Academy of BFSI,

DRONES IN INSURANCE

The advancement in technology has a greater impact on the insurance industry. For example, the type and amount of data collected are determined by the technology and applications used by the insurance industry. The availability of real-time information can assist insurers with determining coverage and pricing. One of the major technological advancements for the insurance industry is the invention of the drone, coupled with new technologies such as artificial intelligence (AI) that enable enhanced self-service and 24/7 support. Investment managers, in turn, are responding to changing customer demands by deploying machine learning, Robotic Process Automation (RPA) and advanced analytics.

An attempt is made to understand the relevance of Drone in the Indian Insurance sector after the draft note for Drone policy 2.0 was made public, recently.

Background: The Directorate General of Civil Aviation (the DGCA) released the much-awaited National Drone Policy, 2018 version 1 (Drone Policy) on 27th August 2018. The subject matter of the regulation is ‘Requirements for Operation of Civil Remotely Piloted Aircraft System (RPAS)’. The policy came in to effect from 1st December 2018, as Civil Aviation Regulations (CAR) 1.0.

On 15th Jan 2019, the Union civil aviation ministry of India has made public the draft note for Drone policy 2.0, focusing majorly on Beyond Visual Line of Sight (BVLOS) operations.

The draft note talks about rules and regulations that will bind operations of drones in public spaces, especially on a commercial scale. It further noted that rules governing operations of drones will either be “introduced as an amendment to the existing Civil Aviation Regulations (CAR) 1.0 or it may also be introduced as a separate set of Civil Aviation Requirements notwithstanding the conditions laid down under CAR 1.0.

Requirements and Eligibility

According to the Drone Policy, every drone user will now have to register the owner of the drone, the drone that is being used and the person who is flying the drone. Permission will have to be taken from the authorities through the Digital Sky app before flying any drone and only after the permission is granted, the drones will be allowed to fly. To be eligible to fly the RPAs, a person has to be over 18 years of age, must have passed the 10th exam in English and has undergone ground/ practical training as approved by DGCA. To make regulations clearer and more manageable, the drones have been divided into five categories:

Nano: Less than or equal to 250 grams.

Micro: From 250 grams to 2kg.

Small: From 2kg to 25kg.

Medium: From 25kg to 150kg.

Large: Greater than 150kg.

What is a DRONE:

A drone, in technological terms, is an unmanned aircraft. Drones are more formally known as unmanned aerial vehicles (UAVs) or unmanned aircraft systems (UASes). Essentially, a drone is a flying robot that can be remotely controlled or fly autonomously through software-controlled flight plans in their embedded systems, working in conjunction with onboard sensors and GPS.

Potential Uses of Drone in the Insurance Sector:

Here are some of the purposes for which insurers are using or may use drones:

Pre-loss

Risk engineering and pricing—Aerial site assessments can identify property features that allow the owner either to seek a reduced risk profile or to take appropriate actions to lower overall risk and justify premium discounts.

Natural disaster monitoring—Drones can be quickly and safely deployed to monitor areas threatened by natural disasters. Governments working with insurance companies can monitor a situation and alert local residents to potential danger.

Post-loss

Inspection—Drones can provide a safer, faster, and more cost-effective way to conduct a site inspection, particularly in challenging working conditions.

Ex: One of the most common uses for drones by insurers is rooftop inspections. Roofs are notoriously difficult and hazardous to inspect. An inspection is particularly dangerous if a roof is steep or has suffered fire damage. Rather than climb onto the roof to take pictures, an adjuster can use a drone equipped with a camera. Cameras used on drones can capture very detailed images. Moreover, a drone can photograph the entire roof, including parts of the structure that aren’t accessible to a human.

Risk assessment, Claims adjudication, Fraud prevention:

Drones may allow insurers to engage a generalist, rather than a specialist, to perform field assessments and obtain high-quality visuals.

The precise photos that drones take can potentially improve the quality of the Claims adjudication process.

The moment a property claim is reported (First Notice of Loss), a drone could be deployed to inspect the claims site, increasing information capture accuracy and timeliness.

Farmers buy insurance for one type of crop but sow another crop, and then claim damages. In such situations, drone surveys are helping catch the discrepancies and fraudulent claims, says Rajeev Chaudhary, Chief Risk Officer at Agriculture Insurance Company of India.

Citing an example, he said that in Rajkot, Gujarat, there are many instances where farmers have taken insurance for the groundnut crop, which is a risky and vulnerable crop but sowed cotton. Since the harvesting time of both the crops is different, drone surveys were carried out to get a clear picture on the ground, he said. (Source: Rahul Wadke in THE HINDU Business Line dated 13th Jan 2018)

Market opportunity

Commercial drones are estimated to help save the insurance industry billions of Rupees per year through:

Improved transaction processingCompanies can potentially move from dangerous, hands-on, time intensive property inspections to a much faster process that allows their workforce to keep both feet firmly planted on the ground; reduce claims settlement time from days to hours; and help adjusters and underwriters obtain information 10 times faster than traditional methods.

Resource efficiencyBecause drones can increase inspection efficiency by up to 85%, insurance companies can significantly reduce the number of field adjusters and better balance deployment of specialized, high-skill resources.

Fraud reductionDrones can help counter fraudulent claims, which amount to billions of dollars each year, globally.

Employee safetyDrones allow adjusters to remain in a safe area during the site inspection, minimizing their exposure to accidents and hazardous conditions. But, as is the case with most transformative technologies, drones carry a number of regulatory, technology, and business risks and challenges that will need to be addressed before commercial drone use attains widespread adoption.

Regulatory risks

DGCA regulations: The DGCA currently requires that the drone operator and a visual observer be close enough to maintain a constant line of sight with the drone. This may limit insurers’ ability to use drones for remote inspection and assessment. This limitation can be overcome once Drone policy 2.0, (focusing majorly on Beyond Visual Line of Sight (BVLOS) operations), comes into force.

Casualty and liability: In case of bodily injury or property damage, the courts may recognize a generalized tort duty on the part of the drone operator to use due care to prevent bodily injury or property damage to others. As DGCA regulations define specific rules for operating drones, they may further shape and define the “duty” element of negligence claims.

Privacy violation: Courts have upheld trespass claims involving aircraft operated below navigable airspace that interfered with a property owner’s use of their land. In addition, drone operators may be liable for trespassing for physically entering on land to retrieve a drone. In addition, where risk assessment is conducted by drone, regulators may expect insurers to seek prior approval from insureds. Because drones can fly at lower altitudes than manned aircraft, common-law nuisance claims against drone operators might be successful.

Technology risks

Hacking: Because drones are controlled by radio or Wi-Fi signals, they are vulnerable to hijacking attempts via “spoofing,” in which another control station hacks a drone’s radio signal and gives it bad GPS coordinates.21

Drone operations: Loss of control can result from a system failure or a drone flying beyond the signal range or into an area where communication is interrupted due to frequency interferences.

Data leakage and security: Valuable recorded data can be lost when the device is flying and transmitting information to the control station or during a cyberattack on the company gathering and storing the data.

Business challenges

Product definition: Inadequate historical and analytical data can present product development challenges. In addition, multiple players involved in drone operations may complicate underwriting and claims handling, including valuation and fraud detection. 

Product enhancements: Underwriters face difficulties in categorizing drones under traditional liability coverage and in defining what’s covered or excluded (e.g., privacy). Currently, many policies do not explicitly mention drones, which could expose insurers to liability claims.

Talent and resources: Introducing drones into traditional processes likely will impact how employees handle their responsibilities and may create hiring and training challenges.

Fleet management: Over time, insurers are likely to expand drone usage across their business enterprise. This increases the need for fleet management to address increased risk exposure and regulatory scrutiny.

Summary

More and more insurance companies are aspiring to be data- and insights-driven organizations. A confluence of enabling technologies (e.g., IoT, AI) is fuelling companies’ digital transformation—including their use of drones.

About the Author:


Mr. Paramesh Kumar S has a diversified work experience of 27 years. He has worked with McMillan Press as an Editor for 2 Years, 22 Years in various capacities in leading Insurance Companies including LIC, HDFC, Reliance, Exide Life. He was heading South India for training needs of Apps Daily, the mobile app Company, before joining Manipal.

Currently, he is associated with MABFSI since November’16 as Assistant Professor with Life Insurance vertical.


 

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