Insurance Industry

Insurers Flying High

Four insurance companies have received approval to use drones for claims and risk management purposes.
By: | April 16, 2015 • 3 min read
drones

Four insurers are among 125-some pioneering companies to receive approval from the Federal Aviation Administration to test drones for various commercial purposes in the U.S.

The FAA agreed to allow the insurers to test the use of unmanned aerial vehicles (UAVs) to survey everything from damaged roofs and flooded areas to tornadoes, hurricanes and other natural disasters.

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The insurers are American International Group Inc. (AIG), Erie Insurance Group, State Farm Mutual Automotive Insurance Co., and United Services Automobile Association (USAA).

In March, State Farm became the first insurer to receive FAA approval to test drones for commercial use. State Farm plans to explore the use of UAVs in assessing potential roof damage during the claims process and in responding to natural disasters.

“The potential use of unmanned aerial systems provides us one more innovative tool to help State Farm customers recover from the unexpected as quickly and efficiently as possible,” said Wensley Herbert, operations vice president-claims.

At AIG, the company received FAA approval to use UAVs to conduct inspections for risk assessment, risk management, loss control and surety for its customers.

Insurers granted exemptions to use drones are American International Group Inc. (AIG), Erie Insurance Group, State Farm Mutual Automotive Insurance Co., and United Services Automobile Association (USAA).

The exemption also permits AIG to implement a robust research and development program to explore new and innovative ways to employ UAVs.

UAVs can help accelerate surveys of disaster areas with high resolution images for faster claims handling, risk assessment and payments, according to the company. The drones can also quickly and safely reach areas that could be dangerous or inaccessible for manual inspection, and they provide richer information about properties, structures and claims events.

“AIG is committed to continuous improvement and innovation to providing better, faster and safer risk and claims assessments to our customers,” said Eric Martinez, executive vice president, claims and operations. “Leveraging cutting edge technologies like UAVs can enhance our ability to assess and mitigate risks to better help our customers and their communities prepare for and rebuild after a catastrophic event.”

AIG has already established an international UAV research and development center and conducted flights in New Zealand. These flights have provided valuable insights on technology, flight operations, and image collection technology, flight and image collection techniques that will be incorporated into AIG’s global UAV strategy, the company said.

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USAA said drones could help speed review of insurance claims from its members following natural disasters.

In October 2014, USAA filed for an exemption under Section 333 of the FAA Modernization and Reform Act of 2012 to enable more efficient testing of small drones. Exempt from select FAA regulations, USAA can now fly drones during the day within line-of-sight of a trained pilot and air crew. Prior to the approval, USAA test flights could only take place at FAA-approved sites.

USAA said drones could help speed review of insurance claims from its members following natural disasters.

Currently no aircraft is allowed to exceed an altitude of 400 feet, and all flights must continue to be reported to the FAA.

With FAA approval, USAA will work to efficiently research and develop best practices, safety, and privacy protocols and procedures as it further develops plans for operational use, according to the company.

USAA received a second exemption in early April that will allow the insurer to go operational in a catastrophic situation.

“We’re proud to be among the first insurers approved for this technology,” said Alan Krapf, president, USAA Property and Casualty Insurance Group. “It’s our responsibility to explore every option to improve our members’ experience.”

The USAA family of companies provides insurance, banking, investments and retirement products to 10.7 million current and former members of the U.S. military and their families.

A spokesperson for Erie insurance Group said the company believed drones, which they refer to as unmanned aerial systems (UAS), will play a major role in the future of insurance innovation and help the company be safer and more efficient in its claims handling and risk assessment.

“For example,” the spokesperson said, “if we need to assess a roof on a large building or one that has an especially steep pitch, we can now test the viability of using UASs instead of sending someone up on a ladder.

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“We hope to eventually be able to use UASs to assess damage after catastrophic weather events when physical structures can be especially precarious.”

Commercial drone flights are generally banned in the U.S. However, the FAA has awarded some exemptions for commercial drone use under a program created by Congress to allow flights while the agency completes more formal regulations.

Steve Yahn is a freelance writer based in Croton-on-Hudson, NY. He has more than 40 years of financial reporting and editing experience. He can be reached at riskletters@lrp.com.
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Risk Insider: Chris Thorn

The Threat From Within

By: | April 8, 2015 • 2 min read
Chris Thorn is a recently retired Southwest Airlines Senior Risk Manager and is currently a risk consultant. He is a CPA with 15 years of aviation risk experience including navigating through war risk insurance during the 9/11 crisis. He can be reached at chris.thorn@sbcglobal.net.

When you are a risk manager for an airline, hearing the news about a plane crash gets your attention immediately.  The first thing that goes through your mind is, “was it one of ours?”

When you discover it isn’t, you feel an overwhelming sense of relief as you can dismiss the next hundred thoughts that would immediately follow an affirmative response.  Next, you feel a little guilty as you realize one of your counterparts at another airline is not so lucky.

During the first few hours that follow an accident, speculation as to the cause consumes the media.  Was it mechanical?  Was it human error?  Was it terrorism?

This is important to discover so improvements can be made to prevent the next accident.  Thanks to the hard work of the NTSB, aircraft manufacturers, and airlines, many mechanical weaknesses have been addressed and improvements to pilot training have been made.

But what can be done about terrorism?

The FAA requires two people to be in the cockpit at all times.  Therefore, when a pilot goes to the lavatory, a flight attendant must enter the cockpit and lock the door.

In response to terrorists accessing the cockpits of four aircraft on 9/11, airlines reinforced and locked the cockpit doors of their aircraft to diminish the threat of unauthorized access.

Some airlines also decided to allow their pilots to carry firearms in the cockpit for an additional layer of protection.  This has worked very well to reduce outside threats.

However, sometimes our efforts to eliminate risk create new risks.  Creating a fortress of the cockpit has now created a weakness if the threat is already inside the cockpit.

What if a pilot is the threat?  This has been the leading theory for the missing Air Malaysia flight of last year and the recent Germanwings crash.

Some have suggested automating the flight controls by overriding the pilots if an unsafe condition is detected.  While this might solve a few instances of pilot error or maliciousness, it creates new risks such as tampering or sabotage.

Commercial aircraft have used the art of redundancy successfully for risk mitigation for a century.  There are two of every vital instrument, two pilots, two or more engines, etc.  This allows for a safe operation when something goes wrong with the first.  The second person or piece of equipment can take over.

The FAA requires two people to be in the cockpit at all times.  Therefore, when a pilot goes to the lavatory, a flight attendant must enter the cockpit and lock the door.

This is not required for some international carriers.  I expect to see many countries adopt the rule this year to prevent a recurrence of the Germanwings type incident.

After an accident, there is tremendous pressure to rectify the weakness in the process.  Just make sure the solution you put into place is effective and not creating even more risk than before.

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Sponsored: Berkshire Hathaway Specialty Insurance

Healthcare: The Hardest Job in Risk Management

Do you have the support needed to successfully navigate healthcare challenges?
By: | April 1, 2015 • 4 min read

BrandedContent_BHSIThe Affordable Care Act.

Large-scale consolidation.

Radically changing cost and reimbursement models.

Rapidly evolving service delivery approaches.

It is difficult to imagine an industry more complex and uncertain than healthcare. Providers are being forced to lower costs and improve efficiencies on a scale that is almost beyond imagination. At the same time, quality of care must remain high.

After all, this is more than just a business.

The pressure on risk managers, brokers and CFOs is intense. If navigating these challenges wasn’t stress inducing enough, these professionals also need to ensure continued profitability.

Leo Carroll, Senior Vice President, Healthcare Professional Liability, Berkshire Hathaway Specialty Insurance

Leo Carroll, Senior Vice President, Healthcare Professional Liability, Berkshire Hathaway Specialty Insurance

“Healthcare companies don’t hide the fact that they’re looking to reduce costs and improve efficiencies in practically every facet of their business. Insurance purchasing and financing are high on that list,” said Leo Carroll, who heads the healthcare professional liability underwriting unit for Berkshire Hathaway Specialty Insurance.

But it’s about a lot more than just price. The complexity of the healthcare system and unique footprint of each provider requires customized solutions that can reduce risk, minimize losses and improve efficiencies.

“Each provider is faced with a different set of challenges. Therefore, our approach is to carefully listen to the needs of each client and respond with a creative proposal that often requires great flexibility on the part of our team,” explained Carroll.

Creativity? Flexibility? Those are not terms often used to describe an insurance carrier. But BHSI Healthcare is a new type of insurer.

The Foundation: Financial Strength

BrandedContent_BHSIBerkshire Hathaway is synonymous with financial strength. Leveraging the company’s well-capitalized balance sheet provides BHSI with unmatched capabilities to take on substantial risks in a sustainable way.

For one, BHSI is the highest rated paper available to healthcare providers. Given the severity of risks faced by the industry, this is a very important attribute.

But BHSI operationalizes its balance sheet in many ways beyond just strong financial ratings.

For example, BHSI has never relied on reinsurance. Without the need to manage those relationships, BHSI is able to eliminate a significant amount of overhead. The result is an industry leading expense ratio and the ability to pass on savings to clients.

“The impact of operationalizing our balance sheet is remarkable. We don’t impose our business needs on our clients. Our financial strength provides us the freedom to genuinely listen to our clients and propose unique, creative solutions,” Carroll said.

Keeping Things Simple

BrandedContent_BHSIHealthcare professional liability policy language is often bloated and difficult to decipher. Insurers are attempting to tackle complex, evolving issues and account for a broad range of scenarios and contingencies. The result often confuses and contradicts.

Carroll said BHSI strives to be as simple and straightforward as possible with policy language across all lines of business. It comes down to making it easy and transparent to do business with BHSI.

“Our goal is to be as straightforward as we can and at the same time provide coverage that’s meaningful and addresses the exposures our customers need addressed,” Carroll said.

Claims: More Than an After Thought

Complex litigation is an unfortunate fact of life for large healthcare customers. Carroll, who began his insurance career in medical claims management, understands how important complex claims management is to the BHSI value proposition.

In fact, “claims management is so critical to customers, that BHSI Claims contributes to all aspects of its operations – from product development through risk analysis, servicing and claims resolution,” said Robert Romeo, head of Healthcare and Casualty Claims.

And as part of the focus on building long-term relationships, BHSI has made it a priority to introduce customers to the claims team as early as possible and before a claim is made on a policy.

“Being so closely aligned automatically delivers efficiency and simplicity in the way we work,” explained Carroll. “We have a common understanding of our forms, endorsements and coverage, so there is less opportunity for disagreement or misunderstanding between what our underwriters wrote and how our claims professionals interpret it.”

Responding To Ebola: Creativity + Flexibility

BrandedContent_BHSIThe recent Ebola outbreak provided a prime example of BHSI Healthcare’s customer-centric approach in action.

Almost immediately, many healthcare systems recognized the need to improve their infectious disease management protocols. The urgency intensified after several nurses who treated Ebola patients were themselves infected.

BHSI Healthcare was uniquely positioned to rapidly respond. Carroll and his team approached several of their clients who were widely recognized as the leading infectious disease management institutions. With the help of these institutions, BHSI was able to compile tools, checklists, libraries and other materials.

These best practices were immediately made available to all BHSI Healthcare clients who leveraged the information to improve their operations.

At the same time, healthcare providers were at risk of multiple exposures associated with the evolving Ebola situation. Carroll and his Healthcare team worked with clients from a professional liability and general liability perspective. Concurrently, other BHSI groups worked with the same clients on offerings for business interruption, disinfection and cleaning costs.

David Fields, Executive Vice President, Underwriting, Actuarial, Finance and Reinsurance

David Fields, Executive Vice President, Underwriting, Actuarial, Finance and Reinsurance, Berkshire Hathaway Specialty Insurance

Ever vigilant, the BHSI chief underwriting officer, David Fields, created a point of central command to monitor the situation, field client requests and execute the company’s response. The results were highly customized packages designed specifically for several clients. On some programs, net limits exceeded $100 million and covered many exposures underwritten by multiple BHSI groups.

“At the height of the outbreak, there was a lot of fear and panic in the healthcare industry. Our team responded not by pulling back but by leaning in. We demonstrated that we are risk seekers and as an organization we can deploy our substantial resources in times of crisis. The results were creative solutions and very substantial coverage options for our clients,” said Carroll.

It turns out that creativity and flexibly requires both significant financial resources and passionate professionals. That is why no other insurer can match Berkshire Hathaway Specialty Insurance.

To learn more about BHSI Healthcare, please visit www.bhspecialty.com.

Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s. Based in Boston, Berkshire Hathaway Specialty Insurance has regional underwriting offices in Atlanta, Boston, Chicago, Los Angeles, New York, San Francisco, Toronto, Hong Kong, Singapore and New Zealand. For more information, contact info@bhspecialty.com.

The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.




Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, programs, and homeowners insurance.
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