Aviation


Despite regulatory challenges, privacy concerns and a lack of capabilities that could stall their widespread use, drones could have a significant impact on the property/casualty industry.

recent report from IT firm Cognizant suggests that commercial and personal lines insurers that cover property risks are likely to be early adopters of drone technology. Hat tip to Claims Journal which reports on this story here.

For example, a property adjuster or risk engineer could use a drone to capture details of a location or building, and obtain useful insights during claims processing or risk assessments, Cognizant says.

Drones could also be deployed to enable faster and more effective resolution of claims during catastrophes.

Crop insurance is another area where drones could be used – not only to determine the actual cultivatable land, but also during the claims process to understand the extent of loss and the actual yield, reducing the potential for fraudulent claims.

The findings come amid recent reports that several home and auto insurers are considering the use of UAVs.

The Association for Unmanned Vehicle Systems International predicts that within 10 years (2015 to 2025) drones will create approximately 100,000 new jobs and around $82 billion in economic activity, the report notes.

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Cognizant believes now is the time for insurers to consider the opportunity that drone technology presents, especially in the areas of claims adjudication, risk engineering and catastrophe claims management:

With drones poised for commercial use, insurers could use them specifically to help reduce operational costs and gather better-quality information. This could help improve the productivity, efficiency and effectiveness of field staff (e.g. claims adjusters and risk engineers), and improve the customer experience by resolving claims faster, especially during catastrophic events.”

Cognizant goes on to note that drone enhancements such as artificial intelligence, augmented reality and integrating audio, text and video already exist in some shape or form. Insurance carriers should expect to see the adoption of drones increase significantly as these features are integrated into standard drones, and as regulations for commercial use of drones are defined.

It concludes:

As insurance carriers build business and technology use cases and the necessary architecture and services, they must consider not only how and where drone technology fits into their digital roadmap but also how the operating model can be enhanced to deliver optimal benefits for the business and its customers.”

Unmanned aerial vehicles (UAV), otherwise known as drones, appear to be moving closer to commercial application, and property/casualty insurers are getting involved.

On the one hand, insurers are looking at ways to use this emerging technology to improve the services they provide to personal policyholders, at the same time they are assessing the potential risks of commercial drone use for the businesses they insure.

The Chicago Tribune this week reported that several home and auto insurers are considering the use of UAVs, and at least one has sought permission from the Federal Aviation Administration (FAA) to research the use of drones in processing disaster claims.

According to Sam Friedman, research team leader at Deloitte, drone aircraft could be the next mobile tech tool in claims management.

In a post on PC360.com, Friedman says that sending a drone into a disaster area would enable insurers to deliver more timely settlements to policyholders and spare adjusters from being exposed to the hazards of inspecting catastrophe claims in disaster areas.

Commercial insurers also have a huge stake in the drone business. In a recent post on WillisWire, Steve Doyle of Willis Aerospace, says businesses need to consider UAV risk issues such as liability and privacy:

Risk managers for organizations that could potentially gain considerable competitive advantage from eyes in the sky should consider the risk issues now so they are ready to advise their organizations as UAV options broaden.”

Insurance is not the only industry eyeing commercial applications. Agriculture, real estate, oil and gas, electric utilities, freight delivery, motion pictures, to name a few are seen as major potential markets for UAVs.

A recent report by IGI Consulting predicts that U.S. sales of UAVs could triple to $15 billion in 2020 from $5 billion in 2013.

However, the broader commercial use of drones in the U.S. will depend on federal regulators developing appropriate rules. In September the Federal Aviation Administration (FAA) gave the go-ahead for six TV and movie production companies to use drones for filming.

In his WillisWire post, Doyle notes that regulation is a key element to the successful widespread development of the drone industry in the U.S. given the complexities of the liability environment, the crowded skies over metropolitan areas, and the variety of UAVs and their uses.

One thing’s for sure, when UAV use takes off in the U.S., insurers are ready to support this emerging technology both as risk takers and risk protectors.

While it’s too soon to know how the crash of Asiana Airlines Flight 214 may affect the market for airline insurance, it’s important to recognize that the loss comes at a time when the industry’s overall claims level was exceptionally low, reflecting its investment in safety.

In its latest Q2 2013 Airline Insurance Market News, Aon had reported on the extremely low level of claims the market had seen up to the beginning of May 2013. This followed a 40 percent reduction in the cost of major losses in 2012.

For the year to the beginning of May 2013, the loss figure, excluding minor losses, was $107.63 million, which while up from the $32.17 million recorded at the same point in 2012, was still some 67 percent below the five-year average, Aon said.

Adding an estimate for minor losses, the overall loss total stood at $357.63 million, compared to $282.17 million in 2012.

Passenger and third party fatality levels were extremely low, with only 23 up until the beginning of May, compared to 214 on average for the same point between 1995 and 2012, Aon added.

Major losses in 2012 totaled US$324 million, nearly 40 percent less than the US$522 million recorded in 2011. Adding an estimate for minor losses, the overall estimated incurred claims total was US$924 million, down 20 percent against the US$1.13 billion total claims in 2011.

Despite the low level of claims and fatalities, Aon noted:

The airline industry still represents a considerable risk where a single loss could still mean that the claims statistics for 2013 overtake the long term average. Equally, as we have seen in the past, a string of incidents at the mid-point of the year can change the position significantly.”

Asia Insurance Review reports that the total insurance cover on the Boeing 777 aircraft owned by Asiana Airlines that crash landed at San Francisco international airport (SFO) on Saturday stands at $2.2 billion, according to the Financial Supervisory Service.

That amount includes coverage of $130 million on the aircraft hull and $3 million in crew liability coverage. Up to $2.2 billion may be paid out for facility damages and passenger casualties.

Some 291 passengers and 16 crew were on board when the aircraft crashed during its approach to the airport. The crash resulted in two fatalities and more than 180 injured.

Check out a summary of the incident by law firm Kreindler & Kreindler.

I.I.I. facts and stats on aviation are available here.

Rates in the airline insurance market continue to decline, despite rising exposures (average fleet values and passenger number forecasts), according to Aon’s Q3 2012 market update.

Aon reports that a high level of capacity continues to drive the soft market conditions, with healthy competition for attractive risks.

The low level of claims in 2011 and so far in 2012 is another key factor.

Including an estimate for minor losses, Aon says total claims for 2012 so far are 40 percent lower than the 1995-2011 average and 60 percent lower than the five year average.

By the numbers this puts the current overall loss figure so far this year at $426.6 million, compared to $466.7 million at the same point in 2011.

Aon comments:

Last year’s loss figures at this point in the year were also at a historic low, meaning that overall claims figures so far for 2012 are extremely positive.”

Adding:

It should be pointed out that the airline industry will always represent a considerable risk and that a single claim or string of claims can instantly change these statistics.”

Despite the soft market conditions, Aon says aviation underwriters remain highly selective of the risks they support.

Check out I.I.I. facts and stats on aviation.

As well as strong winds and heavy rains, hail – ranging from pea to baseball size – was a feature of the massive tornadoes that touched down in the Dallas Fort Worth area yesterday.

Specifically, the Dallas-Fort Worth international airport reported that more than 100 aircraft were damaged by hail, according to CNN.

Hail causes about $1 billion in damage to crops and property each year, according to the National Oceanic Atmospheric Administration (NOAA).

Pea size hail measures an estimated ¼ inch in diameter, while baseball size hail would measure about 2 ¾ inches.

The Insurance Information Institute (I.I.I.) reminds us that hail damage is covered under standard homeowners insurance. It is also covered under your auto policy provided you have comprehensive coverage.

Some insurers may have special deductibles in hail prone areas, to help keep insurance premiums at affordable levels.

Physical damage to aircraft as a result of hail would be covered under a hull insurance policy.

The I.I.I. reports there were over 9,000 major hail storms in 2010, according to statistics from NOAA’s Severe Storms database. Texas had the largest number of severe hail events in 2010, followed by Kansas, Missouri, Nebraska and Oklahoma.

Learn how to protect your home from hail in this I.I.I. video:

The airline insurance sector appears to have incurred more claims than premium once again in 2010, according to Aon’s January 2011 Airline Insurance Market News.

But the majority of airlines continue to take steps to reduce losses, despite continued upward movement in average claims values.

Aon’s preliminary estimates suggest that total claims in 2010 breached the $2 billion level for the third time in four years.

The market incurred an estimated $2.1 billion in total losses in 2010, while lead premium for 2010 looks to be just above $1.9 billion. This means a significant shortfall for underwriters even before reinsurance and fixed costs.

But while 2010 saw significant claims, the data is not universally negative.

For example, Aon notes that some 601 airline-related fatalities occurred in 2010, compared to the long term average of 621.

While this could simply be a statistical anomaly, the fact that fatality rates have been below the average in all of the last five years does at least suggest an improvement.”

Aon hints at a shift to fewer but more expensive claims, noting that between 1995 and 2009 there were 67 claims on average that met the criteria for inclusion in its statistical analysis. Three of the last five years has seen the number of losses fall below this number, however.

Aon concludes:

Statistics can be used to justify any position that anyone chooses to take, and while the claims value average figures may continue to point upwards, the majority of airlines continue to take steps to reduce losses and ultimately insurance claims.”

Check out I.I.I. facts and stats on aviation.

Conditions in the airline insurance market have been getting calmer throughout 2010 and the market appears to be stabilizing, according to Aon’s Airline Insurance Market Indicators 2010/11 report.

While lead hull and liability prices continue to rise, the increases are tending to be lower than exposure growth, Aon says. This means that in real terms, the cost of airline insurance is falling.

At this point, it seems that there is the prospect of a stable or even soft insurance market for the rest of 2010 and into 2011, which will be welcome news after the difficulties that the airline industry has endured over the last couple of years.”

Aon reports that between January and July 2010, average lead hull and liability premium rose by 7 percent, average fleet values grew 9 percent and average passenger forecasts grew by 13 percent.

Nevertheless, the airline insurance market is perilously close to suffering a fourth consecutive year without return. Why?

A string of major losses since May has now put the 2010 claims level well above the long term average. Aon notes that total claims so far this year excluding minor losses are $996 million, compared to a long term average of $612 million.

If there are no more major losses during 2010, Aon estimates total losses for the year including minor losses will be in the region of $1.8 billion, while total lead hull and liability premium for the year will be just over $2 billion.

Taking fixed costs into account, this means that there is a very real possibility that the airline insurance market will make a loss for a fourth consecutive year.”

If this is the case Aon suggests that commitment to the sector may fall in 2011 and prices could rise as a result.

Check out I.I.I. aviation facts and stats.

The eruption of the Eyjafjallajökull volcano in Iceland has left the aviation industry reeling, but from the perspective of the insurance markets, the position is relatively clear, according to Aon’s May 2010 Airline Insurance Market News.

Aon notes that successful claims against standard airline liability insurance policies due to delays as a result of the volcanic eruption in Iceland are unlikely. The main reason for this is that this is a natural event and there has not been any actual damage to aircraft or property at this stage.

The picture is similar from the business interruption point of view. Stephen Cross, CEO, Aon Global Risk Consulting, says:

Typically, business interruption (BI) policies will most likely not be responding to the disruption to airspace caused by the volcanic ash. BI policies usually only kick in when there is physical damage. If ash falls to earth and lands on a business’ premises and causes damage, blocking air pipes that could lead to an explosion for example, then that could trigger a resulting BI policy.”

However, Cross says it’s important to note that insurance policies vary and a firm should always ensure they study their own policy language in determining whether they are able to claim on their insurance cover. Work continues on developing BI cover to make it more relevant and bring it into the 21st century, he adds.

Supply chain management is another critical area. Cross observes that it is the companies that have an effective plan for disruption that are likely to get back on their feet quickly:

While you can’t plan for every eventuality, especially rare occurrences as volcanic eruption, the fundamental principles of sound supply chain management still apply: you should always be aware of what business continuity measures your suppliers of critical inputs have in place and be thinking about alternative suppliers.”

Check out I.I.I. facts and stats on volcanoes and aviation.

Spare a thought for the tens of thousands of passengers (including I.I.I. president Dr. Robert Hartwig) stranded at airports across Europe as the continued eruption of a volcano beneath Iceland’s Eyjafjallajokull glacier grounded thousands of flights for the second consecutive day. According to an Associated Press report, Eurocontrol, the European air traffic agency, said half a dozen European nations have closed their airspaces and 60 percent of European flights would not operate with delays continuing into Saturday. Only 11,000 of the 28,000 flights on an average day were expected to take place Friday in European airspace, while about 100 trans-Atlantic flights arrived of the 300 typically expected. As for insurance implications, in a Reuters report via InsuranceJournal.com, several European reinsurers noted that the airlines typically are not insured against cancellations. In an article at BusinessWeek.com several insurers state that business interruption policies for airlines and airports would be triggered only if there is physical damage to equipment. An online article at National Underwriter quotes Gordon Woo at Risk Management Solutions saying that payouts from Iceland’s national natural catastrophe fund could follow if there is property damage. Aside from the significant travel disruption, the event highlights the point that even though many volcanoes with the potential to erupt are located where they can cause major damage and losses, the volcanic threat appears to attract little attention relative to other natural hazards. According to the 2009 Hazard and Risk Science Review from Aon Benfield and Partner Re research on the impacts of volcanic eruptions continues to grow. It’s worth noting that here in the United States volcanic eruption is a covered cause of loss under homeowners and business insurance policies. Check out State Farm’s info on insurance and volcano damage on what is and isn’t covered. Check out I.I.I. facts and stats on volcanoes.

Investigations continue into the plane crash that killed Polish president Lech Kaczynski and some of the country’s top political and military personnel on Saturday. According to reports, the Tupolev 154 aircraft en route from Warsaw to Smolensk crashed as it tried to land in foggy conditions about 1.5 km from Smolensk airport in Western Russia. All 97 people on board were killed, including Poland’s deputy foreign minister, a dozen members of Parliament, the chiefs of the army and the navy and its Central Bank governor. An April 12 New York Times article observes that investigators examining the crash appear to be focusing on why the pilot did not heed instructions from air traffic controllers to give up trying to land in bad weather. The NYT reports: “Their inquiry may lead to an even more delicate question: whether the pilot had felt under pressure to land to make sure that the Polish delegation would not be late for a ceremony on Saturday in the Katyn forest, where more than 20,000 Polish officers and others were massacred by the Soviets during World War II.” A tweet from Reinsurance Magazine, linking to an article at Postonline.co.uk cites reinsurance sources noting the crash is not thought to have been insured in the Lloyd’s market. Check out I.I.I. aviation facts and stats.

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