InsurTech

Taking off: How drones are disrupting insurance

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The term disruptive technology is overused, and maybe even used too loosely and too frequently. (These days, I often wonder if a technology discussion is possible without using the term “disruptive.”) So it’s important to clarify precisely what we mean when using the term “disruptive” in regard to technology: disruptive technologies create new markets, new opportunities or change the marketplace in ways that shift how we think, behave, and ultimately displace established business and industry processes.  It is this definition that positions drones as the next big disrupter in the insurance industry.

Gaining altitude

Commercial use of UAVs has become increasingly popular mainly due to their new uses and applications which are creating disruption as they deliver new solutions and provide efficiencies and benefits in ways that we have not seen since the introduction of cell phones or the internet. In this context, we are witnessing an aviation revolution that will impact every industry and drastically change how we do business.

In a world that is driven by data, technology, and insights, drones are capable of capturing and delivering massive amounts of structured and unstructured (video, image, quality of air, etc.) data in real time. Combined with the speed of analytics, it can provide underwriters and claims inspectors with numerous applications and benefits.

Although regulatory guidelines for drones continue to lag, reducing the speed of adoption, it is estimated that by 2020 the total addressable value for drone solutions will reach $127 billion, of which approximately $7 billion will be reflected in the insurance industry. As with any new technology, the real impact of drones in insurance has not been felt and we are seeing their impact in small increments.

New routes for insurers

Many insurance companies continue to evaluate new business models using drones.  For example, adjusters are being trained as drone operators or are being replaced by drones for surveying properties to quickly and cost effectively identifying damage.

In general, drones are expected to help the insurance industry prevent rather than measure their losses.  Examples of potential benefits of drone technology for insurers include:

  • Employee Safety: Today, insurance companies train claim adjusters to climb ladders to assess damages on rooftops, creating one of the most dangerous jobs in America.  They face multiple risks—from falls to electrical hazards, to animal and human attacks. Drones help put distance between data collection and hazardous physical conditions.
  • Fraud Reduction: One of the biggest risks to insurance companies is customers that use a convenient event to claim damages that existed before the event. For example, a homeowner might file a claim on pre-existing damage to aluminum siding on his or her home, and use a recent storm as the cause of the loss. According to the Insurance Information Institute, fraud is approximately 10% of the property and casualty insurance losses and loss adjustment expenses each year, which equates to approximately $34 billion per year in property and causality fraud. By using drones to continually capture images of insured property before disasters, insurers can protect themselves from paying out on fraudulent claims.
  • Resource Allocation: Insurers can improve the productivity of risk engineers by sending generalists with drones to assess damages, and in real-time, submit images back to “desk adjusters” or contact risk engineers using their mobile phones or tablets.
  • Improved Claim Processing and Customer Satisfaction: Drones can quickly, easily and cost-efficiently survey and process claims dynamically, resulting in faster processing time and improved customer satisfaction.

Experiencing turbulence

Beginning in 2015, among early drone were large insurance companies such as AIG, StateFarm, Allstate, Liberty Mutual, etc. who were wooed by drone manufacturers and resellers who had the objective of selling high margin drones.  Many insurers rushed into buying drones without a solid strategy or implementation plan,  in some cases spending millions of dollars with promises of receiving end-to-end automated solutions with high accuracy of identifying damages (cloud services, analytics, artificial intelligence, and reporting). Over time, with unfulfilled promises and lack of ROI, some of these early adopters became disenchanted with the services received and questioned the value of drones.

Many early adopters underestimated the importance of back-end technology and assumed once images were taken, they could be uploaded to their environment and analyzed. Without a solid service on the back end the results can prove disappointing.

It’s time to take off

What insurance providers require is an end-to-end drone solution, including a strategy to estimate the value of using drones for claims processing and underwriting and to evaluate the ROI for buy, lease or outsource alternatives. Further, back-end cloud solutions must be in place to enable insurance providers to upload images quickly, analyze these images in real time and

But despite early setbacks, it is imperative that insurers be early adopters of this new technology, and to understand the potential disruptions it will cause in the industry.  But the risk of waiting to fly is too great—obsolescence.

To learn more about implementing end-to-end drone solutions, click here. If you wish to learn more about cognitive insurance solutions, click here.

 

Associate Partner, Insurance CoC

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