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Future of P&C Tech Comes Into Focus

In a 2017 report titled “Drones: Reporting for Work,” Goldman Sachs estimated the addressable market opportunity for drones globally between 2016 and 2020 to be $100 billion, of which the insurance claims drone market was estimated to be $1.4 billion.

And the report did not address the wider opportunities in personal and commercial property insurance: underwriting, pricing, risk prevention, traditional and virtual claims management, fraud detection and product marketing. The report also didn’t cover the use of images from satellites and fixed-wing aircraft, including streaming video.

Whatever the actual size of the total insurance market opportunity, the impact of aerial and drone images in insurance will be enormous.

Industry observers are just beginning to recognize the transformation in property insurance underwriting and claims that is emerging through advanced analytics, artificial intelligence and machine learning tied to neural networks and integrated with data from aerial and drone images.

Property claims investigation costs the industry an average of about 11% of premiums – automated inspection can reduce that expense substantially. And automated property inspection cycle times can average two to three days, compared with 10 to 15 days using traditional methods – lowering costs and increasing customer satisfaction.

Providers will transform the property insurance industry through the convergence of these sources of better images, expanding numbers and types of connected home technologies, customer self-service and aggregated property risk data (historic and real-time).

Follow the money

Venture and private equity investment activity in emerging technologies is a good indicator of potential growth opportunities – these professionals typically engage subject matter experts and conduct deep market research and diligence in a highly disciplined and proven evaluation process prior to investing. Since 2012, almost $2 billion has been invested in more than 370 drone company deals, and the current run rate is more than $500 million in announced deals annually, according to CB Insights research, which states that ”19 of the 24 smart money venture investors have backed at least one drone company since 2012.”

See also: How Technology Drives a ‘New Normal’  

Within just the past two months, four such insurance-related transactions were announced;

  • Nationwide Ventures made an investment in Betterview, a machine learning insurtech startup focused on analyzing data from drones, satellite and other aerial imagery for commercial and residential property insurers and reinsurers. This follows a September 2017 seed round funding of $2 million.
  • DroneDeploy, the world’s largest commercial drone platform, raised $25 million of Series C venture capital, bringing total funding to $56 million.
  • Cape Analytics raised $17 million to grow its AI and aerial imagery platform for insurance companies, led by XL Innovate.
  • Clearlake Capital Group acquired a significant interest in EagleView Technologies alongside Vista Equity Partners, which had purchased EagleView in 2015. (Vista also owns the majority of Solera, parent of property and auto insurance claims services and information providers Enservio and Audatex.)

In 2017, Genpact, a global professional services and insurance claims solutions provider, acquired OnSource, which provides 24/7/365 full service on-demand drone property inspection claims and settlement services across the U.S. Earlier that year, Genpact acquired BrightClaim and National Vendor, providers of integrated claims solutions to the U.S. property insurance market

In 2016, Airware, a global enterprise drone analytics company, closed a Series C round of $30 million to bring its total funding to $110 million. Early in 2016, Verisk Analytics formed the Geomni business unit to specialize in image sourcing and analysis and has since acquired a number of U.S.-based aerial survey companies and their aircraft fleets. Verisk also owns Xactware, the dominant industry provider of property insurance claims solutions and third party products. The Geomni fleet is expected to include more than 125 fixed-wing aircraft and helicopters by the end of 2018, operating from 15 hubs located throughout the U.S. Verisk expects to invest approximately $100 million in Geomni through 2018.

Competition and differentiation

The space has attracted a large number of participants in the past two years, and there are no signs of slowing. Competitors are taking innovative paths to differentiation, including: drone manufacturing, drone operating software for use by field staff and contractors, ground-based roof and wall measurement technologies and full-service, virtual property inspection and property damage reports using drones.

Insurance industry adoption and barriers

The insurance industry’s use of images from satellite and fixed-wing aircraft is fairly well-established, particularly in catastrophe response planning and claims. The North American property/casualty insurance industry has been cautious and conservative in its testing and adoption of drone use for property claims and in using aerial images for underwriting.

Until recently, FAA rules had made it onerous for carriers and industry vendors to obtain licenses and permission to use drones for property inspections. However, after extensive industry lobbying efforts, assisted by more pro-business policies, that obstacle has eased significantly, and several carriers have trained staff and hired contractors to use drones for property claims inspections. Obstacles remain, including restrictions on use near airfield perimeters and outside of operators’ line of sight.

Carriers are split into two roughly equal camps (by market share) on more recently introduced third party services that provide virtual property inspections: those that do not believe that drone image and damage identification technology is sufficiently accurate as yet to manage claims leakage as effectively as their own staff field adjusters – and those that do. Both groups acknowledge that drones are not appropriate for all property claims. Furthermore, customer satisfaction and therefore retention is thought to be higher when insurance company staff visit the property and the homeowner in person.

The future of property insurance

For claims, virtual methods of inspection will include not only drones but claims reporting that involves customers. Claim self-service, including smartphone images and video, which has seen impressive adoption and results in auto claims, is beginning to penetrate property insurance claims, particularly for reporting home interior and exterior wall damage. New, accurate 3D smartphone image measurement technology combined with higher image resolution and the expected expanded availability of much faster 5G wireless broadband will drive adoption.

See also: Secret to Finding Top Technology Talent  

Other methods of property inspection, particularly following extreme wind or hail events and catastrophes, will most certainly incorporate the use of drones, whether operated by insurance staff, managed repair network contractors or third-party inspection services. Also, autonomous drones performing roof inspections not requiring an operator on site may be expected soon.

Finally, on the property underwriting side, we expect high-resolution geospatial image data from multiple sources, artificial intelligence and machine learning to transform that process. Real-time feeds of comprehensive property attributes such as measurements and condition of roofs and other property on the target site will enable instant and more accurate pricing, quoting and binding/renewal of property insurance.

Aerial imagery, mobile technologies, artificial intelligence and computer vision will continue to transform property insurance products and processes, leading to better pricing accuracy, more profitable operations and, above all, better customer experience for policyholders.

To Be or Not to Be Insurtech

It is probably a bit presumptuous to liken the insurtech startup movement to Hamlet’s famous “To be or not to be” soliloquy. It is, after all, a well-known and historical Shakespearean reference. However, the similarity is in the questions asked, and such a question has probably been asked prior to many defining moments. And just as Hamlet pondered many questions, there are many questions that revolve around the state of the insurtech movement. At this juncture, some five years into this movement, the one question that has most likely gone by the board is – Is it real?  You can debate whether we are at the beginning of the insurtech cycle or at the end. However, there are several strong points in favor of the fact that it is real.

See also: Convergence in Action in Insurtech  

SMA has been following the insurtech startup trends since 2013. Currently, we track approximately 1,200 insurtechs. It is definitely a fluid number. Some startups go out of business, and others come in to fill the void at a regular pace. In the 2013-2015 timeframe, the insurtech startup landscape was a tsunami of activity – it was difficult to get one’s arms around what was happening. In the latter half of 2017, some strong realities emerged. SMA’s recently released research findings have revealed several major insurtech trends or themes that are specific to insurance and have meaningful implications for the industry. In response to the “is this real” question, three of the 10 themes anchor the insurtech movement firmly in reality.

  • Insurtech has spread to all tiers and lines of business – Originally, most of the activity was in personal lines and health. Now, of the P&C contingent, which SMA data indicates is 39% of all the activity, a little over half is personal lines; 35% is commercial lines; 13% is workers’ comp. Historically, technology providers have targeted particular tiers for their sales efforts. The startup community targets insurance business problems without a specific tier focus. What this means is that insurers of all sizes are able to adopt insurtech-provided technology. SMA partnering data shows that there are insurtechs with customers ranging from top 10 insurers down to single-state insurers. The bottom line: The fact that insurtech is not focused on the top echelon of global players but rather on business problems across the insurance ecosystem lends itself to the “it’s real” theme.
  • Live implementations are increasing – Not surprisingly, in the beginning of the startup movement, most of the activity was around fundraising and proofs of concept. In 2017, and continuing at an accelerating pace in 2018, insurer “go lives” are happening. Some insurtechs have 10, 12 or more insurer logos on their websites. These are not investor listings; they are the names of insurers that are rolling out capabilities in the marketplace. In particular, drone usage, smart home/connected property and connected vehicle initiatives are common and growing. The “it’s real” indicator is that insurers are not going to roll out technology that affects their customers just for the fun of it – customers are not guinea pigs. Insurers are seeing the value in insurtech offerings and are executing.
  • Insurtechs are partnering – While there is nothing wrong with a technology provider staying in their space, a long-standing trend within the insurance industry has been partnering for greater value. This has not escaped the attention of a number of insurtechs. For example, Bold Penguin and Ask Kodiak have partnered, as have Elafris and Hippo and Betterview and Understory. Mature technology providers also see the value of startup partnering; for example, Willis Towers Watson and Roost, Verisk Analytics and Driveway. Majesco partners with a network of insurtechs. The “it’s real” factor is that insurtechs are not simply attempting to see what they can do just for today – but, rather, what they can do for the long haul, to become strategic contributors within the insurers they work with.

While there are still questions about the insurtech movement, one of them should not be – Is it real? Business value is being generated by many startups – and no insurer is going to walk away from that. New channels and service opportunities are emerging that are generating interest and execution. New products are sprouting up at a regular pace. Not every startup and every idea is going to be a winner, but many will be. And some already are. Bottom line? Both Hamlet and Shakespeare would be proud of the insurance industry for seeing the possibilities and not just the questions.

See also: 4 Key Qualities to Leverage Insurtech  

New Applications for Drones

Drones are becoming widely used in a variety of industries, including insurance. As mentioned last week, millions are expected to be sold in 2017, with PwC calculating the global market for the commercial application of drones at more than $127 billion. So how are insurers using drones right now, and what opportunities are arising?

Though drones could theoretically benefit many different aspects of insurance operations, to date the most common application has been roof inspections conducted by certified insurance assessors before payment is made on claims for storm or hail damage. Traditionally, assessors use ladders to climb onto roofs and sometimes need harnesses if the roof is high or steep enough. A manual inspection can take half a day.

See also: Drones + Gig Economy = Win for Insurance  

A 20-minute drone inspection captures around 350 images of the property in question and provides data that can be used to identify moisture trapped in roofs, produce 3D models and elevation maps, calculate flood or wildfire risk and derive property measurements.

This gives insurers several good reasons to carry out these drone inspections. Here are some notable examples in the area:

  • Erie Insurance, an American traditional insurer active in the auto, home, commercial and life insurance sectors, is generally credited as the first insurer to use drones to inspect roof damage. It received approval from the American Federal Aviation Authority in the spring of 2015.
  • Betterview is an insurtech devoted to using drones for property inspections. The company announced this April that it had executed 6,000 rooftop inspections in the last two years and then signed a partnership agreement with Loss Control 360, which makes software for insurance carriers and inspectors. “We have seen insurers allocate budget dollars in 2017 to move from concept to real production use,” Betterview CEO David Lyman told the Insurance Journal. “In 2018, we expect to see a significant ramp up in the use of drones by insurers and reinsurers.”
  • Travelers has used drones to inspect damaged roofs since 2015. The carrier provides insurance-specific drone pilot training to its claims teams; by May this year, it had trained 150 pilots and expected to train hundreds more before the end of the year.

But it’s not just roof damage that drones are being used for.

Beyond roof inspection

The French global insurer AXA reported in 2016 that it was using drones in a variety of applications in France, Switzerland, Belgium, Mexico and Turkey. The business case is simple— to assess claims, drones can go places that are risky for humans: into fire-damaged buildings, into places where chemical toxicity is suspected and into manufacturing plants or other areas that have been subject to natural or other disasters.

AXA is developing tools and platforms to use drone images more efficiently, including this new data source in its claims adjustment processes.

Coupling imaging technologies with advanced analytics is proving useful across industries. Drones are being used in disaster management, geographic mapping, crop monitoring, supply chain monitoring, storm tracking and weather forecasting, to maintain power lines, monitor traffic flows and conduct surveillance—all instances that may assist insurers to dynamically adapt and innovate on insurance products and risk cover, especially for short-term cover.

Country Financial is, for example, using drones to identify issues in fields that are hard to spot with just “boots on the ground.” It says its crop claims adjusters using drones can scout three times as many acres as an adjuster on foot. This technology also gives farmers more information to consider when choosing how much crop insurance coverage they need, the company says, and it means more insurance plans can be based on enterprise-level data rather than county numbers.

Evolving drone technology

While these examples provide a snapshot of the growing use of drones in P&C insurance inspections, they also highlight some of the limitations of current applications.

Regulators require drone pilots to maintain line-of-sight during a flight, limiting the range of a drone’s flight. New regulations—and wider use of fixed-wing drones—could dramatically boost this range, with corresponding increases in the amount of property a single flight could cover. Technology and regulation could also conceivably enable greater autonomy for drones in the future, allowing a single pilot to oversee multiple drones at once.

See also: What Is the Future for Drones?  

A recent Businessinsider.com article highlights the emergence of generation seven of the technology, with the announcement of 3DRobotics’ all-in-one drone, Solo. These next-generation smart drones have built-in safeguards and compliance tech, smart accurate sensors, platform and payload interchangeability, automated safety modes, enhanced intelligent piloting models and full autonomy, full airspace awareness, auto action (take-off, land and mission execution). Imagine the future opportunities these drones will open up for insurers.