5 Ways Drones will Impact the Insurance Industry

28 May 2021

 Insurance is one of the industries that could benefit most from the proliferation of Unmanned Aerial Vehicles (UAV), aka drones. We round up a few fundamental changes drones may bring to the insurance sector.   

According to the Federal Aviation Administration, we could have more than 2.85 million small drones crisscrossing the skies by next year. FAA also says that close to 500,000 of the drones will be commercial. Crop monitoring, construction site management, and search-and-rescue operations top of the list for potential applications.

Insurance companies are positioning themselves to take advantage of drones too, eying two strategic objectives;

  1. Better risk management through improved data collection and analysis
  2. Reduced operational costs through improved efficiency and effectiveness

The Main Players are Already On Board

According to a recent Deloitte study, several leading insurance companies are already in the air. Indeed, some secured FAA clearance as early as 2015. These companies are using their drones to collect data, respond to catastrophes, and conduct research. Drones also help in underwriting and claim resolution support.

But it’s not just insurance providers who are investing in drones in the insurance industry. A new breed of companies known as insurance technology providers, i.e., insutech firms, have entered the fray to offer comprehensive and specialized services to insurance companies.

Take the example of BetterView, an insurance technology company founded about three years ago. BetterView uses drones for property inspections and has conducted more than 6,000 rooftop inspections in the last two years alone.

Another increasingly popular insutech company is Verifly. The New York-based startup has partnered with Global Aerospace Insurance to offer on-demand per-flight services for insurance companies.

Current and Potential Applications

Different insurance companies use drones differently depending on specialty and other factors. However, the majority use them for the following purposes;

  1. Roof damage inspections: Roofs are notoriously and hazardous to inspect when processing insurance claims. This is especially true for steep sloping roofs and older roofs. Rather than climb onto the roof, claims adjusters can use drones equipped with cameras for the job.
  2. Boiler inspections: Many insurance providers who cover boilers conduct inspections for equipment breakdown insurance. Unfortunately, boilers can be several stories high and are typically dark inside, making inspections very difficult. Now adjusters can use drones for faster, easier, and more exhaustive inspections.
  3. Post-disaster claims inspections: Areas affected by disasters such as floods and earthquakes can be difficult to access. Even if you manage to access them, the safety risk is high. Camera-equipped drones make it easier and less risky to access such areas.
  4. Crop inspections: The main challenge in crop inspection is the size of the task. Some farms are so large it can take humans walking around on foot weeks to inspect. Additionally, certain issues are impossible to spot from the ground, especially for tall crops. Drones solve both challenges with ease.
  5. Fraud monitoring: Finally, insurers can also use drones to monitor fraud. For example, when a hurricane or other disaster occurs, some policyholders can file claims for pre-existing damages. Comparing drone-captured before and after photos of the property allows insurers to disprove false claims with certainty.

Benefits for the Insurance Industry

As you can already deduce from the list of current applications, the main benefit of drones for the insurance industry is reduced worker risk. By putting machines (drones) rather than people in hazardous situations, such as post-fire and post-flooding situations, insurers can prevent injuries and even deaths.

Additionally, drones can benefit insurers and the insurance industry in general in the following five ways;

  • Improved customer experience 

Customer experience is a critical part of insurance policies. If the client isn’t satisfied with the experience, they may choose to find a different provider. Drones improve customer experience by allowing faster response and more conclusive inspections. According to Cognizant, UAVs also streamline adjusters’ workflow by 40%-50%. For instance, the adjuster can stay in one location and receive all the necessary information from the drone rather than walking from one end of the property to the other.

  • Reduced losses from fraud 

Fraudulent claims account for about 10% of the property/casualty insurance industry’s total incurred losses and loss adjustment expenses. Some studies even show that the figure is a little higher. For example, the Coalition Against Insurance Fraud estimates that about $80 billion worth of fraudulent claims are made each year in the US. As we mentioned earlier, drones allow insurers to capture before and after images of insured properties. This way, it becomes easier to spot fraudulent claims.

  • Greater precision in pricing 

According to the Insurance Innovation Reporter, pricing has been a significant challenge for insurance providers for the past two decades. The challenge mainly arises from the need to integrate rating plans and prices with other elements of customer value proposition while remaining nimble in responding to customer behavior changes, competitor actions, and environmental factors that require a price adjustment. Drones allow insurers to collect more data, improve data precision, and thus offer more personalized premiums.

  • Better catastrophe modeling 

The massive quantities of data captured using drones give insurers greater flexibility, making it possible to develop better catastrophe models. This is because catastrophe modeling depends greatly on the quantity and quality of data at the modeler’s disposal. Improving the feedback loop between underwriters claims adjusters, and model validation can significantly improve model performance in quantifying risk.

  • Drones + AI could unlock the immense potential 

We’re currently entering a phase of accelerated Artificial Intelligence (AI) implementation, which means that we may have intelligent drones in the skies soon. This could be a game-changer for the insurance industry. An excellent example is IBM’s AI system, Watson. Watson can automatically process the images while in the sky, allowing it to assess hail damage and calculate the extent of the damage. This can significantly reduce the adjustor’s work, boost customer experience, and increase accuracy in claims assessment.

The Future Looks Promising

We may have to wait a little longer to fully realize some applications and benefits listed above. However, there’s no denying that drones could revolutionize the insurance industry. If you’d like to learn more, NIX Solutions would love to hear from you.