Droning On…The Insurance Way

It is inevitable that drones (unmanned aircraft) are on the cusp of transforming many businesses. According to PwC Global, a Big Four CPA and consulting firm, the global market potential for business services using drones is more than $127 billion. A recent report by law firm Frost Brown Todd, LLC, predicts that the insurance industry’s share of this market is expected to be $6.8 billion, by no means chump change.

How the Insurance Industry Views Drone Potential

Claims and Underwriting. Several insurers are already using drones for claims and underwriting, employing a combination of in-house drone programs and outside contractors. The goal is to reduce claims processing time and speed up settlements.

Safety. Using drones to inspect property damage can potentially reduce workers’ compensation claims and premiums because company adjusters would no longer have to climb up ladders and onto roofs.

Fraud. Drones can rapidly inspect pre- and post-loss conditions, thus eliminating fraudulent claims.

Acts of God. Drones can assess damage over a large area in the immediate aftermath of a major disaster, such as a wildfire or tornado, etc., at a time when first responders and insurance adjusters may be unable to access the area for days or weeks. This could enable faster claims processing.

Overall Efficiency. An adjuster who does not have to travel to and from a property that is the subject of a claim can stay in the office, view the images sent back by the drone, write up the claim, process it, and quickly approve payment.

Impact on Legal Employment: Upsides

Incorporating drones into the insurance realm has both potential pluses and minuses for attorneys. The positive impact is likely to be centered in company general counsel offices, where issues such as the following will be identified, monitored, analyzed, and managed:

  • Licensing and certification of drone operators.
  • Federal, state and local regulation of drone usage. This becomes complex because so many property and casualty insurers do business nationwide and have to be cognizant of hundreds of laws and regulations.
  • Training the claims department in the legal implications of drone usage.
  • Due diligence vetting of outside contractors providing drone services.
  • Risk management and mitigation, which could also impact positively on a company’s Risk Management office (approximately 20-25 percent of corporate risk managers have a law degree).
  • Developing drone manuals for use in-house and in vetting outside contractors.

Underwriting departments, which contain an increasing number of attorneys who up to now have focused primarily on environmental and professional liability underwriting, are likely to need expertise in all of the complexities associated with drone usage, much of which derives from law and regulation.

Impact on Legal Employment: Downsides

Claims departments may see some attrition if the use of drones makes them more efficient. This could be a concern to attorneys who work in “JD-Advantage” (positions for which a law degree is preferred, but not necessarily required) jobs, many of which are found in claims departments.

I have run across a number of lawyers who work as claims investigators and whose jobs might now be in some jeopardy depending on their specific duties. Drones can do some investigative work more cheaply and efficiently, and via video feeds and still photography, document their findings. Here’s a story from real life: My former company, which advised disability insurers on attorney claims for benefits, was once referred a case where the deputy general counsel of a large company claimed that he could not work due to a back injury. The company sent an investigator who happened to have a law degree out to shadow the claimant and observed him playing 36 holes of golf in one day. This is work that a drone might do.

If Moving to Drones Gets Traction, How Will This Roll Out?

The key question here is whether companies will do this in-house or outsource it? Industry observers believe both avenues will be utilized. The bigger companies are likely to go the in-house route while smaller ones outsource the function, at least initially. Consequently, attorneys interested in carving out a career in this emerging discipline should look not only at insurers, but also at prospective vendor firms as well as law firms that serve both. Among vendors, don’t overlook the possibility of working for a consulting firm that trains claims and other insurance personnel in the legalities surrounding the use of drones.

The “X” Factor

The insurance industry is notoriously risk-averse, which often translates into being very slow to adopt new technologies.