A Bird’s Eye View
Unmanned aerial vehicles (UAVs) — aka drones — are an integral but polarizing part of 21st century life.
The benefits are well-known: whether used as a tool or a toy, miniature remote-controlled aircraft equipped with high-resolution cameras can provide stunning aerial shots as well as photograph hard-to-access areas, which explains their increasing popularity with both consumers and businesses.
Drones are also inexpensive. Starter kits cost only $75 to $150 and cheaper four-propeller drones typically sell for $600 to $700. Sophisticated models with cameras can run to about $3,500. But the pricing continues to drop while the optics packages steadily improve, said Grant E. Goldsmith, vice president of Avalon Risk Management and president of its overwatch division.
“Many new drones have 4K cameras, which are really nearly Hollywood quality,” he said. “It is really the drop in price point in good optics that is making them more practical to many kinds of users.
“All drones are subject to loss and damage in a hard landing situation but at $3,500 they approach the level of ‘disposable aviation’ assets for many users.”
However, growing demand is accompanied by increasing disquiet over the “nuisance potential” of drones to violate privacy and cause accidents, particularly when used in proximity to aircraft. Idaho-based Snake River Shooting Products recently launched the “drone munition” — a shot shell containing steel ball bearings that fits a 12-gauge shotgun, for customers seeking to repel the “Drone Apocalypse.”
These concerns haven’t prevented companies from seeking Federal Aviation Administration (FAA) authorization to use drones for commercial purposes. As Risk & Insurance® reported in April, four insurers — American International Group Inc., Erie Insurance Group, State Farm Mutual Automotive Insurance Co., and United Services Automobile Association — were among 125 companies submitting successful applications.
Applicants also included corn processing giant Archer-Daniels-Midland Co, which got the go-ahead to use drones for locating and assessing crop damage to accelerate claims processing. The company plans to start employing the technology during 2016.
Pennsylvania-based Erie Insurance said that FAA approval would enable the company to offer policyholders an improved service, yet retain the personal touch.
“We see drones as high tech meets human touch,” said Gary Sullivan, the company’s vice president of property and subrogation claims.
“Drones will help our claims adjusters get an early look at potential damage without putting themselves in harm’s way due to unsafe conditions, such as on a steep roof or at the site of a fire or natural disaster,” he said. “The sooner we can get in and assess damage, the sooner we can settle claims and help make our customers whole again so they can move on with their lives.”
At State Farm, spokesman Jim Camoriano said that employing drones is in line with the insurer’s work with vehicle manufacturers to advance airbag and seatbelt technology.
“Our use of unmanned aircraft is another example of State Farm’s commitment to the use of technology to better serve our customers. So far, feedback from those outside the industry continues to be optimistic on the potential benefits of using this type of aircraft.”
Since gaining the FAA’s approval to test and use drones as part of its commercial operations, State Farm has been engaged in flight testing UAVs at private test sites near its corporate offices in Bloomington, Ill. As yet, the insurer hasn’t determined a date for test completion.
Camoriano acknowledged that press coverage raises several questions regarding the use of the technology, but said that concerns arise mostly from recreational use of UAVs.
“We consider customer privacy one of our top priorities, and our use of this technology will adhere to all applicable laws and regulations to ensure consumer privacy,” he said.
Waiting on the FAA
Reports on UAVs’ potential usually mention their usage in the wake of disasters, to provide high-resolution images while accessing areas either too dangerous or inaccessible for manual inspection. A recent example cited is the explosions at a Chinese chemicals warehouse in Tianjin on Aug. 12. Footage shot from a drone shortly afterward vividly captured the extent of the damage.
To date, the reality for U.S. firms has been less dramatic, said Matt Ouellette, owner of Indiana claims service Ouellette & Associates and 2015-16 president of the National Association of Independent Insurance Adjusters (NAIIA). His firm uses drones mainly for commercial building inspections up to 300 feet above ground level and in the immediate aftermath of intersection vehicle collisions to assess the impact.
“Before we go to the expense of renting a boom lift, which costs around $1,500, we can use a drone for no more than $200 to $300 plus the adjuster’s fee for a preliminary inspection to ascertain the cause of damage and whether it is covered by insurance,” said Ouellette. “In some cases, it results merely from poor maintenance of the building.
“A fixed-wing drone flying over an area hit by hurricane or tornado can map out the area as a whole and provide insurers with valuable information on their likely exposure and how many of their insureds have suffered loss or damage. They can home in close and get good pictures.
“You can get FAA approval via a Section 333 exemption, which many businesses are applying for and getting these days. But the majority of drone operators likely operate without FAA approval.” — Grant E. Goldsmith, vice president of Avalon Risk Management
“We use four-prop hovercraft drones rather than the fixed wing variety for our commercial buildings and intersection accident inspections. They’re less expensive than fixed-wing, the latter being the type to which the FAA pays most attention.”
While insurers recognize the benefits of using drones for post-catastrophe inspection, they haven’t actually started using them, he added.
One obstacle is that the FAA’s readiness to exempt companies from the ban on commercial drone use isn’t yet accompanied by regulations setting out guidelines as to what work is and isn’t acceptable.
The FAA, said Avalon’s Goldsmith, “hasn’t yet published its rules for small drone usage with the national airspace, and these rules will likely not be published until 2017, so the interim period will continue to see a growing number of commercial users dodging both the FAA and local regulations at the state and city level while flying for business purposes.
“You can get FAA approval via a Section 333 exemption, which many businesses are applying for and getting these days. But the majority of drone operators likely operate without FAA approval.”
Ouellette said that in the absence of such clarification, some carriers are holding back from using drones themselves or authorizing their use by claims adjustment specialists.
“The passage of any legislation is likely to prove complex as many different parties need to be considered. The aim is for regulation that’s useful and not overly stringent.”
“I assume that many insurers are waiting for the dust to settle on the privacy and regulatory concerns before fully embracing drone technology,” agreed Stephen L. Brown, owner and president of Baton Rouge, La.-based Brown Claims Management Group.
“As an independent adjusting firm, we have had several insurers inquire about using our drone to assist in the inspection of roof claims.
“But it seems that it comes mostly from a place of curiosity, from the standpoint of seeing just what type of imagery this technology can produce in contrast to that generated by more traditional means.”
Brown also struck a note of caution on whether insurers could extend the use of drones beyond investigating catastrophe and hard-to-access risks to include more routine work.
“They could be, but to be honest, the small drones that we use are not easily flown in anything less than optimum weather conditions or where obstructions are nearby — and so we still only use them in a small percentage of investigations and inspections.”
However, there are some applications beyond property losses — specifically general liability and transportations losses — where aerial video can be a tool in documenting the scene of the accident, Brown said.
No Threat to Adjusters
Longer-term, does the drone spell the end of the traditional claims adjuster?
No way, said Ouellette, particularly as UAVs still have to be piloted.
“Certainly they can provide great images; however, the adjuster still needs to follow up with measurement and assessment work. He or she still has to provide much of the essential detail that drones aren’t able to capture.”
Brown agreed. “Drones will continue to be but one tool available to the field adjuster and will never fully replace the personal inspection. There will be instances in which the drone inspection is just not practical under the circumstances, due to adverse weather, physical obstructions, and the like.
“There will never be a day,” he said, “when drones can 100 percent be a replacement for adjuster ‘boots on the roof’ when it comes to property inspections or the personal touch that human claims adjusters can bring to loss investigations, appraisals and settlements.”