Innovating in the Risk Management World

April 17, 2024

Financial risk can emerge suddenly and in many forms for businesses, whether it be economic, geopolitical, or environmental risk. And while experienced operators know that doing business is never risk-free, being able to understand and manage current and potential risks can present huge advantages for leaders who want to make decisions with confidence.

Managing risk adeptly can have an outsized impact on business outcomes. In the financial services and insurance industries, catching or missing a critical piece of information during the due diligence process can result in significant material gains or losses. For other types of companies, deciding to explore a business opportunity with new suppliers or customers requires an understanding of supply chain risk or credit risk.

Volaris-owned company Company Watch is entrenched in the world of risk management and continually striving to stay on top of the latest technological developments that can serve customers. Like many Volaris businesses who are experts in their vertical markets, Company Watch’s customers value their domain expertise. Since 1998, Company Watch has been able to predict almost 90% of UK public insolvencies in advance. The company became part of Volaris Group in March 2022 and has maintained its market-leading position while keeping up with innovation in a constantly changing digital landscape.

Volaris-owned Company Watch is an award-winning provider of financial analytics. (Photo credit: CICM British Credit Awards)

The company’s goal is to help clients predict financial risk before they become financial losses. The Data as a Service (DaaS) software provider maintains a database of five million businesses in the UK—essentially the entire corporate database of the UK market. Within that database, Company Watch provides due diligence and financial risk assessment on behalf of customers.

Craig Evans became CEO of Company Watch in November 2022, shortly after the previous owners sold it to Volaris and the previous CEO decided to move on to a new venture. He arrived to the job with deep experience in the field, having previously been the managing director of a competitor in the same industry.

Acquired Knowledge magazine sat down with Evans to discuss the company’s application of machine learning and how his team maintains an innovative edge.

What does it mean for your product to be mission-critical in the current economic environment?

It's a good time for people to be using our product. With talk about recession and issues around inflation, managing risk is a big issue right now in all global markets, not just the UK.
We're front and center for a lot of organizations, such as when they're doing due diligence on their existing customers and suppliers.

Machine learning is integrated into Company Watch’s software product. How does it become part of a useful tool for customers?

We’ve been using machine learning to help enhance our product since 2017. In the UK, company filings for financial records contain a mixture of financials and text—describing the business is performing, what challenges it's facing, and how the owners see the future.

Typically, verbal commentary makes up about two-thirds of the information. The other one-third of the information consists of the financials—the profit and loss statement and the balance sheet. The profit and loss and the balance sheet data get keyed in, and the data goes through an algorithm.

Company Watch’s financial analytics software. (Image credit: Company Watch website)

We observed that no players in our industry had used machine learning or AI to look at the text. So Company Watch built a machine learning algorithm to create a sentiment analysis—a score to represent the positive, negative, and neutral trends within the text.

The machine learning program analyzes all text within financial documents and then constructs a graph of all the keywords that it sees as positive and negative. It then ranks them and assesses them in terms of the overall assessment of a score based out of 100.

Nobody else is using machine learning to conduct sentiment analysis in our market right now, and it's one of our unique selling points.

-Craig Evans, CEO, Company Watch

What are some examples of how customers are using this technology?

Customers are now able to search quickly for different text phrases within a huge number of business records that contain a lot of text.

For example, if I enter the term “tax disputes” into the machine learning algorithm, it will list all the companies that have that phrase within their financial accounts. If you're a tax investigator or in a similar line of work, it has immense research capability for your work. It's doing all the work very quickly and very accurately.

Another example since the Russia-Ukraine war started is that customers have been entering “Russia” and “Ukraine” into the database search to understand whether any businesses might be affected by the conflict.

You mentioned tax investigators as one category of clients who might use your software. What are some other use cases for clients?

Company Watch has a large portfolio of clients in financial services. Financial underwriters who work with financial lenders can use our product to assess underwriting risk.

Our product can be used for examining “covenant breaches” of loans, or a customer might search the word “fraud” to see whether anybody has had any issues with fraud. It can even check whether the company is involved in any other types of lending or financing, such as invoice discounting or factoring.

Also, the insurance market will use it when it's underwriting risk. As part of their risk due diligence, they'll look to see whether there's any mention within the commentary around the business moving “hazardous waste”, for example. A customer might want to know: Does it appear in their accounts? And has the company disclosed that it's involved in moving hazardous waste?

As a business leader, how do you ensure that your company remains innovative and competitive in the market?

For me, innovation is about constant change and challenging yourself to be the best that you can be. It can mean exploring ways of doing things very differently.

We’re one of the smaller players in the market. Larger companies can take a long time to move and change direction because of their size. For us, Company Watch is about agility. Innovation is key to that because it means that we can be forward-thinking, we can move very quickly, and we can set the trends in the market that others then follow.

Right now, with inflation, the wars in the Middle East and Ukraine, coming out of COVID-19, and even climate risk, there's a lot of change happening in the way our customers operate their businesses. We are constantly challenging ourselves to be innovative around emerging changes and being open to changing the way we do things. We're putting a huge amount of effort into innovation.

We want to continually ask ourselves, ‘How can we make our products better to suit the challenges and the issues our customers are having in their industries?’

-Craig Evans, CEO, Company Watch

What systems do you have in place to make sure your team is continually working on innovation?

After joining Volaris, we began holding a monthly innovation lab where we block out an entire morning to talk through new ideas and create innovation canvases. That gives us a set time when we take a break from the day-to-day to look at developing new products and ideas.

However, employees don't need to wait until that meeting for the opportunity to contribute. They can submit ideas to the innovation lab center at any time, and we make sure they get discussed.

Our innovation lab considers ideas that come internally from employees and externally from customers. Customer input is key, and so is understanding what our customers are looking for from our product.

2024 is the second consecutive year that Company Watch has won an industry award—the Risk Management Award at the British Credit Awards, hosted by the Chartered Institute of Credit Management (CICM). What does this honor mean to you?

We are one of the smaller players in the market, and we compete against some real powerhouses. Being recognized for what we do gives the team a lot of confidence and motivates them to continue pushing the boundaries. I was super proud of the team for winning such a prestigious award.

Coming back to the topic of innovation—the pitch that we made for the award was around a new product launch. To win the award means that we push on to challenge ourselves to create new products and new ideas that are groundbreaking in the market.

I like the position where we sit in the market to know our customers well, stay close to them, and be agile enough to adapt to their needs. It's a good place to be.