Bird’s Eye View of Hurricane Damage
Hurricane Matthew, which battered the East Coast and the Caribbean in October, was the first major U.S. event where insurers used drones to inspect damage and help process claims.
With estimated losses from the Category 4 storm expected to reach $4 billion to $8 billion, according to industry sources, the need for the quick processing and settlement of claims has never been greater.
Already more than 90,000 claims totaling almost $550 million have been filed in Florida, according to the state’s Office of Insurance Regulation, while in North Carolina that figure stands at $1.5 billion.
Allstate’s communications manager, Justin Herndon, said the use of drones had the potential to double the amount of properties a claims adjuster could look at in one day.
Just weeks before Hurricane Matthew struck, the Federal Aviation Administration (FAA) introduced new regulations governing the use of commercial drones that made it easier for insurers to use them to inspect and assess property damage after a disaster.
As a result, insurance companies were able to enlist drones for the first time to speed up the claims process and improve safety for their staff after the storm blew back out to sea.
“Drones are absolutely speeding up the process,” Herndon said. “Where an adjuster now might be able to take measurements and photos and look at individual damage in a couple of hours, a simple 15-minute drone flight can capture everything that’s needed and immediately upload it to the cloud for our review.
“Where an adjuster and a ladder might be able to look at three to four homes in a day, an adjuster with a drone could potentially inspect six to eight homes in a day, if not more.”
So far, more than a dozen insurance companies have received approval to operate drones in the U.S., including Travelers.
Jim Wucherpfennig, vice president of claim property at Travelers, said that a team of 20 claims professionals trained to pilot drones were deployed to assess residential and commercial property damage in the five states primarily hit by the hurricane.
So far, he said, more than 125 drone inspections were carried out at affected sites, taking “days” out of the claims process.
“It definitely speeds up the processing of claims,” he said. “With the use of a drone we’re able to do everything in one visit; analyze the damage, get all the measurements down, write the property estimate and give the customer payment for covered losses.
“The anecdotal feedback we get is this is cutting down the time to payment and/or claim rejection.” — John Geisen, senior vice president, aviation practice, Aon
“That enables the repairs process to begin much more quickly.
“It definitely takes days out of the process in terms of eliminating multiple site visits and the scheduling of contractors, and helps the customer get back on their feet more quickly.”
The company launched its training program last Spring in anticipation of the FAA rules and to date it has 60 FAA-certified professionals, with hundreds more being trained in the next several months.
Herndon of Allstate said that the drones assisted in the inspection of around 25 homes, opening the door to more wide-scale use of the technology in the future.
Allstate had previously tested the drones, which can capture 4K-resolution images, enabling adjusters to zoom in with much greater detail, in Texas after a hailstorm.
“To be able to use drones with our customers who have actual storm damage is a big step forward,” said Allstate’s chief claims officer Glenn Shapiro.
Lockton doubled its use of drones during Hurricane Matthew from previous smaller events, said Sheri Wilson, senior vice president and national property claims director.
“My sense is that Matthew was still more of a test op for many insurers than widespread deployment, but it clearly is trending to greater use,” said John Geisen, senior vice president with Aon’s aviation practice.
“The anecdotal feedback we get is this is cutting down the time to payment and/or claim rejection. If faced with a large count of claims, you might not have the time to scrutinize each as deeply so the ability to quickly assess for damage and focus attention, has value.”
Josh Spencer, in catastrophe operations for Zurich North America said that the company used imagery from the National Oceanic and Atmospheric Association as well as data from its call centers and its staff on the ground to assess damage.
The use of drones had also improved the safety of claims professionals by removing the need to climb ladders to inspect roofs and other structures, Wucherpfennig said.
Herndon said: “Safety is a major concern for any adjuster getting on a roof today. There can be steep inclines, slippery/wet surfaces or weak areas from damage where a tree fell, for example.
“A drone evaluation takes all of those concerns away and so we see the future use of drones as a great way to improve safety for our claims professionals.”
Risks Without Boundaries
Representatives from the private and public sector met with policymakers and members of the insurance industry in October to discuss ways to build greater resilience in cities.
“We have an opportunity to start planning now,” said former N.J. Gov. Christine Todd Whitman during “Cities in the Crosshairs: The Case for Investing in Resilience,” presented by Lloyd’s of London in partnership with the American Security Project, a nonpartisan national security think-tank.
“We must build more resilient systems because we know these impacts are coming,” said Whitman, who is board chairman of the American Security Project and a past administrator of the Environmental Protection Agency.
“We desperately need the private sector; this needs to be a collaborative approach.”
The participants at the New York conference discussed best practices in risk assessment, mitigation, adaptation and risk transfer.
The event comes on the heels of the release of Lloyd’s “City Risk Index,” it’s first-ever analysis of the potential impact of 18 catastrophic threats on the gross domestic product of 301 major international cities. The index uses a metric Lloyd’s calls [email protected] to quantify potential losses from threats to a location’s projected 10-year economic output.
“Our risk list shows how much the risk landscape is changing,” said Lloyd’s CEO Inga Beale, who said the report is a “wake-up call to us all.”
“Now the world is so much more about intangible risks,” she said.
“We need to innovate our products to this ever changing world.”
Just 10 threats account for 91 percent of the Total [email protected], according to Lloyd’s research, which was done in collaboration with University of Cambridge.
Nearly half are man-made, including market crash, cyber attack, power outage and nuclear accident.
“A lot of risks used to be geographically bounded,” Beale said.
“Now, with cyber and climate change, it is without boundaries.”
Market crash leads the list by a wide margin, with pandemic, windstorm, earthquake and flood rounding out the Top 5. Oil price shock, terrorism, drought, heat waves, tsunami and volcanos ares some of the other more costly disasters.
New York, and Los Angeles ranked No. 5 and 6, respectively, on the list of cities with high-asset values that are most financially exposed to disaster. Also high on the list were Taipei, Tokyo, Seoul, Manila, Istanbul, Osaka, Hong Kong and Shanghai.
Dense population coupled with climate warming and new technology contributes to higher damages associated with natural disasters.
“There are more people living in the cities than at any time in history,” said panel leader Dante Disparte, founder and CEO of risk and capital management firm Risk Cooperative.
Population density coupled with climate change and new technology contributes to higher damages associated with natural disasters. Meanwhile, the gap between what the insurance industry pays to cover a catastrophe compared with the actual clean-up cost is widening.
That insurance gap continues to be an elusive goal for the insurance industry at the moment, said Fielding L. Norton, deputy chief enterprise risk officer of XL Catlin.
The insurance gap “is a missed opportunity for my industry to be relevant and to help businesses and communities to get back on their feet in the aftermath of a disaster,” Norton said.
He said his company is working to anticipate catastrophes and devise innovative products to address them.
XL Catlin recently devised several programs to reach underinsured areas, and is one of eight participants in Lloyd’s newly created disaster risk facility. The facility involves syndicates cooperatively developing solutions to help developing economies tackle underinsurance and improve their resilience.
“One of the most important things we do for our company and for our clients is to not fail to imagine the things that are possible,” Norton said.
“Failure of imagination is a phrase we use all the time in our enterprise risk management group.”
“Lloyd’s has always been at the forefront of taking new risks,” Beale said.
“We’ve been very much underwriting alongside human progress for centuries and we must continue to do this.”
From Drones to Defects: Planning for Construction’s Top Challenges
The construction industry is firing on all cylinders. New projects spring up every day, but not all go according to plan.
Three out of every four construction projects fail to finish on time. Every party involved – owners, designers, contractors and subcontractors – expects perfection, with the final product delivered on schedule and on budget. Those expectations leave little room for uncertainty, so even a small hiccup can have ripple effects that disrupt a project for everyone.
“There’s often a big disconnect on the front end of project planning,” said Doug Cauti, Senior Vice President, National Insurance, Chief Underwriting Officer, Construction, Liberty Mutual.
Proactive risk mitigation is also important to manage emerging challenges facing the construction industry ‒ drone regulations are evolving, commercial auto losses are rising, and so is uncertainty about which party might be held responsible for a construction defect. Without the proper planning, these issues can easily be overlooked and result in major losses and project disruption.
Liberty Mutual’s Doug Cauti discusses key challenges facing the construction market.
“Key risk management strategies have to be aligned among all parties from the beginning to minimize these uncertainties.”
Before construction begins, there are actions that project owners, designers and contractors can take to address these challenges and better protect their projects and businesses:
Drones can be useful tools on construction sites, providing an extra set of “eyes” for large commercial projects or tall buildings. They provide a real time aerial glimpse of works in progress, giving supervisors an added perspective to spot potential flaws, assess safety hazards, and check on workers. But many challenges remain in the safe — and legal — operation of drones.
Liberty Mutual’s interactive infographic highlights risks related to managing drones at construction sites, and also includes a pre-planning drone use guide and a pre-flight checklist that includes making sure to review the latest drone regulations.
How construction buyers can manage the insurance implications of using drones in their operations.
General contractors and project owners need to stay up to speed on FAA regulations, which changed in August, 2016.
“For one thing, operators need to have the drone in sight at all times,” Cauti said.
“And you need to make sure any operators are appropriately licensed and trained, that the drones are regularly maintained, and that the machines don’t impede on others’ safety and privacy.”
Clear flight paths and work zone boundaries can minimize the risk of a drone striking another property, or worse, a person. Operators should also know how to conduct an emergency landing if the drone suddenly loses power. It’s also important to consider how you are going to manage and use drone footage. Advertising liability can be a concern if third party images are captured and released. Know who is in charge of the data collected, who has access to it, and how you are going to protect it.
“If the contractor owns the drone, it takes on more liability. The contractor should review its insurance policies to make sure the coverage will respond to that risk,” Cauti said.
“As an insurance carrier, we may have a role to play in those proactive discussions. We are uniquely positioned to help project stakeholders see their risks and work to minimize them.”
— Doug Cauti, Senior Vice President, National Insurance, Chief Underwriting Officer, Construction, Liberty Mutual Insurance
Contractors and project owners can protect themselves through enhancements to their commercial general liability policies or through separate aviation policies, he said.
If a general contractor leases a drone through a third party, “they bear the responsibility of making sure the vendor is fully insured,” Cauti said. Vendors should have “non-owned” aviation coverage with limits suitable to handle the size of the risk.
Commercial auto losses challenge many business sectors, and construction is no exception.
More vehicles on the road and more miles driven, combined with fewer experienced commercial drivers, are driving up the frequency of accidents. On construction sites in particular, congestion created by closed roads, piles of materials and roving heavy machinery may lead to work zone accidents. Rising medical costs and repair and replacement costs of high-tech vehicles increase claim severity.
“I don’t see this trend reversing any time soon,” Cauti said.
Mitigating commercial auto losses begins with driver hiring practices.
“Pay attention to who you put behind the wheel,” Cauti said.
“Motor vehicle reports (MVRs) and driving history can alert employers to previous accidents or tickets. But there also needs to be regular communication with the drivers you do hire, and clear protocols in place that define expectations of how the job should be performed,” he added.
Ways construction buyers can manage rising commercial auto loss costs and better protect their fleets and employees.
Those protocols include requiring the use of seat belts, prohibiting cell phone use while behind the wheel, mandating scheduled breaks, outlining maintenance procedures, defining if company vehicles can be used for personal use, and establishing crash report procedures that delineate who to contact and what information to collect in the event of an accident.
Contractors can also monitor fleet performance through telematics systems. These on-board systems can track unsafe driving behaviors like hard braking, sharp turns, and speeding. But the data is only as good as the person analyzing it. Contractors and project owners should partner with an insurer who can use fleet telematics data effectively to pinpoint common causes of accidents and recommend specific risk mitigation strategies.
Liberty Mutual’s Managing Vital Driving Performance is one tool that leverages insureds existing telematics data to identify unsafe driving behaviors and accident patterns.
“Our risk control consultants can drill deeper into the data and interview drivers to identify patterns and find out the root causes of bad driving behaviors in the first place,” Cauti said.
For example, a post-accident interview with a driver could reveal that he had been skipping breaks and spending too many hours on the road, leading to fatigue and inattentive driving.
Identifying those connections enables consultants to make specific risk mitigation recommendations, such as adjusting drivers’ schedules and workloads to reduce overtime, or adjusting dispatch protocols so employers can ensure drivers aren’t working too many shifts in a short period of time.
Another uncertainty project owners, designers and contractors have to face is how insurance coverage will apply should a project end up in a dispute. “The struggle is around the definition of ‘faulty workmanship’ and who is responsible for the defect. Is it in the design or the build?” Cauti said.
“There can be a lot of finger pointing involved. This reinforces the need for contractors to have a systematic quality assurance (QA) program that adheres to best practices, and for every party to have a role in it.”
Elements of a QA program could include testing of construction materials, conducting regular walk-throughs and obtaining approvals from the owner at key phases, and final sign-off by the owner at the project’s completion.
How construction defects and the current legal climate are affecting projects.
Construction defect claims can affect a business’s reputation, profits, and ability to maintain insurance coverage. That’s why it’s so important to be vigilant about avoiding construction defects, whether you’re a designer, developer, owner or general contractor.
Ultimately, though, these risks should be addressed before ground is broken. Discussing these challenges and collaborating on loss prevention strategies up front reduces the likelihood that any “hiccups” will throw off project timelines or increase costs for the various stakeholders.
Pre-planning discussions also offer the opportunity for these parties to take advantage of carrier partners’ risk control services.
“As an insurance carrier, we may have a role to play in those proactive discussions,” Cauti said.
“We are uniquely positioned to help project stakeholders see their risks and work to minimize them.”
To learn more about Liberty Mutual’s solutions for the construction industry, visit https://business.libertymutualgroup.com/business-insurance/industries/construction-insurance-coverage.
 Managing Uncertainty and Expectations in Building Design and Construction SmartMarket Report
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.