The rise of drone usage in the insurance sector
Whilst most of the insurance sector’s attention on the ‘drone revolution’ has focused on the insurance and insurability of drones, the insurers are emerging as major proponent and user of this robotic aviation technology. Over the past two years, there has been a rapid rise in the use of drones to assess and monitor insured risk and in claims adjustment and management.
In this article, we consider the rise of drones in the insurance sector, the regulatory challenges and opportunities in the future.
Catastrophic claim assessment
2017 was the costliest year in history for global insurance claims due to various catastrophic weather events and natural disasters. By the nature of these catastrophes, it is often difficult for property claims adjusters to safely access and effectively assess the damage. This is a critical element in the claims process for insurers to finalise and pay under the policy, particularly if, for example, the UK’s Enterprise Act 2016 applies, which requires payment of claims in a reasonable period of time.
Major global claims adjusting firms such as Charles Taylor Adjusting, Crawford & Company and Cunningham Lindsay have either created their own internal drone capability or formed strategic partnerships with established drone operators to respond to the needs of their insurer clients. In some markets, insurers are starting to demand that adjusters obtain drone pilot certifications.
This new drone capability was utilised to assess the property and infrastructure damage caused by some of the major insurance events of 2017 including hurricanes Irma, Harvey and Maria in the US, the fires in California, Cyclone Debbie in North East Australia, flooding in Japan and the earthquake in Mexico. Most recently, drones have been used in the small Pacific Island nation of Tonga to assess the extensive damage caused by Cyclone Gita.
Risk assessment and monitoring
For property and liability underwriters, obtaining precise information on the condition of the property and a thorough assessment of the risks are being greatly enhanced with the use of drone technology. With the incredible enhancements in the photographic and imaging hardware attached to the drones and software which analyses the images and data collected by the drones, insurers are able to identify inherent risks and compile period data on the insured risk.
For the agricultural sector, drones are being used to obtain information on crop conditions, to validate the area of sown crop and also to verify whether a crop has suffered flood inundation. These factors all contribute to assisting in the reduction of fraudulent claims.
The use of drones in risk assessment will be greatly enhanced with the development of autonomous drone operating systems. Autonomous drones controlled via advancement GPS and path finding algorithms will allow analysis of large and remote areas in a much quicker, cost effective and precise manner.
The use of drones in adjusting mass catastrophes has been greatly assisted with the issuance by aviation regulators of special flight permits which allow drones to fly over populated urban areas, which they may otherwise be prohibited from doing.
In some jurisdictions, particular across the Middle East, obtaining such special permits is neither swift nor cost effective. Aviation regulators have been playing catch-up with the use and operations of drones and there is no common regulatory standard being applied across the developed markets. With the new requirements for drone registration, operators licenses, pilot licenses and safety management systems, it may become more cost effective and risk averse in the future for loss adjusters to sub-contract these services or create standalone and ring-fenced drone operation companies.
To ensure that drones can be deployed quickly following a loss, it is important that insurers and adjusters remain aware of the regulatory hurdles from country to country. Further, in claims response planning, adjusters should work with aviation regulators and investigating authorities to develop agreed protocols for issuing special flight permits in a timely manner.
Drones and the shipping industry
For the shipping industry, both airborne and water drones are being tested by various port authorities around the world to undertake port inspections and assess oil spills. In addition, underwater drones are being developed to undertake hull inspections which significantly reduce the costs and risks of divers or remotely operated underwater vehicles. In Demark, a software start-up has developed a ‘mini-sniffer system’ which can be mounted on drones to measure sulphur and NOx emitted from a ship’s plume.
As these technologies develop, the application to the underwriting of marine risks and facilitation in the adjustment of claims, particularly for hull and port damage, are exponential.
As it becomes the norm to send a machine rather than a human to assess damage, the time, costs and risks of investigation and evaluation of claims should reduce. However, with the increased reliance on this developing technology, insurers and adjusters will need to keep fully updated of the evolving regulations related to drone use across the jurisdictions.
Related item: UK publishes new drones rules
Read other items in the London Market Brief - May 2018