Controlling and Covering UAVs
Last winter a chunk of ice that fell from the roof of a friend’s house damaged his car. He figured the block weighed about five pounds and fell from roughly ten feet above the hood of the car.
Crunching the numbers, the energy deposited on the hood of his car was about 0.017 kilojoules. My friend told me that the comprehensive component of his auto insurance, minus the deductible, paid for the repair. His car insurance premium didn’t even budge.
An unmanned aerial vehicle (UAV) zips through the sky. Operated by a local television station to provide eye-in-the-sky coverage of the morning commute, the UAV costs much less to operate than a helicopter and pilot.
The UAV stops mid-air to zoom in on a traffic accident. Suddenly, the electrical power distribution system suffers a catastrophic failure, interrupting power from the batteries to the multiple electric motors that spin the UAV’s rotors.
Like the block of ice, the little craft obeys Newton’s law of universal gravitation. It can’t glide like an airplane or auto-rotate like a helicopter.
Summoning the glide ratio of a Steinway grand piano, it plummets straight down, becoming part of the accident scene.
The Federal Aviation Administration recently set the limits (PDF) which separate the lesser-regulated recreational use of UAVs from the commercial uses that are subject to all of the FAA’s regulations.
The upper-limit boundaries for the recreational UAVs flown for pleasure and not any commercial purpose is a maximum weight of 55 pounds and a maximum height of 400 feet above the ground.
In the scenario above, the UAV would hit whatever or whoever is beneath it with a kinetic energy of 7.45 kilojoules, over 400 times the energy expended on my friend’s car by that block of ice.
No longer a figment of science fiction, UAVs are here and in use. While the FAA struggles to keep the genie in the bottle during the testing period with their six designated operators and test sites, the technological leaps and bounds in the UAV industry are making the use of pilotless aircraft ever-more attractive.
The practical side of the commercial operation of UAVs will still come down to good business practices, like any other business. Commercial liability products will continue to be the mortar for those good business practices.
Therefore, if companies that operate UAVs expect to reduce their risks by the common practice of risk sharing with insurers and underwriters, then the insurance industry will have a say in how UAVs will be operated.
Risk mitigation tools which the insurance industry may wish to encourage are:
• Ballistic parachute systems to reduce impact energy in the event of a catastrophic loss of lift or control.
• Redundant electrical power paths to reduce single-point failure to critical systems such as engine power, flight control, and navigation.
• Flight operator training and currency requirements, including differentiation between recreational operations and commercial operations.
• Flight certifications for a particular purpose like aerial observation, aerial application (crop dusting), UAV flight training, and so on.
• Maintenance standards to ensure UAVs are sufficiently airworthy to warrant coverage.
Now is one of those times when it is better to hop off the wagon and lead the horses than remain seated and seeing where the wagon train ends up. For more information, click here.
Aviation Insurance Up 300% to 1,000%
The horrors of airline disasters have been flashing on cable news for 24 hours, seven days a week, for months.
Four months ago, Malaysian Airlines Flight MG370 disappeared en route to Beijing with 239 passengers. Then on July 17, pro-Russian rebels apparently blasted Malaysian Airlines Flight MH17 out of the sky over eastern Ukraine, killing all 298 passengers on board.
While The Guardian asked the legitimate question of whether Malaysian Airlines will survive the double-header disasters, the aviation insurance industry on the whole appears to be on solid ground.
“For the most part is, there hasn’t been a real knee-jerk reaction,” said Garrett Hanrahan, U.S. aviation practice leader for Marsh in Dallas. “The market has been rationale in the way that it has approached what has happened.”
Video: This report from the Canadian Broadcasting Corp. looks at how Malaysia Airlines Flight MH17 ended up flying in the volatile Eastern Ukraine region.
That’s saying something, given what the market is facing.
The war hull market takes in $60 million in worldwide premium but is looking at 10 times that in losses from recent events, estimated Hanrahan’s colleague, Brian Glod, Marsh’s U.S. airline practice leader in New York.
That includes paying out the full property value of MH17 as well as half of the missing Malaysian plane (with all-risk aviation taking the other half; common practice in these “unknown cause” scenarios).
Then, there’s the biggest event from a monetary standpoint: a two-day battle between rebel groups in July that destroyed up to 12 aircraft at Tripoli’s airport in Libya. This event’s total losses could be upward of $500 million, Glod said.
While war hull underwriters may not be panicking, as Hanrahan suggested, they are looking to collect.
Paul Tuhy, head of XL’s Global Aviation business, reported he’s heard of rate increases in the market of 300 percent to 1,000 percent.
The other aviation coverage impacted is primary hull and liability, and underwriters there can be expected to recover losses in upcoming premiums. They’re also getting hit with the July 24 crash of Air Algerie Flight 5017, where terrorism was ruled out, and the July 23 crash of TransAsia Flight GE222, mostly likely caused by weather.
“I do think the market will react with rate increases,” Tuhy said, indicating it’s been a soft market looking for a rationale to pivot.
Still, underwriters aren’t panicking because, as A.M. Best reported in a briefing on MH-17, no ratings actions will result from the losses.
That, and the competitiveness in the primary aviation market, means ample availability.
“There still is an enormous amount of capacity in the aviation insurance marketplace, and that is keeping a lid on the pot,” said Hanrahan, echoing the conclusions of the Best report.
Airlines appear to be handling the spate of incidents in stride as well. Recent news reports (such as this article in The Economist) have made much of airlines’ decisions to reroute (or not reroute) flights away from Ukraine and other war zones.
These decisions, said Glod, are coming from senior management, well above the risk manager’s head.
But risk managers will be the ones asked by underwriters about flight paths and whether their planes will come close to hotspots.
“They’re asking those questions now,” Glod said, of underwriters.
The result could be a tiered underwriting approach, Hanrahan said, where insurers will break down operators’ risk geographically — where do they fly to, over and from?
In such a system, U.S. operators — which are “extremely diligent and cautious,” said Glod — most likely will not pay a disproportionate amount of the rate increases.
XL confirmed that it has been asking about plane flight paths, said Tuhy.
These terrible incidents do not happen very often, he said, but “but when they do happen, they’re bad.”
The Next Wave of Workers’ Comp Medical Cost Savings
Managing medical costs for workers’ compensation claims is like pushing on a balloon. As you effectively manage expenses in one area, there are bound to be bulges in another.
Over the last decade, great strides have been made in managing many aspects of workers’ compensation medical costs. Case management, bill review and pharmacy benefits management are just a few categories that produce significant returns.
And yet, according to the National Council on Compensation Insurance (NCCI), medical costs remain the largest percentage of workers’ comp expenses. Worse still, medical costs continue to be the fastest growing expense category.
Many medical services are closely managed through provider negotiations, bill review, utilization review, pharmacy benefits management, to name a few. But a large opportunity for medical cost containment remains largely untouched and therefore represents a significant opportunity for cost savings.
Ancillary medical services is a term used to describe specialty or supplemental health care services such as medical supplies, home health care, durable medical equipment, transportation and physical therapy, etc.
According to Clifford James, Vice President of Strategic Development at Healthesystems in Tampa, Fla., modernizing the process for managing ancillary medical services presents compelling opportunities for cost savings and improved patient care.
Source: 2014 Healthesystems Ancillary Medical Services Survey
“The challenge of managing these types of medical products and services is a cumbersome and extremely disconnected process,” James said. “As a result, it represents a missing link in an overall medical cost management strategy, which means it is costing payers money and patients the most optimal care.”
James singled out three key hurdles:
Lack of transparency
As the adage goes, you can only manage what you can measure.
Yet when it comes to the broad range of products and services that comprise ancillary benefits, comprehensive data and benchmarking metrics by which to gauge success are hard to come by.
The problem begins with an antiquated approach to coding medical services that was developed in the 1970s. The coding system falls short in today’s modern health care environment due to its lack of product and service level detail such as consistent units of measure, quantity and descriptors.
As a result, a meaningful percentage of ancillary benefits spending is coded as “miscellaneous,” which means a payer has little to no visibility into what product or service is being delivered — and no way to determine if the correct price is being applied or if the item is even necessary or appropriate.
Source: 2014 Healthesystems Ancillary Medical Services Survey
“It’s a big challenge. Especially when you consider that for many payers, it’s difficult to determine exactly what they are spending, or identify what the major cost drivers are when it comes to ancillary services,” James said. And when frequently over 20 percent of these types of services are billed as miscellaneous, payers have zero visibility to effectively manage these costs.
Measurement and monitoring
Often, performance that is monitored is given the most attention. Therefore, ancillary programs that are closely monitored and measured against objective benchmarks should be the most successful.
However, benchmarks are hard to determine because multiple vendors are frequently involved using disparate data and processes. There isn’t a consistent focus on continuous quality improvement, because each vendor operates off of their own success criteria.
“Leveraging objective competitive comparisons breeds success in any industry. Yet for ancillary services there is very limited data to clearly measure performance across all vendors,” James said. “And for payers, this is a major area of opportunity to promote service and cost containment excellence.”
Source: 2014 Healthesystems Ancillary Medical Services Survey
If you ask claims executives about their strategies for improving the claims management process, a likely response may be “workload optimization.” The goal for some is to enable claims professionals to handle a maximum case load by minimizing administrative duties so they can leverage their expertise to better manage the outcome of each case.
But the path towards “workload optimization” has many hurdles, especially when you consider what needs to be coordinated and the manual way it frequently is done.
Ancillary benefits are a prime example. For a single case, a claims professional might need to coordinate durable medical equipment, secure translation services, arrange for transportation and confirm the best physical therapy plan. Unfortunately they often don’t have the needed time, or the pertinent information, in order to make quick, yet informed, decisions about the ancillary needs of their claimants.
In addition there is the complexity of managing multiple vendor relationships, juggling various contacts, and accessing multiple platforms and/or making endless phone calls.
“We’ve been called the ‘industry integrator’ by some people, and that’s accurate. We are delivering a proven platform connecting payers with providers and vendors on the ancillary medical benefit front. It’s never been done before.”
– Clifford James, Vice President of Strategic Development, Healthesystems
Modernizing the process
To the benefit of both payers and vendors, Healthesystems offers Ancillary Benefits Management (ABM).
The breakthrough ABM solution consists of three foundational components — a technological platform, proprietary medical coding system and a comprehensive benefits management methodology.
The technological platform integrates payers and vendors with a standardized architecture and processes. Business rules and edits can be easily managed and applied across all contracted vendors. All processes – from referral to billing and payment – are managed on a single platform, empowering the payer with a centralized tool for managing the quality of all ancillary providers.
But when it comes to ancillary products, the critical and unique challenge Healthesystems had to solve is the antiquated coding system. This was completed by developing a highly granular, product-specific coding system including detailed descriptions and units of measure for all products and services. This coding provides payers with the clearest understanding of all products and services delivered including pricing and all the necessary utilization metrics.
“We bring the highest level of transparency and visibility into all ancillary products and services,” James said, adding that the ABM platform uses an extensive preferred product coding system 15 times more detailed than any other existing system or program.
This combination of sophisticated technology, proprietary coding system and benefit management methodology revolutionizes the ancillary category. Some of the benefits include:
- Crystal-clear transparency
- A more detailed and comprehensive view into ancillary products and services
- An automated process that eliminates billing discrepancies or resubmittals
- Integrated and consistent processes
- Strategic program management
Taken together, the system leapfrogs over the existing hurdles while creating entirely new opportunities. It’s a win for vendors and payers, and ultimately for patients, who receive the optimal product or service.
“We’ve been called the ‘industry integrator’ by some people, and that’s accurate,” James said. “We are delivering a proven platform connecting payers with providers and vendors on the ancillary medical benefit front. It’s never been done before.”
To learn more about the Healthesystems Ancillary Benefits Management solution visit: http://www.healthesystems.com/solutions-services/ancillary-benefits