How Insurtech Is Becoming an Industry-Wide Solution to Some of the Toughest Risks

From construction to cargo to cyber, an array of Insurtech technology solutions is beginning to bring real improvement to risk management safety strategies.
By: | October 25, 2018 • 6 min read

Finding affordable — if any — general liability coverage as a construction firm operating in the State of New York has become increasingly difficult in recent years.

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Labor Law section 240/241, better known as the “Scaffold Law,” enacted in the late 19th century, imposes strict liability upon contractors and property owners for “gravity-related” injuries, presuming them to be at fault even if the worker’s negligence contributed to the accident.

In recent years, courts have extended their interpretation of a gravity-related accident, resulting in large settlements. And added to that, injured workers can circumvent the workers’ compensation exclusive remedy doctrine.

The law has also increased moral hazard, raising the likelihood of more injuries and related litigation. That means the cost of insuring a construction project in New York is as much as 10 times higher than in other states, forcing many insurers to scale back their offerings or pull out altogether.

“The law in New York is very much in favor of the worker,” said Adam Schnell, executive vice president, Ethos Specialty Insurance Services, which provides general liability insurance for New York construction. “Essentially it is a workers’ compensation exposure; if you have an accident onsite, such as falling from a height or an object falling from a height injuring a worker, then it is the property owner and/or general contractor who will be held ‘strictly’ liable, often resulting in a multimillion-dollar claim.”

However, help is at hand with a host of new tech tools to help underwriters get a better understanding of worker safety risks and drive more favorable loss ratios.

Data Is King

Data is key when it comes to assessing the risk and providing the appropriate cover, according to Schnell. Thanks to advancements in technology there is now more access to information than before, he said.

“In particular, the NYC Department of Buildings has records on safety violations on worksites and related fines and closures,” he said. “In that respect, you can quickly see patterns emerge with companies that try and cut corners to finish the job quicker and at a lower cost and increased margin by flouting safety rules.

“Then there are public information and proprietary sources, which provide data on site inspections and court documents on legal action that has been taken against companies to help you measure the risk. That way you can quickly determine if it’s a risk that you want to insure.”

Schnell said, in theory, this data also helps construction firms with better safety records to get more competitive quotes. Without it, he added, insurers can be pricing themselves out or worse still, leaving themselves exposed to unforeseen claims running to millions of dollars.

“Drones can be used to monitor construction sites and to access difficult to reach areas or to evaluate roofs or other elevated structures without the need for physical access.”  — Ann Myhr, senior director of Knowledge Resources, The Institutes

Underwriters are also increasingly employing cutting-edge technology to identify and mitigate against the risk, said Martha Notaras, a partner at XL Innovate. At the forefront of this is the use of wearables, which track and provide data on a worker’s movements, including everything from wristbands to environmental sensors for temperature, pollution and even noise, she said.

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“These devices can come in many forms; there are wristbands that warn workers if they are near a live electrical wire,” she said. “Then there is a company called GuardHat, which has a device that collects data on activities a worker is doing but, more importantly, ensures they’re wearing a hard hat.”

Other leading technologies, Notaras said, include sensors that monitor particulate levels on worksites and 360-degree cameras that can survey a project’s progress as well as worker safety. All of that information gathered is then stored in a database and can be analyzed by companies, she said.

“All of these technologies can help companies to see where their exposures are, keep track of and improve on them,” she said. “OSHA is particularly hot on how long it takes companies to rectify a situation once a problem has occurred, so they can help greatly in that respect.”

And companies are already seeing the results, according to Notaras. One worker wearing a Triax tracking device who had an accident was able to receive treatment 90 percent quicker than if he had not been wearing it, she said.

Making Our Roads Safer

Another area where Insurtech is making big strides is in commercial auto, where frequency of accidents has been on the rise year-on-year over the last decade according to the U.S. Transportation Department, as have the severity and size of payouts. As a result, rates have spiked, some as much as 30 percent, and some of the biggest players have pulled out.

But Notaras said that commercial fleet operators have been quick to adopt devices such as telematics in a bid to improve driver safety. By using the data captured by these devices, underwriters can then benchmark driver performance against the industry average and other drivers, and be able to better assess the risk, she said.

Ann Myhr, senior director of Knowledge Resources, The Institutes

Then there are semi-autonomous features such as forward collision warning, automatic emergency braking and lane departure warning, which can promote driver safety and reduce accidents, said Ann Myhr, senior director of Knowledge Resources for the Institutes. They are also being used in contractor’s equipment including backhoes, forklifts and cranes to improve safety, as are drones, she added.

“Drones/unmanned aircraft are increasingly being used by risk managers, underwriters and claims professionals,” she said. “Drones can be used to monitor construction sites and to access difficult-to-reach areas or to evaluate roofs or other elevated structures without the need for physical access.”

From Cargo Spoilage to Cyber Security

Phil Edmundson, founder and CEO of Corvus Insurance, said that among the latest Insurtech products offered by his company are those that use data captured by sensors monitoring the temperature of goods carried in cargo shipments to detect where spoilages occur. Another application is in cyber insurance where web traffic data is screened for IT security vulnerabilities, he said.

“This data has been around for a long time; we are simply accessing and using it to help improve loss control.

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“With our cargo product from our data analysis, if a perspective policyholder is deemed a good risk, then we offer them a broader coverage.”

Other areas where Insurtech has helped improve underwriters’ understanding of risk is in homeowners’ insurance, where the Internet of Things has given greater insight into how people manage their homes, said Notaras.

This includes, for example, having alarm systems enabled so that they know every precaution was taken in the event of a break-in, she said.

“A number of vendors have brought these new technologies to the table, which are now being piloted by companies to help them measure their exposures and make safety improvements,” said Marsh’s U.S. construction leader, David Marino. “But they are also using this big data to help provide additional benefits including better productivity and billing and to address HR issues.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at riskletters@lrp.com.

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 riskletters@lrp.com.