Think of it as a tool that could deliver found money. And not just a couple of bills in the pocket of your jeans, but “potentially billions,” according to analytics start-up WePredict.
WePredict is aiming to free up this much money in auto industry warranty reserves through a unique analytics solution providing manufacturers and suppliers the opportunity to stabilize and mitigate risks they have in their warranty reserves today. The company recently completed a new funding round led by Munich Re / HSB Ventures. Existing investors Breed Reply and the Development Bank of Wales provided additional funding.
According to WePredict, most U.S. auto manufacturing companies will accrue between 1 percent and 3 percent of revenue to cover warranty costs. Industry analysis has shown that companies are more likely to over accrue to avoid “nasty” shocks in the future.
Using traditional methods, WePredict insisted it can take years to effectively determine reserve adequacy, resulting in inefficient use of funds and missed business opportunities. This is particularly problematic in a time when the auto industry is looking for ways to fund autonomous and other future mobility innovations.
Due to its work with automotive, agriculture and construction equipment and their respective supply chains, WePredict has developed an accurate, consistent way to use initial repair and telematics data to determine long-term product reliability, and as a result, warranty claims. This will allow companies to better understand and estimate their warranty reserves.
Munich Re will now develop an insurance solution that will back WePredict’s calculation. The insurance solution will provide an appropriate level of certainty to adjustments in warranty reserves, and this joint value proposition will bring greater balance sheet efficiency to clients by allowing for the reallocation of funds to working capital.
“Every company has a scary story from the last 10 years where they under accrued, hence they are likely to be more conservative in reserve setting than they might need to be. This is a perfect place for insurance to help reduce risk, reduce accruals and free up capital for the business,” WePredict founder and chief executive officer James Davies said.
The initial WePredict product launch targets the automotive industry. However, the company thinks the methodology applies to other industries as well.
Renee Stephens, WePredict’s North American vice president who previously spent time at J.D. Power and General Motors, believes there is an enormous opportunity.
“These are unprecedented circumstances. Manufacturers are looking for innovative solutions to what are many times long-running business problems as they work to rapidly fund changing technology. Companies are looking to unlock the value they have, but in a responsible way,” Stephens said.
Jeffrey Sirr, Head of Munich Re’s Corporate Insurance Partner North America division, added, “We are forming strategic relationships with promising new start-ups like WePredict in conjunction with our insurance activities. This allows us to build out our own capabilities for innovative products and services, and to provide new insights and offerings to our clients that enable their business models and enhance their business opportunities.”
The opportunities to expand more broadly across the manufacturing spectrum appear equally promising, according to Davies.
“We are constantly looking for new ways to enable our customers to benefit from the accuracy of our product failure predictions,” he said. “We see vast possibilities to expand these applications. With the help of Munich Re we are taking this a step further and allowing automotive original equipment manufacturers (OEMs) to free up a portion of their balance sheet to use more productively in their business.”