industry inflection point for unleashing a significant challenge to the mega-insurer establishment.

3. New business domains will further blur the lines between insurance and other industries. 

The pandemic spurred insurers to rethink their core capabilities and increase their relevance by divesting non-core businesses or splitting conglomerates into new entities to create more shareholder value. Recently, AIG split off its life and retirement segment into a standalone entity via an IPO to simplify its business structure, while Principal Financial exited the retail market, placing $25 billion in reserves.

With the ever-increasing need to align business models with how customers engage with products and services, we expect to see new business domains emerge that overlap with and integrate services from several traditional industries. MIT’s analysis of the home domain shows this happening among participants from insurance, financial services, consumer goods and other industries.

For example, Tesla already offers embedded insurance based on driving data, and Amazon recently launched product liability insurance for its sellers through its Insurance Accelerator.

We’re also continuing to see the employer/employee as a new domain around which insurers can build customer-centric business models that include ecosystem partners and attract the attention of PE money to forge unlikely partnerships. 2022 may be the year when this phenomenon gives rise to more embedded insurance products.

4. Employee wellness will continue spurring innovation and development of new group products. 

Wellness products are all the rage, and for good reason. Amid the seemingly endless pandemic, anything that promotes physical, emotional and financial health is a win for all involved.

By proactively engaging with employees to improve their overall wellness and emotional health, insurers can decrease risk for many insurance products, while employers benefit from having more productive and engaged staff. Look for more consumers to seek voluntary wellness options in their insurance products in 2022 — particularly those sold in a direct-to-consumer (D2C) mode via a digital-first model.

Employers will increasingly offer remote benefit programs like fitness classes, telehealth, financial literacy, mindfulness coaching and caregiver help. Such products are a low-cost way to boost employee retention and create a better employee experience.

5. More insurers will experiment with low-/no-code solutions. 

2021 was the year low-/no-code platforms gained notoriety, offering more power to non-technical people to automate processes, develop new applications and build new customer experiences. Although the jury is still out on the promise of these platforms, core insurance systems and enterprise software providers don’t want to be left behind.

Microsoft and ServiceNow are good examples of enterprise platforms that offer low-/no-code capabilities to orchestrate processes. Insurance systems like Vitech, Guidewire, EIS and Duck Creek now offer design tools to create scripts that deliver new functionality faster. Insurance carriers are working to modernize their IT operating models, talent and partner ecosystems to make the best use of low-/no-code technologies offered by software vendors to expedite solution delivery.

6. Digital purchasing experience comes of age. 

The decades-long crawl toward increasingly complex online sales capabilities has now shifted into high gear in the insurance space, with the explosion of third-party data, embedded insurance products (see #3) and more precise systems of engagement. No matter what domain they’re purchasing from, consumers expect online purchases to be convenient, speedy and wrapped into a full-service experience.

Insurers are adapting their processes and unique data assets to meet the challenge. Most insurers are placing “digital-first” bets to create seamless purchase experiences, increase loyalty and engagement, and drive behaviors that improve risk profiles.

Working with a digitally-born business, a large supplemental carrier with whom we work is seeking to offer a one-stop-shopping consumer experience by integrating its new product, distribution and servicing capabilities and expanding its base products with complimentary coverage for richer cross-selling opportunities. It’s also introducing white- and co-labeling of products with partner companies’ distribution channels.

Another specialty insurer that we serve is partnering with marketing and tech organizations to create a roadmap for content management, customer relationship management and marketing automation ecosystems through the lens of experience enablement for new D2C audiences and internal (broker and carrier) stakeholders.

While indirect sales channels won’t go away, insurers and intermediaries must improvise and adapt to the digital environment and create unique products and solutions that predict and address customers’ needs. The emergence of better tools (think AI and analytics, for example) will help. But a commercial FOMO (“fear of missing out”) brings real urgency to this shift.

7. Greater use of AI will result in changes to permissible data and a heightened role for regulating authorities. 

Reliance on traditional credit and demographic data is increasingly under scrutiny by regulators, resulting in wholesale changes and limitations on how policies are priced, purchased and serviced. New data sources, as well as AI- and machine learning-driven analytics will increasingly be used to address the vacuum created across product development, distribution, underwriting, pricing, servicing and claims. Such variables will draw more scrutiny from regulators.

Insurers will encounter protracted regulatory reviews based on their use of new data sources (GPS data, health and safety data, consumer demographics, etc.) and AI-driven predictive models and analytics. The need to test models for the irresponsible use of advanced AI technologies could complicate future regulatory filings and rate changes.

Furthermore, regulators may require insurers to publish publicly available model bias impact statements to establish transparency. To differentiate themselves, leading insurers will invest in establishing a foundation for dealing with third-party data, new rating systems and analytical capabilities while also creating streamlined filing processes. Carriers that drop bias-creating variables in favor of those that truly impact risk will minimally benefit from better underwriting results. As ESG and disclosure requirements evolve, compliant carriers will gain a distinct competitive edge.

Creating tomorrow’s advantage, today

Insurers’ success in 2022 will pivot around how well they predict customer needs, navigate uncertainty and deliver value — concurrently. Winning carriers will be those that are agile, build skills and capabilities that increase their relevance, accelerate collaboration with ecosystem partners and emphasize data-driven products.

By doing so, insurers can step boldly into the future, well-equipped to anticipate change and deliver seamless customer experiences.

Mahesh Natarajan is Head of Strategy, Insurance Solutions Group and Ventures, at Cognizant. A 20-year veteran at Cognizant, he is an experienced business leader with a demonstrated history of enabling client success, scaling businesses and simplifying complex problems. Mahesh has proven experience advising clients on strategic business initiatives such as digital transformation, operational excellence, managed technology services, organizational change management, Lean ADM and technology transformation. He is passionate about continuous learning, empowering teams and STEM education. Mahesh has a Bachelor of Computer Science and engineering from University of Madras. He can be reached at Mahesh.Natarajan2@cognizant.com.

Source: Cognizant BrandVoice: Seven Predictions To Help Insurers Thrive In 2022

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More contents:

The Documentary History of Insurance, 1000 B.C.–1875 A.D. Newark, NJ: Prudential Press. 1915. pp. 6–7. Retrieved 15 June 2021.

Insurance” . In Chisholm, Hugh (ed.). Encyclopædia Britannica. Vol. 14 (11th ed.). Cambridge University Press. pp. 657–658.

Lloyd, Edward (c.1648–1713)”. Oxford Dictionary of National Biography. Vol. 1 (online ed.). Oxford University Press. doi:10.1093/ref:odnb/16829. Archived from the original on 15 July 2011. Retrieved 16 February 2011. (Subscription or UK public library membership required.)

Today and History:The History of Equitable Life”. 26 June 2009. Retrieved 16 August 2009.

“Encarta: Health Insurance”. Archived from the original on 17 July 2009.

The Cabinet Papers 1915-1982: National Health Insurance Act 1911. The National Archives, 2013. Retrieved 30 June 2013.

To Insure or Not to Insure?: An Insurance Puzzle. The Geneva Papers on Risk and Insurance Theory.

Irish Brokers Association. Insurance Principles Archived 11 April 2009 at the Wayback Machine.

Losses From Malware May Not Be Covered Due To Your Policy’s Hostile Acts Exclusion”. The National Law Review. Retrieved 25 April 2019.

Insurers waive terrorism exclusions for Christchurch shooting victims”. Stuff. Retrieved 25 April 2019.

Insurance Economics. Springer Science & Business Media. pp. 268–. ISBN 978-3-642-20547-7.

Insurance Regulation in the United States: Regulatory Federalism and the National Association of Insurance Commissioners”. Archived 11 May 2011 at the Wayback Machine. Florida State University Law Review.

A Study on State Authority: Making a Case for Proper Insurance Oversight”. Archived 10 May 2011 at the Wayback Machine.

The Impact of the European Union Insurance Directives on Insurance Company Stocks”. The Journal of Risk and Insurance.

FSA takes on insurance regulation”. The Guardian.

The impact of changing regulation on the insurance industry”. Financial Services Authority.

Reforming UK insurance contract law”. Lloyd’s. 30 August 2012. Archived from the original on 14 January 2013.

Insurance Law of the People’s Republic of China – 1995″. Lehman, Lee & Xu.

The role and powers of the Chinese insurance regulatory commission in the administration of insurance law in China”. Archived 11 May 2011 at the Wayback Machine. Geneva Papers on Risk and Insurance.

Insurers’ websites receive first marks | Банк России”. http://www.cbr.ru. Retrieved 21 May 2018.

Senior broker on the importance of reducing clients’ risk exposure”. http://www.insurancebusinessmag.com. Retrieved 5 November 2020.

Insurance as maladaptation: Resilience and the ‘business as usual’ paradox” (PDF). Environment and Planning C: Government and Policy. 34 (6): 1175–1193. doi:10.1177/0263774X15602022. ISSN 0263-774X. S2CID 155016786.

Consumer Motivation for Purchasing Low-Deductible Insurance. In Marketing and Public Policy Conference Proceedings, Vol. 4, D. J. Ringold (ed.), Chicago, IL: American Marketing Association, 147–155.

Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance

Beyond The Blockchain Hype: Two Ways The Game-Changing Technology Is Being Applied Now

When looking for technologies that are secure and remove a middleman/broker from the execution of your business plan, thus reducing the cost to your customers or decrease in your margin, distributed ledger technology (DLT) could be an option.

Blockchain is just one in an array of tools in the technical class of DLT. DLT is the roll-up technology class; it’s on a peer-to-peer (P2P) network using a consensus protocol among all the peers partaking in the DLT, eliminating the need for a clearinghouse involvement. Each peer or endpoint is called a node on a public database called the chain.

The chain itself is validated by the P2P network nodes, but the detailed data is securely stored in the block. First, there is a block of origin, and then each block is recorded as a transaction level, and the computers on the peer-to-peer network work as one. The blocks are validated by a wider community rather than a central authority. This makes it more secure and less costly in the long term.

Many have no idea when to apply DLT technologies — and to be fair, there are still very few market applications that exist outside of the crypto exchange use cases. That said, DLTs can become game-changers, as they provide a transaction-based, validated, decentralized, single-distributed ledger as well as smart contracts and crypto-assets, including currencies in certain competitive niches once they have been identified like NFTs.

They could also create a transformative effect that enables new ways of doing business that have not emerged to date. Do not underestimate the cost savings of eliminating or preventing the need for a middleman in many business models. It could help to make sense of ways of doing business that never made sense in the past.Below are two examples from my experience.

Counterfeit drugs are a complex issue in healthcare. The supply chain in pharma is negatively affected by counterfeit activities, as it leads to manipulated and artificially inflated or deflated prices. The current siloed supply chain has no way to keep counterfeit drugs out of the supply.

While there are fewer counterfeit drugs in the supply chain in the U.S. than elsewhere, having no way to monitor origins of supply can lead to unregulated and inconsistent drugs (which could be dangerous to patients) as well as losses for companies that follow regulatory guidelines and legal drug supply to the healthcare sector.

A peer-to-peer protocol like DLT technologies/blockchain could help provide a cryptographically secure, distributed private ledger that tracks each supplied drug within the supply chain through traceable and verifiable smart contracts at a discrete transactional level. To put it simply, theft, entry of counterfeit drugs and drugs that are being sold after their expiration date would be traceable.

Also, the movement of drugs and supplies to other countries post-expiration date for philanthropic purposes could be more easily traced to their next destination, and the exact use or recipient could be documented. If you can trace the origin block and the nodes within, the DLT peer-to-peer network can validate the transactions, which would allow for tighter control on what is entering the pharmaceutical drug supply.

Supply Chain

Ever wonder where your food came from and how fresh it is — especially those prepackaged lifesaving boxes of ingredients that many of us have been ordering to increase the variety of our kitchen skills and culinary repertoire?

With all of the transformative effects of the recent pandemic and digital purchasing of foods from remote locations through national delivery services straight to the consumer’s home, having the assurance of the origin of the foods, their transport length and chain-of-custody proof would give us all the confidence in who supplied and distributed them and how it was done.

It could also prevent the ingesting of something hazardous or unsafe due to delays from farm to table. We have all heard stories of farmers and agricultural businesses struggling to turn a profit. By leveraging a peer-to-peer network like in blockchain, it could prevent data manipulation, ensuring an increase in food and agricultural supply chain trust.

During the height of Covid-19, before the variants began to emerge, I participated in think-tank activities associated with Operation Warp Speed — the mechanism in which the development of vaccines was funded and distributed through partnerships between biomedical companies and numerous agencies within the federal government.

Many interesting conversations on vaccination transport weaknesses and supply chain vulnerabilities were had. These conversations shed a light on ineffective transport practices.

Through this experience, I believe blockchain could be leveraged to connect serial data points from the point of origin (e.g., organic certifications, chemicals used with barcodes, batch identifying information, and when and who the supply was released to for transport).

In transport, Bluetooth thermostats for drug and food temperatures as well as livestock monitoring for the humane treatment of the animals being transported could contribute to checkpoints in the blockchain of things like farm to table.

You can begin to imagine all of the transformative things that could be done with blockchain, as the immutable (unmodifiable, undeniable, peer-to-peer secure) data about what we are purchasing and the companies we support could help reduce waste and cruelty as well as the costs that are built into our supply development and distribution.

Encouraging technology for the sake of technology is never advised. However, any business model reliant on intermediaries that require handoffs in the production-to-consumer chain they do not control or that need secure and reliable data across an ecosystem that is not under the organization’s direct control would benefit from this technology.

Follow me on Twitter or LinkedIn. Check out my website.

Shawna is an IT Services executive, leveraging her medical background, leading the healthcare and biomedical vertical for SenecaGlobal. Read Shawna Koch

Source: Beyond The Blockchain Hype: Two Ways The Game-Changing Technology Is Being Applied Now

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