How Drones Are Accelerating Digital Transformation in the Insurance Industry
Somewhere in central Michigan, a pickup truck drives into a sleepy suburban neighborhood. An autonomous drone takes flight off the truck’s flatbed and, nearly silently, heads a half-mile east, slowing above a mid-20th century craftsman home that has clearly suffered damage to its roof after a particularly brutal hailstorm.
The drone then makes a careful and artful loop of a house’s shingled rooftop, snapping hundreds of photos as it circles the perimeter of the home, barely three feet from the roof itself. Its job done, the drone returns to the truck and snaps back into its docking station. The photos are securely transferred to the cloud.
Some 1,000 miles away, a claims adjuster in Shreveport, Louisiana, with 30 years of experience under her belt, views the photos, rendered onto her iPhone in the form of a three-dimensional model of the home. She determines the roof must be replaced and escalates the claim into the payout stage. The claim is processed in record time, without a site visit and at a fraction of the cost.
This was the vision of the future many had hoped for when drone technology was first introduced to the insurance space about six years ago. And to be fair, we’re close – particularly when it comes to rapid response following a hurricane or tornado. But the applications on day-to-day insurance claims? It’s been a bumpy start. Until very recently, the technology has proven to be exceedingly pricey – some professional-grade drones sported six-figure price tags. To make it more complicated, Federal Aviation Administration regulations slowed the spread of drones into the commercial space. And that caused financial and operational stress for a handful of promising startups that were making noise in the insurance space – many of them have crashed and burned after blowing through hundreds of millions of dollars in funding.
These were bumps in the road, yes. But as with any good technology, sometimes you need those bumps in the road to break down the barriers to entry. Today, we’re much closer to that future vision in everyday insurance claims than ever before. It turns out that vision itself was pretty spot on. What it neglected to take into account was that it was never about the drones themselves. The hardware is impressive, but that alone wasn’t capable of revolutionizing the insurance space. As it turns out, the real value creation is all about data: how it’s captured, processed and augmented. In short, the solution is a sophisticated use of technology to simplify and enhance workflows, while driving down a variety of claim-related costs.
Digital transformation is one of those terms that’s being applied to every industry, and in most cases, it’s code for “modernization.” Of course, that includes fantastic new technology like artificial intelligence, machine learning and blockchain. But people tend to focus more on the “digital” and less on the “transformation” – it’s really about how legacy processes within industries are becoming more streamlined, more efficient and, ultimately, more cost-effective.
There is tremendous opportunity in the insurance industry, which is still riddled with a host of legacy applications and manual processes. That’s why we all get so excited by the idea of insurtech: It is, by definition, digital transformation at work in the industry.
When it comes to drones, the ideal outcome for their application is capturing the highest-precision, highest-quality imagery of damaged – and undamaged – property. The drone’s role here is only part one of the process. The next step is passing that data to an expert who can make a determination of whether and how that roof needs to be repaired or replaced, and how to do that in the fastest, best way possible.
This is really where the breakthrough happens, and it’s becoming a reality through aerial imagery companies with the right technology and workflows in place. Amazing images can be passed into the cloud almost as soon as they’re captured. With AI and machine-learning algorithms sifting through the data, a determination can be made whether it’s a simple claim that can go straight to the payout process, or whether the claim should be escalated to an experienced adjuster for a human decision. And with today’s visualization technology, any adjuster can see the data in three dimensions on the endpoint/device of his or her choice, whether that’s a desktop computer or a mobile device.
In other words, we’re now at a point where half of the process flow can be taken care of by a machine, whereas the other half still needs an expert opinion. That is a fundamental change that directly and beneficially impacts the total cost of the process. All told, a claim that typically runs as much as $1,500 in combined loss adjustment costs can be reduced by 75 percent. And the entire process can be done faster and more accurately.
In many ways, the drone is just the enabler for a smoother, more revolutionary workflow. Even more exciting is that more developments are on the horizon that will further benefit carriers and policyholders. For one, top-of-the-line drones are now available at price points around the $1,000 mark, obliterating one of the major barriers to entry. And even though the requirements for commercial drone pilots are still high, software will soon be available to optimize drone flights for the specific application of inspections, making it easier for pilots to make those drum-tight flight patterns around a roof.
A little further out on the horizon, momentum is building for the FAA to loosen its restriction that all drone pilots must be able to visibly see their craft’s flight pattern (the “Beyond Visual Line of Sight (BVLOS)” requirement). That will open the door to a world of fully autonomous drones that can fly further and for longer periods, covering large ranges of geography and capturing aerial imagery at an even more economical rate. This could happen as soon as three years from now, according to a study by Deloitte.
These are exciting times for an industry that has been known for being more traditional in its processes. The technology is certainly thrilling, but it’s how that technology is applied and how it overhauls the workflow that really will cause a positive revolution. We’re still not at a place of universal adoption, but once these developments become commonplace, those who lag behind will likely be penalized in the marketplace. Policyholders simply won’t want to pay for inefficiencies of legacy processes when newer, better and more efficient options arise. This is one revolution that will have been worth the wait.