Recently, the Briq team was lucky enough to sit down with Dave Pesce, AVP of Business Development at The Hartford. We chatted about the difference between surety and insurance, critical financial KPIs, how tech can solve financial challenges, and more!
Let’s dig in.
Dave, thank you for joining us. Please give us a little bit of background on yourself and your role at Hartford.
“Well, I've been in the surety industry for almost 35 years, all on the company side and underwriting, and then upwards through senior management roles. Prior to the merger with The Hartford, I was heading up the surety department at Navigators Insurance Company. Navigators was purchased by The Hartford about two years ago, and I am now running business development and strategy for Hartford Bond, one of the largest and oldest bonding companies in the United States.”
“So for me, a lot of my responsibilities are managing the forward strategy for the company, looking at new territories, looking at new market niches, and bettering how we run our operations.”
Surety and insurance are both equally important in construction. But can you go into the difference between the two?
“Insurance is really a two party contract. It's between the insured and the insurer and provides coverage for certain perils, whatever the policy may be, whether it's general liability or bodily injury, property damage, anything like that.”
“The surety side is quite a bit different because it's a three-party contract. You basically have a contractor doing a project for an owner - those are the first two parties. The owner in surety terms is known as the obligee, and the owner wants a guarantee that the contractor is going to complete the project. They want some type of insurance-which is known as a surety bond. The Bonding company or “surety” becomes the third party. The surety guarantees on the back end that the contractor will perform all the obligations of the contract. Unlike insurance, if a surety bond has to cover a contractor loss, they will subrogate- or recover the loss - from the contractor. That’s why a contractor’s financial stability is so important to our surety team.”
Financial stability is much more important to surety than it is to insurance and there are certain financial KPIs that are critical. What are those?
“A lot of what we look at is liquidity and equity and certain ratios within those two things. So from a liquidity standpoint, we look at working capital- really the cash and receivables and liquid assets- less the short term liabilities. And we look at ratios, the current ratio, which would be current assets to current liabilities. Same with equity, we will look at the equity of a company and compare the equity to the total bonding program that contractors are looking for. But more importantly, these days, we look at the trends within working capital and equity.”
“Those two things on a financial statement are a snapshot in time. And more often than not you're getting them after that date and time. As an example, you're not going to get December 31st CPA prepared financial statements until, say, late March to late May, so that data is already old. So you're looking at the trends; is working capital increasing? Is working capital decreasing? Is the ratio increasing or decreasing over periods of time? This is a better indicator of the management of the company and their ability to monitor those ratios that are important, and react when things are going poorly.”
You mentioned receiving reports or statements long after the fact. What are some of the challenges that you see for CFMs in producing timely and accurate financial reporting?
“Well, it's interesting. A lot of the challenges are pretty consistent, and a lot of that is the accuracy. It's the internal capabilities that the construction company has (or doesn’t) to get information to their CPA firms, or whoever's doing their outside financial reviews, and then being able to get it in a timely manner.”
“It's difficult because too many people think of the construction industry in the context of the largest companies that are out there- who are significantly sophisticated. But when you step back and look at the industry as a whole, the vast majority of the construction industry is run by companies that are about 50 million in revenue and under. And a lot of those companies right now don't have the financial capabilities that they should to properly run the business. So that creates a huge challenge for the outside firms to come in and take a look at their financials.”
There are certainly still a lot of financial challenges being faced. Do you think tech can help solve these challenges?
“Oh, absolutely, absolutely! The construction technology and financial realm has improved dramatically in the last 10 to 15 years. It's gone from something like QuickBooks (which is not perfectly geared to the construction industry) to numerous other construction financial software packages that are available and geared specifically for construction.”
“The biggest thing that I've seen in the trends over that timeframe is the integration of all the various modules. Back in the day, you did estimates on spreadsheets, you did job costs somewhere else, and did the financials in another module, and none of them would talk to each other! Now these packages can be fully integrated and it makes it that much easier, not just for the contractors themselves, but also for them to be able to get that information timely and accurately to third parties.”
We obviously think tech is crucial over here. And finally, switching it up a little, you’re on the board of trustees for the ICCIFP which was recently merged with CFMA. They’re responsible for the CCIFP designation. Why is that so important for financial professionals?
“Well, the CCIFP designation is really the only standard designation for a construction industry financial professional. It goes into a number of areas and bodies of knowledge that most CFOs are responsible for beyond just finance. It does go into the job costing and it goes into human resources and risk management, tax, IT. And it provides financial professionals not just that body of knowledge, but in order to maintain it like any other designation, you're getting constant continuing education.”
“The continuing education, I have found as a CCIFP, has been the leading edge in what's coming and what's out there, especially when you talk about technology. There's a ton of continuing education every year on what's changing in technology in the construction industry. Everything from the software that's available, other modules that are available, to the use of drones, and smartphone technology, and everything else in the industry. And really that to me is the distinct advantage. The CCIFP is ahead of the game by having that requirement for continuing education.”
The Briq Team would like to thank Dave Pesce for joining us. Briq is a corporate performance management platform built specifically for construction financial professionals.
We join modern technology, with hundreds of years of combined construction experience to give you deep insights into your business.
Briq unifies your financial workflows, making them more efficient, accurate and timely.
By automating workflows, consolidating financial data, and enabling real-time reporting, we allow contractors to make efficient and effective financial decisions.
1 No. 6 surety writer by premium volume. https://www.surety.org/page/StatReports#Qtr
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