Emerging Risk: Drones

Risky Flights

Drone risks include collisions with aircraft, invasion of privacy, aerial surveillance and data collection.
By: | March 2, 2015 • 2 min read
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The increasing use of drones for commercial purposes has become one of the biggest emerging threats to the future of airplane safety, according to Allianz Global Corporate & Specialty (AGCS).

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The use of unmanned aerial vehicles (UAVs) for a host of different applications may leave operators exposed to a whole new set of risks, including third-party damage or injury and liability, according to AGCS’s Global Aviation Safety Study.
One of the biggest risks, it said, was from radio frequency interference, resulting in loss of control, and, in the worst cases, fatalities.

Other problems include invasion of privacy, aerial surveillance and data collection.

“With the ability to collect massive amounts of unsolicited data, UAVs present an enormous threat to individual privacy and a significant challenge for insurance carriers,” said Vikki Stone, senior vice president at Poms & Associates Insurance Brokers. “In drafting policies, it is crucial for carriers to know how such information will be used.”

The production of UAVs has increased by double-digits year-on-year since 2007, according to AGCS, with applications ranging from news gathering and surveillance to sporting events and crop dusting.

Such has been the take-up that the Federal Aviation Administration (FAA) estimates that by 2020, there will be about 30,000 small commercial unmanned aircraft in our skies.

However, coverage is limited, with only about 21 insurers involved and those that do offer policies have been hampered by a lack of historical and analytical data, the study said.

“Annual utilization, number of accidents and repair costs are not readily available and unmanned aircraft are not presently flying at the rate that they will be in the near future in the national airspace,” the report said.

Another problem is that, despite FAA plans to integrate UAVs into the U.S. airspace in 2015, there is a “lack of international, regional and local regulations for the safe operation of UAVs,” said Henning Haagen, AGCS’s global head of aviation EMEA and Asia Pacific.

Stone said that the No. 1 concern among carriers was the lack of certification of UAV pilots.

“I think the bigger problems are going to be the people that don’t follow the guidelines required, so ultimately we’ll end up with a number of rogue flyers out there — that’s the scary part,” she said.

Peter Schmitz, CEO of global aviation specialty at Aon, outlined other major risks of drones.

“The biggest threat is clearly the taking down of a major aircraft in a mid-air collision,” he said.

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“The second issue is the application of these vehicles in urban areas where the risk of damage to properties and individuals is much greater than it would be in rural parts.”

Schmitz said that regulatory authorities across the world face an uphill task in coming to grips with these issues because UAVs are still a relatively new and unknown quantity in terms of repair costs and loss ratios.

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at riskletters@lrp.com.
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Risk Insider: Greg Bangs

A Costly Masquerade

By: | March 1, 2015 • 2 min read
Gregory W. Bangs is Chief Underwriting Officer of Global Crime at XL Group. Over the last 30 years, he’s been underwriting insurance and developing new products in the US, UK, Hong Kong and France. He can be reached at Gregory.Bangs@xlgroup.com.

“Hello, this is the IRS.”  That’s a phone call that will get attention and it has.

Such calls generated some 50,000 complaints to the Federal Trade Commission (FTC) last year and resulted in the loss of more than $14 million, fraudulently obtained from 3,000 individuals.  Individuals are not the only targets for similar social engineering schemes.  A growing number of companies have fallen victim and it’s costing billions.

The term “social engineering” refers to crimes that use information to persuade people to do things they wouldn’t otherwise do. While some criminals focus on online theft and breaches, social engineers employ information and ‘people’ skills to manipulate employees to part with money, data or other company assets.

Companies tend to fall victim to three main types of social engineering fraud:

•  Vendor impersonation: Claiming to be a business vendor, a criminal sends an official-looking e-mail requesting a change to the account where payments are sent. Under the guise of politely asking a company to update its records, criminals are able to divert legitimate payments to their own accounts.

•  Executive impersonation: This tactic is frequently employed in multinational companies with an “executive” of one foreign subsidiary enlisting the help of a more junior employee in another subsidiary. A criminal convinces an employee in the Accounting or Finance Department to electronically transfer money for a “secret” M&A deal, a tax payment, or a “war chest” to help save jobs at a money-losing subsidiary.

•  Client impersonation: Social engineers sometimes pretend to be or to represent a client of a company. In one case, a criminal posing as a wealthy client persuaded a business manager to transfer $3 million.

Businesses give away a lot of information online, names of top executives, clients, etc.  Many private companies physically discard a huge quantity of company information providing “dumpster diving” opportunities for these criminals.

Social engineering relies on employees being helpful. It actually exploits it.

Some criminals like to gain access to a company’s facility to nose around a bit, posing as a delivery driver or cleaning person, and picking up passwords, user IDs – many of which are left on Post-It notes on employees’ desks – or other client and employee information.

After developing a level of inside knowledge, social engineers then work to gain an employees’ trust, sometimes over time, in a series of calls.  Once trust is gained, they exhort urgency to get action. “I need your help immediately.”

Social engineering relies on employees being helpful. It actually exploits it.

To fight such fraud, companies have to tap into their employees’ helpfulness too.  Make them aware of such fraud scams.   Encourage them to raise red flags.  Give them a means to escalate unusual activity, a way to bring it to someone’s attention.  Develop protocols around changing account information or vendor records.

Social engineers are out there in growing numbers. It’s a lucrative business. Constant vigilance, more awareness and the right protocols will help companies, and their employees, keep from falling prey to their wily schemes.

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Sponsored: Aspen Insurance

A Modern Claims Philosophy: Proactive and Integrated

Aspen Insurance views the expertise and data of their claims professionals as a valuable asset.
By: | March 2, 2015 • 4 min read
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According to some experts, “The best claim is the one that never happens.”

But is that even remotely realistic?

Experienced risk professionals know that in the real world, claims and losses are inevitable. After all, it’s called Risk Management, not Risk Avoidance.

And while no one likes losses, there are rich lessons to be gleaned from the claims management process. Through careful tracking and analysis of losses, risk professionals spot gaps in their risk control programs and identify new or emerging risks.

Aspen Insurance embraces this philosophy by viewing the data and expertise of their claims operation as a valuable asset. Unlike more traditional carriers, Aspen Insurance integrates their claims professionals into all of their client work – from the initial risk assessment and underwriting process through ongoing risk management consulting and loss control.

This proactive and integrated approach results in meaningful reductions to the frequency and severity of client losses. But when the inevitable does happen, Aspen Insurance claims professionals utilize their established understanding of client risks and operations to produce some truly amazing solutions.

“I worked at several of the most well known and respected insurance companies in my many years as a claims executive. But few of them utilize an approach that is as innovative as Aspen Insurance,” said Stephen Perrella, senior vice president, casualty claims, at Aspen Insurance.

SponsoredContent_Aspen“We do a lot of trending and data analysis to provide as much information as possible to our clients. Our analytics can help clients improve upon their own risk management procedures.”
— Stephen Perrella, Senior Vice President, Casualty Claims, Aspen Insurance

Utilizing claims expertise to improve underwriting

Acting as adviser and advocate, Aspen integrates the entire process under a coverage coordinator who ensures that the underwriters, claims and insureds agree on consistent, clear definitions and protocols. With claims professionals involved in the initial account review and the development of form language, Aspen’s underwriters have a full sense of risks so they can provide more specific and meaningful coverage, and identify risks and exclusions that the underwriter might not consider during a routine underwriting process.

“Most insurers don’t ever want to talk about claims and underwriting in the same sentence,” said Perrella. “That archaic view can potentially hurt the insurance company as well as their business partners.”
SponsoredContent_AspenSponsoredContent_AspenAspen Insurance considered a company working on a large bridge refurbishment project on the West Coast as a potential insured, posing the array of generally anticipated construction-related risks. During underwriting, its claims managers discovered there was a large oil storage facility underneath the bridge. If a worker didn’t properly tether his or her tools, or a piece of steel fell onto a tank and fractured it, the consequences would be severe. Shutting down a widely used waterway channel for an oil cleanup would be devastating. The business interruption claims alone would be astronomical.

“We narrowed the opportunity for possible claims that the underwriter was unaware existed at the outset,” said Perrella.

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Risk management improved

Claims professionals help Aspen Insurance’s clients with their risk management programs. When data analysis reveals high numbers of claims in a particular area, Aspen readily shares that information with the client. The Aspen team then works with the client to determine if there are better ways to handle certain processes.

“We do a lot of trending and data analysis to provide as much information as possible to our clients,” said Perrella. “Our analytics can help clients improve upon their own risk management procedures.”
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SponsoredContent_AspenFor a large restaurant-and-entertainment group with locations in New York and Las Vegas, Aspen’s consultative approach has been critical. After meeting with risk managers and using analytics to study trends in the client’s portfolio, Aspen learned that the sheer size and volume of customers at each location led to disparate profiles of patron injuries.

Specifically, the organization had a high number of glass-related incidents across its multiple venues. So Aspen’s claims and underwriting professionals helped the organization implement new reporting protocols and risk-prevention strategies that led to a significant drop in glass-related claims over the following two years. Where one location would experience a disproportionate level of security assault or slip & fall claims, the possible genesis for those claims was discussed with the insured and corrective steps explored in response. Aspen’s proactive management of the account and working relationship with its principals led the organization to make changes that not only lowered the company’s exposures, but also kept patrons safer.

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World-class claims management

Despite expert planning and careful prevention, losses and claims are inevitable. With Aspen’s claims department involved from the earliest stages of risk assessment, the department has developed world-class claims-processing capability.

“When a claim does arrive, everyone knows exactly how to operate,” said Perrella. “By understanding the perspectives of both the underwriters and the actuaries, our claims folks have grown to be better business people.

“We have dramatically reduced the potential for any problematic communication breakdown between our claims team, broker and the client,” said Perrella.
SponsoredContent_AspenSponsoredContent_AspenA fire ripped through an office building rendering it unusable by its seven tenants. An investigation revealed that an employee of the client intentionally set the fire. The client had not purchased business interruption insurance, and instead only had coverage for the physical damage to the building.

The Aspen claims team researched a way to assist the client in filing a third-party claim through secondary insurance that covered the business interruption portion of the loss. The attention, knowledge and creativity of the claims team saved the client from possible insurmountable losses.

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Modernize your carrier relationship

Aspen Insurance’s claims philosophy is a great example of how this carrier’s innovative perspective is redefining the underwriter-client relationship. Learn more about how Aspen Insurance can benefit your risk management program at http://www.aspen.co/insurance/.

Stephen Perrella, Senior Vice President, Casualty, can be reached at Stephen.perrella@aspen-insurance.com.

This article is provided for news and information purposes only and does not necessarily represent Aspen’s views and does constitute legal advice. This article reflects the opinion of the author at the time it was written taking into account market, regulatory and other conditions at the time of writing which may change over time. Aspen does not undertake a duty to update the article.

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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 Aspen Insurance. The editorial staff of Risk & Insurance had no role in its preparation.




Aspen Insurance is a business segment of Aspen Insurance Holdings Limited. It provides insurance for property, casualty, marine, energy and transportation, financial and professional lines, and programs business.
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