The property and casualty insurance industry is on the verge of a transformation. New sources of data are creating possibilities that were previously unthinkable and are changing ingrained business processes, but they are also overwhelming companies with data. One significant source of this coming inundation will be unmanned aerial vehicles and systems (UAVs and UASs, more commonly referred to as drones).
Soon, insurance companies will send drones to inspect roofs to determine P&C claims. Gone will be the days of adjusters risking personal safety while climbing and walking roofs to gather data and assess damage.
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Much attention has been paid to the new methods of data collection and acquisition. Less attention has been paid to how industry will make efficient and economic use of the new data. The advent of new collection technologies necessitates the development of new data processing methods and processes. Merely adopting new methods for collecting visual data will not lead to significantly increased efficiencies or improved bottom lines. Data handling and business processing improvements must be coupled with new collection technologies.
The Constraints: Business, Technology and Regulations
The industry has been understandably cautious in adopting new technologies that will upset decades of established practice. There are numerous sources for this reluctance, the most important of which include:
- Scale: With the drone industry in its infancy, insurance providers have expressed concern that few (if any) drone operators could meet demand within specific markets, much less across large geographic areas. Demand for inspections could potentially far outpace the supply of drones and drone operators and could require some firms to contract with multiple operators, thereby adding unwanted layers of complexity to operations.
- Lack of confidence in the underlying technologies: There is also considerable concern that drone technologies have not yet matured sufficiently for widespread adoption. As an example, only recently has satellite imagery begun to be used more extensively. Adopting this technology so early in its development could expose companies to unpredictable downsides.
- Lack of turnkey solutions: Drone operators have limited or no ability to provide analytics for the image data acquired. Insurance companies either need to develop their own image analytics technology or engage yet another third party to extract meaningful information from the data.
- New technology supplanting drones: Some companies are concerned that tying themselves to drone technology providers will set them on a path-dependent course that may prevent them from adopting and profiting from unexpected developments of new technology.
- Out with the new, keep the old: In many cases, the objection to adopting drones is that the old ways work. Insurance companies have weathered numerous technology changes through the years and are not eager to jettison tried-and-true processes and relationships.
- Regulations: Another major concern has been the highly uncertain regulatory environment. The Federal Aviation Administration’s initial approach was highly restrictive, requiring pilot licenses for operators and effectively shutting the door to potential market entrants. The new round of regulations, specifically Rule 333 and Part 107, will reverse the overly restrictive pilot license rule and allow competitors to enter the market and drive down prices.
Most of these issues are temporary. The regulatory environment is maturing and stabilizing to allow the growth of a new industry. Over a relatively short period, the market will sort out issues related to scale and availability, maturity of drone technology and whether a newer, superior technology could quickly supplant drones. The market pressures to adopt new technology will make it increasingly untenable to resist innovation.
The issues that will continue to challenge the insurance industry are those related to analytics and business process integration, regardless of the regulatory environment, scale or specific data acquisition technology.
The How: AI, Machine Learning and Business Platforms
Drones are only the beginning of the story. They are merely the tool for collecting visual data, albeit with greater speed, safety, quality and depth than previously available. For an industry to make profitable use of this new source of data, however, visual data must be converted into meaningful information and must integrate seamlessly with all related business processes. Information must be extracted more efficiently from the data sources. Manually performing tasks such as damage detection will no longer be economically feasible given the volume of data and speed at which it will become available.
Companies that harness technologies such as artificial intelligence (AI) and machine learning will significantly improve operations and establish clear advantages. Powerful algorithms will automatically detect damage sustained by a structure (for example, hail damage on a roof) as recorded by drones. These algorithms will be faster and more accurate than any human adjuster, able to perform in mere minutes (or less) what requires hours for humans to do, and the algorithms will be self-training and self-improving.
However, data analysis still needs to be integrated with business processes such as settlement. A platform approach that combines data analytics with business processes, making the information instantly available to stakeholders, will be the most likely method of solving the problem. A fully integrated business platform would store, analyze and report data. It would eliminate reliance on multiple software applications and systems, bringing the full scope of business processes into a single, seamless package. In the case of roof damage claims, the platform approach would integrate detection of structural damage and determination of claim value, and it would issue a report and settlement payment for the homeowner, all with minimal human intervention and within minutes of receiving the visual data. Integrating advanced data analytics and business processes will allow companies access to real-time data and improve decision making with predictive analytics.
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Platforms will also provide the infrastructure to connect insurance companies to drone operators, as well as policyholders. Platforms will provide a market exchange or job board for drone operators for hire across numerous markets, complete with their credentials and technical capacity. Insurance companies will be able to directly interact with their customers through platform technology.
The Why: Increased Competitiveness, Improved Customer Relations and the Bottom Line
The incentives to adopt new technologies are clear. Drones can acquire data more safely, faster, at lower cost and with higher quality than satellites or an army of adjusters. However, the industry will realize greater benefits from focusing on the analytics of the new data, rather than the specific method of collection and delivery of that data. Advanced analytics will drastically reduce the time to settle claims and will standardize the claims settlement process.
Those quick to adopt the new technologies will gain early competitive advantages and efficiencies relative to their peers. Combining analytics and a computing platform approach that harnesses AI and machine learning will simplify business processes—replacing inefficient, disaggregated tools, software applications and systems—and improve decision making. Those that make this leap earlier than their peers will have the clear advantage.
Faster, more accurate and more reliable claims settlement will lead to better business planning and risk management. Powerful computing platforms will allow insurance companies to employ predictive analytics that accurately and quickly determine business risks and provide tools for mitigating those risks.
Improving the claims settlement process will yield improved customer relations. Home repairs, especially significant ones like roof replacement, are a major source of anxiety for homeowners. Reducing the time to completion of repairs through increased processing speed and standardized claims estimates will increase customer satisfaction and loyalty.