Sending unpiloted vehicles into manned airspace may sound like a joyride to Amazon CEO Jeff Bezos, who’s speculated that when fully developed, commercial drones may be able to deliver an Amazon order to one’s door in 30 minutes.
But let’s face it: Some possible outcomes of the predicted exponential growth of Unmanned Aircraft Systems (UAS) are not all that pleasant to entertain.
Because it’s managed remotely by computer, a UAS could be hacked and its mission bent to destructive purposes. Or it could simply go awry due to operator error.
“What if a UAS shoots thousands of feet into the air and gets ingested into a commercial aircraft engine full of passengers?” asked Barton Duvall, assistant vice president with Starr Aviation’s West Coast office in Carpinteria, Calif.
Such a scenario “puts an entirely new outlook on the limit needs of UAS operators and the non-owned aviation liability limit needs of customers of UAS operators,” said John Geisen, an Aon aviation senior vice president in Minneapolis.
The loss involved is known as a foreign-object-damage loss or FOD, he said.
Video: Watch this Lakemaid Beer drone delivery.
“The airline’s hull underwriters would pay for the engine and other physical damage as well as any liability that ensues, but in this case you would also have a cause for subrogation to go after the UAS owning and operating parties as well as, I suppose, the customer of the UAS.”
Where adequate coverage limits for negligence actions are not secured, one can expect a search for “deep pockets,” said Geisen.
“Subrogation for FOD losses occurs today when a negligent party responsible for clean up or the owner of the object that is ingested can be clearly identified,” Geisen said.
“Today, it is often hard to identify who owned the foreign object that was left on the tarmac and damaged the engine at takeoff or landing or maybe you eat a bird that no one owns — the hull insurer pays the claim and has nowhere to turn to try and mitigate it — file closed.”
However, should another aircraft “eat or ingest a UAS,” it will be easier to determine who’s responsible, he said.
Starr Aviation’s Duvall said that the worst-case scenario could have the lives of hundreds of passengers at risk as well as damage to the aircraft — some valued at well over $100 million — besides potential grave bodily injury and serious property damage on the ground.
“The chain of liability could span from the operator of the UAS, to the prime manufacturer and subcomponent manufacturers to, depending how these systems end up integrated, the entities responsible for control and safety of the National Airspace System (NAS).
“The actuality of a catastrophic event such as this may be improbable, but it’s not entirely out of the scope of possibility,” said Duvall.
Besides the obvious navigational challenge of sending unpiloted commercial vehicles into the stratosphere, hijacking enabled by cyber terrorism is another real threat.
The Cyber Terror Threat
In 2012, University of Texas professor Todd Humphreys and a group of students intercepted a GPS-guided UAS, using a GPS device created by Humphreys and his students.
Video: Humphreys explains how he hacked the drone.
If that can occur, then what is to prevent a terrorist hacker from directing a drone to pick up a bomb and fly it into a university football game or some similar target, asked Geisen.
In such a situation, “plaintiffs are going to look for the deep pockets,” said Roberta Anderson, a partner in the Pittsburgh office of law firm K&L Gates.
Anderson, who represents policyholders in commercial insurance coverage disputes, said those tapped for indemnification in the terrorist plot described here would likely include “companies that manufactured or designed the software applications, or owned or controlled the networks that allowed a hacker to penetrate the [drone’s] system and gain control.”
“Managers and owners of the stadium would also be targeted for potential negligence and insufficient security, and you’d see cross claims and counterclaims as well, with the stadium pointing the finger at their own security vendors.
“There could be tens of thousands of wrongful death claims” as well as “loss of reputation, property damage and business interruption for the stadium, which will represent a deep-pocket certain to have liability insurance,” Anderson said.
And yet, there are clearly mitigating factors to help prevent things from going terribly wrong.
A lot of these aircraft are building in “triple redundancies,” with “some even having automatic return-to-base features if there are any control interruptions,” Aon’s Geisen said.
Still, there is little doubt, he said, that commercial drones currently represent “a big area of emerging risk and growth.”
The U.S. military’s use of drones “went from like 50,000 flight hours in 2006 to some 550,000 by the end of 2011,” said Geisen.
“So in just five years you had an 11-fold increase,” he said, suggesting that the growth trajectory on the commercial side could be similar. One reason for growth in drone use: Cost per flight hour “is suggested to be 75 percent less with a UAS than a manned aircraft,” he said.
The U.S. military’s use of drones “went from like 50,000 flight hours in 2006 to some 550,000 by the end of 2011.”
– John Geisen, senior vice president, Aon
One forecast of global UAS demand by the Teal Group showed worldwide annual spending on research, development, testing, and evaluation, and procurement in this area rising from $6.6 billion in 2013, to $11.4 billion in 2022.
And in March, Dallas-based global market research and consulting firm MarketsandMarkets reported that the small UAS market alone is set to reach $582.2 million by the end of 2019.
Accelerating insurers’ and brokers’ efforts to assess and effectively bind risks in this space, meanwhile, was a National Transportation Safety Board administrative law judge’s March 6 ruling overturning the FAA’s first-ever fine against a drone operator.
NTSB Judge Patrick Geraghty ruled that when Raphael Pirker flew an unmanned Styrofoam drone over the University of Virginia in 2011, “there was no enforceable FAA rule or FAR [federal aviation regulations] applicable to model aircraft or for classifying model aircraft as an UAS.”
Pirker reportedly sold photos and video collected during the flight to the university to help it create a promotional video.
Reports about the ruling immediately went viral, leading the science and technology site Motherboard to boldly state that commercial drones had become “unequivocally legal” in American skies — at least temporarily.
Motherboard noted that UAS operations previously sanctioned by the FAA included beer deliveries, aerial photography, tornado watching, and equipment inspections.
The FAA appealed the ruling, saying “the agency is concerned that this decision could impact the safe operation of the national airspace system and the safety of people and property on the ground.”
Industry experts are trying to be patient.
A Feb. 26 post on the FAA’s website, titled Busting Myths about the FAA and Unmanned Aircraft, clearly stated: “Anyone who wants to fly an aircraft — manned or unmanned — in U.S. airspace needs some level of FAA approval.”
Commercial UAS flights are only authorized on a case-by-case basis, the agency emphasized, adding that “to date, only two UAS models (the Scan Eagle and Aerovironment’s Puma) have been certified, and they can only fly in the Arctic.”
According to Duvall, the September 2015 UAS integration deadline “may be quite difficult to meet,” considering that the preliminary notice of proposed rulemaking and public solicitation on the issue has been pushed back to November 2014.
Elsewhere, “this industry is growing by leaps and bounds,” with Japan, Greece, Canada and parts of Africa now using the technology for everything from farming to mapping to anti-animal poaching efforts, Duvall said.
On the other hand, Geisen said, the FAA is likely to propose some rules for commercially operating drones under 55 pounds before the end of this year.
Insurance carriers said they will not be asleep at the switch.
“Once the FAA have completed their work on integrating unmanned aircraft into U.S. airspace, I would assume that we will very quickly see their commercial use proliferate, particularly in relation to agricultural and utility operations,” said Chris Proudlove of aviation underwriter Global Aerospace Inc.
Complete coverage on the inevitable cyber threat:
Risk managers are waking up to the reality that the cyber risk landscape has changed.
Cyber: The New CAT. It’s not a matter of if, but when. Cyber risk is a foundation-level exposure that must be viewed with the same gravity as a company’s property, liability or workers’ comp risks.
Critical Condition. The proliferation of medical devices creates a host of scary risks for the beleaguered health care industry.
Disabled Autos. It’s alarmingly easy for a hacker to take control of a driverless vehicle, tampering with braking systems or scrambling the GPS.
An Electrifying Threat. There is a very real possibility hackers could devastate the nation’s power grids — for a potentially extended period of time.
Latin America Not Too Risky for U.S. Business
The risks of doing business in Latin America are worth taking, according to a presentation at the RIMS annual conference in Denver.
Rob Osha, global director of risk management for mineral exploration company Boart Longyear, and Carlos Caicedo, senior principal analyst at IHS Country Risk, acknowledged social unrest and drug-related violence as two of the top dangers throughout the region, but expressed confidence in the growth of opportunities for U.S. business.
Caicedo highlighted Mexico as one emerging region. There, drug cartels pose the greatest risk, but their power may be decreasing. “Over the past five months, top leaders of the cartels have been arrested or killed,” he said.
However, a reduction of violence directed by drug lords could be replaced by extortion.
“We are seeing more risk in Mexico on the extortion side,” Osha said. “Cartels are looking to diversify their revenue streams.”
Caicedo conceded that extortion has increased against domestic Mexican businesses. He also said that cartel retaliation could lead to greater frequency of arson against commercial establishments. Despite these threats, though, he said security in Mexico has stabilized and the economy shows promise, thanks to a growing middle class and lower poverty rates.
“The economy is expected to grow at the end of 2014 and pick up even more in 2015,” he said.
Brazil, on the other hand, received a less favorable review. The region, in the view of IHS, is “a costly country to do business in.” The economy there has been poor since 2011, with inflation on the rise and a widening fiscal deficit. Social unrest, including World Cup protests, has been increasing this year.
In addition, state interventionism has undermined investor confidence, with domestic businesses stalling due to government influence in pricing.
Caicedo also addressed the terrorism threat in Colombia, where FARC continues to pose a danger, particularly to the country’s oil and energy infrastructure. However, the revolutionary faction and the government appear to be “very close to reaching a peace agreement,” Caicedo said.
FARC’s manpower has dropped from 20,000 at its peak to 8,000, and has been pushed into isolated areas of the country. The progression of peace talks will be critical in securing Colombia’s status as an emerging market and attractive place to do business, he said.
Even terrorist activity, however, didn’t scare off Boart Longyear from opening an office in Medellin, Colombia, where it had no prior experience.
“My first impression was, ‘Are you kidding me?’ I wasn’t sure we could do business there,” Osha said. The company established a “High Risk Country Committee” to examine the political, physical and travel risks in the region.
They identified general crime, bribery, extortion, and dangerous travel as the top risks facing the launch of a new facility.
“We gave [the project] the green light,” Osha said, as long as certain precautions were taken.
As part of the process, Boart Longyear hired a third-party firm to conduct a security review of the proposed location. “Don’t rely on your corporate real estate guy to tell you your location is safe,” Osha said.
After the review found the facility to be seriously under-guarded, the company added security cameras, remote locks, key cards, and after-hours guards.
They tackled travel risk next, by examining every route their workers could potentially take between sites and color-coded them by level of danger, establishing some “no-go” areas that were entirely off-limits.
Osha pointed to security assessments by IHS Country Risk and iJET, a travel risk provider, as vital resources for determining the safety of a travel route.
The company also hired a contractor to drive over every travel route and pinpoint areas with poor infrastructure or hazardous conditions like steep grades. Boart Longyear also established travel policies for its crew, instructing them to travel only by daylight and always with a partner.
Finally, they implemented a strict Foreign Corrupt Practices Act training and compliance program to address bribery attempts. Thanks to these efforts, the Medellin office was opened two years ago and has had no safety issues to date, Osha said. Follow-up assessments and ongoing monitoring have contributed to that success.
“We have to monitor the environment to make sure it is still stable,” he said. “Things can change in an instant with an election, a riot … things can get out of control.”
Should that happen, Boart Longyear put together a crisis plan that identifies the nearest resources like hospitals and police stations, and includes an emergency hotline.
While Latin America still presents big safety challenges to U.S. companies looking to capitalize on its emerging markets, those intrepid companies willing to take on the expense and effort of extensive risk planning and mitigation can expand to the area in a secure way.
Achieving More Fluid Case Management
Risk management practitioners point to a number of factors that influence the outcome of workers’ compensation claims. But readily identifiable factors shouldn’t necessarily be managed in a box.
To identify and discuss the changing issues influencing workers’ compensation claim outcomes, Risk & Insurance®, in partnership with Duluth, Ga.-based Healthcare Solutions, convened an April roundtable discussion in Philadelphia.
The discussion, moderated by Dan Reynolds, editor-in-chief of Risk & Insurance®, featured participation from four tenured claims management professionals.
This roundtable was ruled by a pragmatic tone, characterized by declarations on solutions that are finding traction on many current workers’ compensation challenges.
The advantages of face-to-face case management visits with injured workers got some of the strongest support at the roundtable.
“What you can assess from somebody’s home environment, their motivation, their attitude, their desire to get well or not get well is easy to do when you are looking at somebody and sitting in their home,” participant Barb Ritz said, a workers’ compensation manager in the office of risk services at the Temple University Health System in Philadelphia.
Telephonic case management gradually replaced face-to-face visits in many organizations, but participants said the pendulum has swung back and face-to-face visits are again more widely valued.
In person visits are beneficial not only in assessing the claimant’s condition and attitude, but also in providing an objective ear to annotate the dialogue between doctors and patients.
“Oftentimes, injured workers who go to physician appointments only retain about 20 percent of what the doctor is telling them,” said Jean Chambers, a Lakeland, Fla.-based vice president of clinical services for Bunch CareSolutions. “When you have a nurse accompanying the claimant, the nurse can help educate the injured worker following the appointment and also provide an objective update to the employer on the injured worker’s condition related to the claim.”
“The relationship that the nurse develops with the claimant is very important,” added Christine Curtis, a manager of medical services in the workers’ compensation division of New Cumberland, Pa.-based School Claims Services.
“It’s also great for fraud detection. During a visit the nurse can see symptoms that don’t necessarily match actions, and oftentimes claimants will tell nurses things they shouldn’t if they want their claim to be accepted,” Curtis said.
For these reasons and others, Curtis said that she uses onsite nursing.
Roundtable participant Susan LaBar, a Yardley, Pa.-based risk manager for transportation company Coach USA, said when she first started her job there, she insisted that nurses be placed on all lost-time cases. But that didn’t happen until she convinced management that it would work.
“We did it and the indemnity dollars went down and it more than paid for the nurses,” she said. “That became our model. You have to prove that it works and that takes time, but it does come out at the end of the day,” she said.
The ultimate outcome
Reducing costs is reason enough for implementing nurse case management, but many say safe return-to-work is the ultimate measure of a good outcome. An aging, heavier worker population plagued by diabetes, hypertension, and orthopedic problems and, in many cases, painkiller abuse is changing the very definition of safe return-to-work.
Roundtable members were unanimous in their belief that offering even the most undemanding forms of modified duty is preferable to having workers at home for extended periods of time.
“Return-to-work is the only way to control the workers’ comp cost. It’s the only way,” said Coach USA’s Susan LaBar.
Unhealthy households, family cultures in which workers’ compensation fraud can be a way of life and physical and mental atrophy are just some of the pitfalls that modified duty and return-to-work in general can help stave off.
“I take employees back in any capacity. So long as they can stand or sit or do something,” Ritz said. “The longer you’re sitting at home, the longer you’re disconnected. The next thing you know you’re isolated and angry with your employer.”
“Return-to-work is the only way to control the workers’ comp cost. It’s the only way,” said Coach USA’s Susan LaBar.
Whose story is it?
Managing return-to-work and nurse supervision of workers’ compensation cases also play important roles in controlling communication around the case. Return-to-work and modified duty can more quickly break that negative communication chain, roundtable participants said.
There was some disagreement among participants in the area of fraud. Some felt that workers’ compensation fraud is not as prevalent as commonly believed.
On the other hand, Coach USA’s Susan LaBar said that many cases start out with a legitimate injury but become fraudulent through extension.
“I’m talking about a process where claimants drag out the claim, treatment continues and they never come back to work,” she said.
Social media, as in all aspects of insurance fraud, is also playing an important role. Roundtable participants said Facebook is the first place they visit when they get a claim. Unbridled posts of personal information have become a rich library for case managers looking for indications of fraud.
“What you can assess from somebody’s home environment, their motivation, their attitude, their desire to get well or not get well is easy to do when you are looking at somebody and sitting in their home,” said participant Barb Ritz.
As daunting as co-morbidities have become, roundtable participants said that data has become a useful tool. Information about tobacco use, weight, diabetes and other complicating factors is now being used by physicians and managed care vendors to educate patients and better manage treatment.
“Education is important after an injury occurs,” said Rich Leonardo, chief sales officer for Healthcare Solutions, who also sat in on the roundtable. “The nurse is not always delivering news the patient wants to hear, so providing education on how the process is going to work is helpful.”
“We’re trying to get people to ‘Know your number’, such as to know what your blood pressure and glucose levels are,” said SCS’s Christine Curtis. “If you have somebody who’s diabetic, hypertensive and overweight, that nurse can talk directly to the injured worker and say, ‘Look, I know this is a sensitive issue, but we want you to get better and we’ll work with you because improving your overall health is important to helping you recover.”
The costs of co-morbidities are pushing case managers to be more frank in patient dialogue. Information about smoking cessation programs and weight loss approaches is now more freely offered.
Managing constant change
Anyone responsible for workers’ compensation knows that medical costs have been rising for years. But medical cost is not the only factor in the case management equation that is in motion.
The pendulum swing between technology and the human touch in treating injured workers is ever in flux. Even within a single program, the decision on when it is best to apply nurse case management varies.
“It used to be that every claim went to a nurse and now the industry is more selective,” said Bunch CareSolutions’ Jean Chambers. “However, you have to be careful because sometimes it’s the ones that seem to be a simple injury that can end up being a million dollar claim.”
“Predictive analytics can be used to help organizations flag claims for case management, but the human element will never be replaced,” Leonardo concluded.