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Insurance Industry

Insurers Flying High

Four insurance companies have received approval to use drones for claims and risk management purposes.
By: | April 16, 2015 • 3 min read

Four insurers are among 125-some pioneering companies to receive approval from the Federal Aviation Administration to test drones for various commercial purposes in the U.S.

The FAA agreed to allow the insurers to test the use of unmanned aerial vehicles (UAVs) to survey everything from damaged roofs and flooded areas to tornadoes, hurricanes and other natural disasters.

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The insurers are American International Group Inc. (AIG), Erie Insurance Group, State Farm Mutual Automotive Insurance Co., and United Services Automobile Association (USAA).

In March, State Farm became the first insurer to receive FAA approval to test drones for commercial use. State Farm plans to explore the use of UAVs in assessing potential roof damage during the claims process and in responding to natural disasters.

“The potential use of unmanned aerial systems provides us one more innovative tool to help State Farm customers recover from the unexpected as quickly and efficiently as possible,” said Wensley Herbert, operations vice president-claims.

At AIG, the company received FAA approval to use UAVs to conduct inspections for risk assessment, risk management, loss control and surety for its customers.

Insurers granted exemptions to use drones are American International Group Inc. (AIG), Erie Insurance Group, State Farm Mutual Automotive Insurance Co., and United Services Automobile Association (USAA).

The exemption also permits AIG to implement a robust research and development program to explore new and innovative ways to employ UAVs.

UAVs can help accelerate surveys of disaster areas with high resolution images for faster claims handling, risk assessment and payments, according to the company. The drones can also quickly and safely reach areas that could be dangerous or inaccessible for manual inspection, and they provide richer information about properties, structures and claims events.

“AIG is committed to continuous improvement and innovation to providing better, faster and safer risk and claims assessments to our customers,” said Eric Martinez, executive vice president, claims and operations. “Leveraging cutting edge technologies like UAVs can enhance our ability to assess and mitigate risks to better help our customers and their communities prepare for and rebuild after a catastrophic event.”

AIG has already established an international UAV research and development center and conducted flights in New Zealand. These flights have provided valuable insights on technology, flight operations, and image collection technology, flight and image collection techniques that will be incorporated into AIG’s global UAV strategy, the company said.

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USAA said drones could help speed review of insurance claims from its members following natural disasters.

In October 2014, USAA filed for an exemption under Section 333 of the FAA Modernization and Reform Act of 2012 to enable more efficient testing of small drones. Exempt from select FAA regulations, USAA can now fly drones during the day within line-of-sight of a trained pilot and air crew. Prior to the approval, USAA test flights could only take place at FAA-approved sites.

USAA said drones could help speed review of insurance claims from its members following natural disasters.

Currently no aircraft is allowed to exceed an altitude of 400 feet, and all flights must continue to be reported to the FAA.

With FAA approval, USAA will work to efficiently research and develop best practices, safety, and privacy protocols and procedures as it further develops plans for operational use, according to the company.

USAA received a second exemption in early April that will allow the insurer to go operational in a catastrophic situation.

“We’re proud to be among the first insurers approved for this technology,” said Alan Krapf, president, USAA Property and Casualty Insurance Group. “It’s our responsibility to explore every option to improve our members’ experience.”

The USAA family of companies provides insurance, banking, investments and retirement products to 10.7 million current and former members of the U.S. military and their families.

A spokesperson for Erie insurance Group said the company believed drones, which they refer to as unmanned aerial systems (UAS), will play a major role in the future of insurance innovation and help the company be safer and more efficient in its claims handling and risk assessment.

“For example,” the spokesperson said, “if we need to assess a roof on a large building or one that has an especially steep pitch, we can now test the viability of using UASs instead of sending someone up on a ladder.

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“We hope to eventually be able to use UASs to assess damage after catastrophic weather events when physical structures can be especially precarious.”

Commercial drone flights are generally banned in the U.S. However, the FAA has awarded some exemptions for commercial drone use under a program created by Congress to allow flights while the agency completes more formal regulations.

Steve Yahn was a freelance writer based in New York. He had more than 40 years of financial reporting and editing experience. Comments can be directed to [email protected]

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]