2017's record hurricane season put insurance transformation to the test
Insurers spent much of the first half of 2017 focused on transforming the industry with digital innovation. And in late summer, many of those investments were put to massive real-world tests in one of the most remarkable and memorable catastrophe seasons ever for the property and casualty insurance industry.
Over a 27-day period beginning on Aug. 24, Hurricanes Harvey, Irma and Maria made landfall in several areas in the southern Gulf of Mexico and Caribbean Sea. Damage to southeast Texas, Florida and the Caribbean eclipsed $200 billion, Bloomberg reports – and insurers had to find out how much of that was covered by their customers. In the aftermath of each storm, insurers including Allstate, USAA, XL Catlin and American Integrity turned to the power of analytics, machine learning and aerial imagery to settle claims faster than ever before.
“The damage I witnessed on the ground was devastating,” says Allstate chief claims officer Glenn Shapiro. “But it was when I saw the aerial images that I really understood the widespread impact.”
The storms were also eye-opening for the growing community of insurtechs, whose innovative solutions were tested for efficacy and scale. In July 2017 – right before three straight Category 5 storms lashed heavily populated coasts and islands – Willis Towers Watson wrote in one of its quarterly insurtech briefings that claims management is a $170 billion global industry that is “booming with innovation.” In researching 800 insurtechs earlier this year, SMA found that about 4% were focused on "claims ecosystems" – defined as new tech solutions for adjusters in the field.
Traditionally, customer claims have been assigned to individual staffers or freelancers that take pictures, note damages and speak with the insured in person. All that data is then uploaded into a claim file, and sent to another adjuster behind a desk responsible for payout. Manual inspections can last up to five days due to scheduling conflicts, industry experts say.
But digital technology is making those wait times a thing of the past. That turned out to be crucial, as the rapid succession of storms pressured major insurers’ resources like never before. Following are stories of how insurers and their partners leveraged technologies like drones, computer vision and video conferencing to meet customers' needs at a time of extreme stress, and the adjustments they made on the fly as they learned more about the new workflow possibilities thanks to digital.
Flooding devastated the Houston area after Hurricane Harvey, which sat over the Gulf collecting moisture and slowly, but powerfully, released it over land for days. More than 50 inches of torrential rain fell in the Houston suburb of Cedar Bayou alone, according to catastrophe modeler AIR Worldwide.
Allstate leveraged a partnership established in December 2015 with insurtech EagleView to load up on drones, airplanes, satellite technology and additional personnel in the storm’s aftermath.
“Virtual damage assessment is the wave of the present and the future,” says Shapiro. “We began assessing damage almost instantly due to satellite imagery, and were able to settle claims after the first three days.”
Allstate broadly operationalized its drone program earlier this year, completing more than 5,000 flights for hail and small weather events in the U.S. before deploying unmanned aircraft vehicles after Harvey and Irma two weeks later.
EagleView, based in Bothell, Washington, provides adjusters with roof measurements through the triangulation of 3-D images from airplanes. Its satellite technology also enables companies to juxtapose before and after images of a storm—helping to resolve claims before they even occur by mapping policies over damaged areas.
“In one instance, a customer hung up the phone on us thinking it was a scam,” said Shapiro. “We had to have their agent call them to let them know it was real.”
Property losses from the flooding in Texas caused by Harvey will range between $65 billion to $75 billion, AIR Worldwide estimates. Insured losses from wind, flood and storm surge combined are also expected to exceed $10 billion.
Allstate also leveraged its new Instant Quick Card Pay program, launched in partnership with MasterCard, to speed up payouts during the storm. The tool asks customers for debit card information, which funds can automatically be transferred to.
Shapiro says Allstate was able to scale back on independent adjusters brought in to help with relief efforts in just a few weeks, crediting both virtual technology and Allstate’s auto claims app for relieving capacity concerns the insurer could have faced.
“We’re just a few years away, I believe, from machines automatically writing insurance estimates for exterior damage on homes,” he added. “You would only need adjusters to assess the damage inside.”
Harvey set the stage for more than one insurer to begin learning what works and redefining expectations on the fly. USAA had used drones primarily for hail and wind events, and Harvey was its first application for flooding. UAVs provided by startup partner DataWing Global gave the carrier access to unreachable areas by adjusters, according to VP of claims Ramon Lopez, who says the carrier fielded more than 45,000 first notices of loss during Harvey.
The insurtech faced early regulatory challenges in assessing damage in Texas and during Irma in Florida. Per FAA drone guidelines passed this year, drone pilots need Emergency Certificates of Authorization (ECOAs) to fly near airports. Some highly impacted areas brought DataWing in close proximity, says CEO Stephen Fargo. However, the FAA was able to approve DataWing in those restricted areas in as little as four hours.
“We were pleased with was FAA’s willingness to work with groups like ours,” he adds.
Another challenge for the insurtech was transferring large amounts of data to clients. Raw drone images can range from seven to 10 megabytes, DataWing notes. Each carrier also has preferences in the format photos are sent or mapped.
“There were lots of unknowns in the data collection process early on during Harvey, as well as the emotion of the folks we were servicing,” says Fargo. “It was a very delicate scene.”
But for DataWing, a young company that was only founded in 2015, the crush was just beginning. And the company had little time to learn from its first major hurricane experience before it answered the call for Irma just days later. Much of its San Antonio-based team arrived early in Florida, ahead of Irma’s arrival on Sept. 10, to prepare with carriers and go on location with pilots.
“We showed our staff what damages looked like in Harvey, and what to expect when interacting with homeowners,” Fargo says. “Also, the damage levels to expect and different methods of uploading data to the cloud, with cell coverage likely to be down.”
In contrast to Texas, where flood damage became prevalent, broken power lines, down trees and detached roofs were the most common visuals witnessed by all parties during Irma due to severe winds; conditions that led to estimated insured losses surpassing $25 billion, according to AIR Worldwide.
“With both, we saw huge evidence of all types of devastation,” says Fargo. “It's tough to say which one is worse than the other.”
DataWing conducted 1,200 flights for eight different insurance clients in September. While missions by unmanned aerial vehicles – or UAVs -- outnumbered fixed-wing aircrafts, flyovers completed via airplanes helped the startup cover greater square mileage..
Another USAA partner, Snapsheet, helped settle auto claims after both Harvey and Irma—determining vehicle value using machine learning and image analytics. The insurtech, specializing in virtual estimating, leveraged natural language processing software to scan zip codes, keywords and locations matching data provided by insureds to confirm first notices of loss were associated with either CAT event, according to CTO Dan Colomb.
Obtained information, including car model, year and type of damage was placed into data buckets for reuse on other incoming claims, Snapsheet says. All findings were sent to both USAA and policyholders through the vendor’s digital estimating system, containing loss estimates and overall value of a car.
According to Colomb, Snapsheet processed 6,000 auto claims for insurance customers the first week of September—double the amount normally settled by the company in the same time span—with average cycle times of just over a day.
“Larger CAT teams can handle these claims, but it’s not safe,” said Colomb. “We proved in these incidents that we can support more people with the claims data we have.”
“We will continue to use Snapsheet to leverage photo in auto estimating during and outside of catastrophes,” USAA’s Lopez says.
With its technology partners in place, USAA’s internal development team created a digital tool during Irma, so that customers could get first-hand access to the same satellite technology available to its staff via the USAA website. Many policyholders visiting the military insurer’s mobile claims centers had no knowledge of the status of their homes due to conditions, USAA says. The carrier took that feedback and created the aerial imagery tool in 12 hours.
“We gave customers a bird’s eye view of their homes before and after the storm for them to file claims,” Lopez says, adding the insurer received more than 60,000 total claims in relation to Irma.
The bulk of Florida catastrophe events are insured by local insurers, who specialize in the market, but are tied to it tightly by geography. One of them, American Integrity, had to evacuate its Tampa Bay offices two days prior to the storm making landfall.
American Integrity never made it to its Category 5 disaster relief facility in Lakeland, Florida. Instead, it set up shop at a hotel in Land O’ Lakes, Pasco County, Florida, 25 miles from state’s western coast.
“We never missed a beat,” says Jon Ritchie, EVP & senior operations officer for the company.
The carrier started adjusting claims and taking loss notices after 24 hours using third party adjustment partners before bringing operations in house, Ritchie says. Independent claims professionals came from Florida, Texas, Louisiana and Mississippi.
Through Dec. 12, American Integrity had fielded 27,000 claims, the majority of which were low severity, but high in frequency. Its customers in Naples and Fort Myers were hit the hardest, Ritchie says. The insurer also drove its mobile claims center into more than a half dozen Florida cities, providing customers with charging stations and Wi-Fi hotspots. On- site claims adjusters working on laptops additionally used video conference with policyholders to get live images of homes.
Irma is the first large catastrophe event in the 11-year-old history of American Integrity. By comparison, Hurricane Matthew in October 2016 resulted in only 3,500 claims, most of which were handled manually without the use of drones. Irma prompted Ritchie and his team to use UAVs in bulk for the first time; significantly more than the amount used for a typical daily claims load, he says.
“It was our first opportunity to leverage the technology out there,” Ritchie added. The insurer has invested “single-digit millions” in vendors and CAT technology to date.
But Irma’s damage wasn’t limited to Florida. Before reaching the U.S. state, the storm ravaged the Caribbean, most notably the tiny nation of Barbuda, as a Category 5 storm on Sept. 6. Insured losses in the region relating from Irma are expected to be anywhere between $7 billion to $15 billion, says AIR Worldwide.
Bermuda-based insurer XL Catlin witnessed early logistical issues managing claims volume in the region during Irma, says its global head of claims Anthony Vidovich. While in the states, his team was able to deploy advanced payment and resolution of claims almost immediately through drones and satellite imagery.
The Caribbean was another story entirely. Clients were not able to get their businesses back up and running as quickly, due to damaged roads, lack of fuel and no power. Conditions made it especially tough for businesses to access materials, man power and financial resources provided by XL Catlin. And as hard as it may have seemed to believe – it actually got worse for the beleaguered island region.
Hurricane Maria, just a little more than week later, brought many of the same challenges Irma did, but with a greater punch, says Vidovich. Total insured losses in the Caribbean from the storm are estimated to be between $27 billion and $48 billion; up to $43 billion in the U.S. commonwealth of Puerto Rico alone.
“Usually there’s a period of reflection after storms, which allows you to discern what the lessons are, and not repeat mistakes,” Vidovich explains. “Events were so rapid-fire that you found you didn’t have time for that reflection.”
After Maria, which hit Puerto Rico on Sept. 20, the insurer’s most important piece of technology was one from the nineteenth century; the telephone. Due to unusable roadways and damaged infrastructure, XL Catlin’s first move was to call local managing general agencies, brokers and risk managers, which help underwrite much of its global commercial business on hotels, energy companies, ports and terminals.
Efforts to deploy satellite imagery also provided some initial views of damage. However, cloud cover proved to make the technology unreliable. Drone footage—assuming proximity and access to a location was available—was more useful for detailed inspection.
“[In] Puerto Rico, we found it was challenging to operate a 21st century insurance claims process in supporting clients in an environment completely absent of electricity,” says Vidovich. “So we used low-tech compared to the other storms.”
XL Catlin, also a reinsurer of CAT events for personal lines carriers, relied heavily on local risk engineers to take pictures of damaged property, as getting their licensed adjusters on site proved difficult early on. The tactic allowed the insurer to segment claims volume when its people arrived—handling more serious claims, such as blown off roofs or caved in walls first.
Vidovich says there will be a long tail on each of these major catastrophe events. ” The nature of flooding in Harvey impacted how we handled flooding in the Caribbean with Irma and Maria,” he says. “Similarly, lessons from hotel exposures in Irma were immediately applied to Maria.”
XL Group announced preliminary loss estimates of $1.33 billion relating to its third quarter catastrophe season. AIR Worldwide forecasts claims from Maria will continue for the next six to eight months, as many residents continue living without power.
The trial by fire of the 2017 hurricane season won’t be soon forgotten in the insurance industry. Carriers were able to see real-world value from all the technology they had been buying and incorporating over the previous several months, and the community of insurtechs was able to illustrate the value they can bring to the industry.
Customers also were able to see how their insurers are participating in the digital world at a higher level. American Integrity witnessed an uptick in web-based claims during the storm, for example, with one in five first notices of loss reported by customers online or on mobile, according to the company. It’s good news for the industry, which is seeing only 9% of claims filed digitally on average, according to J.D. Power & Associates, and needs to get that number up to justify their investment.
Ritchie says next hurricane season the company is looking into adding satellite imagery or “anything that allows the adjuster to sit behind a desk and have the benefit of images.” After all, “Mother Nature will do what she wants, when she wants,” he adds.
That glib statement is actually the impetus for a key action item. At a time when wildfire encroaches on the economic hub of Southern California, insurers are reminded that the story never ends.
While digital innovations focused on reacting to events will be great in helping people put their lives back together, the nature of risk in relation to catastrophic events is changing rapidly as well. In the aftermath of the reinsurance industry’s yearly Rendez-vous Monte Carlo conference – which happened as Maria was lashing Puerto Rico -- Christian Mumenthaler, Swiss Re's Group CEO noted that “the protection gap is very real and needs to be tackled with solutions that make insurance both more widely and more easily available.”
“In-depth risk research paired with new technology can help the industry develop more efficient and impactful solutions to tackle these issues and close global protection gaps, while at the same time open new market opportunities for insurers,” Swiss Re writes.