Sharper Image: Is Aerial Imagery a Necessity for Insurers?

By Jim Weiss and Isaac Wash

When high-definition televisions reached the marketplace, they were considered a luxury. But as costs came down and consumer adoption rose, they became the norm. Now, if you stream a standard-definition video online, you’re likely to rub your eyes and wonder if it’s just a blurry image. Viewers want clearer pictures. And for the insurance industry, high-resolution aerial images from airplanes and drones are opening a new range of possibilities not attainable with lower-res satellite imagery and ground surveys. At the same time, there are many aspects of the insurance experience that likely cannot be taken in from hundreds or thousands of feet overhead—namely, “interior” activities and risk conditions. So, is aerial imagery a luxury or a necessity for insurers?

InsurTech start-ups and traditional players in insurance are exploring drones, airplanes, satellites, and other opportunities for improved decision making related to all of the above, suggesting that exterior analysis at scale provides a tantalizing complement to techniques and data sources used for interior surveying. A common sentiment about smartphones is that, before they existed, no one needed them, but once owned, some wonder how they ever lived without them. The same could be said about many of the technologies introduced in the modern era. Early adopters of aerial imagery may say it’s a necessity if it gives them broader and deeper insight into the business they write, improving risk selection and winning competitive advantage. This may be especially true given the predicted ongoing soft market conditions in property insurance.

Some of the most widely praised use cases of aerial capability in insurance to date have been in catastrophe response. The industry’s resilience in the wake of the hurricanes of 2017 was bolstered by the data and images collected by aircraft even as the damage caused by the storms was still unfolding. Industry-serving organizations have reportedly shared images of disaster areas with federal authorities to help locate trapped survivors. Moreover, imagery from drones and airplanes has been used to survey areas that are difficult to access by vehicle or foot, which serves to accelerate claims settlement. Pre- and post-catastrophe imagery together can assist insurers in identifying damage to structures that was present before the event, helping ensure claims payments are properly directed to those actually victimized by the storms rather than questionable actors that reportedly seek to profit from disaster. Insurers have been among the first and more frequent recipients of Federal Aviation Administration (FAA) clearance for commercial drones, in part, in connection with these circumstances.

When disaster strikes

Inhabiting the “high ground” during a moment of truth has incalculable value in goodwill, but relatively few for-profit enterprises have made a full-time business out of responding when disaster strikes. As such, it bears consideration how this type of speed and access can be put to additional use. Consider how insurers have traditionally collected sight-verified information for underwriting or loss control. For properties of higher value, a surveyor or loss control professional might be sent to the property to conduct a survey. For properties of lower value, some insurers have more recently begun to rely on public records data, trusting that municipal tax assessors have accurately captured basic attributes of the structure. Between these two ends of the data spectrum, imagery captured from manned aircraft provides an intriguing middle ground. Because of the speed at which they can be conducted and the number of buildings that can be photographed on each flight, aerial surveys present a potentially lower-cost means of acquiring sight-verified data than sending a surveyor to each property. From this imagery, underwriters and loss control professionals are able to identify the basic exterior characteristics of buildings and spot visible damage.

Aerial imagery presents a range of benefits not unlike the possibilities attributed to its technological cousin, the Internet of Things. For example, it's now possible to prefill portions of insurance applications with data extracted from aerial images. Moreover, machine learning experts are developing algorithmic methods for detecting hazards such as trampolines or brush vegetation from aerial images so that underwriters may classify a risk properly. If addressable conditions such as damaged roof shingles are detected, they can potentially be discussed and addressed right away rather than via a costly claim at a later date—assuming timely enough imagery is available and appropriate lines of communication are established at the point of sale. And in the event of a claim, per the earlier line of discussion, the before and after can be ascertained almost immediately from an image.

Developing aerial imagery capabilities is not for the faint of heart, regardless of the technology used. Drones and airplanes require trained pilots, machine maintenance, fuel or electrical charge, weather conditions fit for flying, the aforementioned FAA clearance, a lack of obstructions for an image to be captured clearly, and the ability not to crash into anything or anyone midflight. In fact, the latter (in)ability has helped spawn a brand of InsurTech dedicated to providing on-demand insurance for drones. This insurance is purportedly more adaptive to how drones are used than a typical commercial package. Satellites have the added complication of burning up in the Earth’s atmosphere upon falling out of orbit so as not to destroy city blocks. Indeed, sending an object airborne is not an everyday occurrence for good reason; and for the time being, those with trucks, ladders, and Polaroids still have a place in the world.

Points of connection

Insurers are likely to need boots-on-the-ground inspectors to visit properties and assess risk for years to come. An inspector can ascertain a building’s fire suppression and occupancy, while an aerial image most likely cannot. These essentially represent two out of four letters of the famed “COPE” acronym, meaning that aerial images likely won’t take humans out of the equation unless they develop motion picture and/or x-ray capabilities. There may also be some cases where it will simply make more sense to have a person capture an image or assessment on foot (for example, when an aerial view of the building is obstructed by adjacent buildings or trees).

But aerial imagery does fill a large gap for property insurers. Many complex insurable properties may be much more easily underwritten or assessed by an aircraft than by a person when the property is sprawling and/or there are difficult-to-reach nooks and crannies. Moreover, it may not always be practical to send said individual to the property on an application for insurance, and aircrafts add intriguing remote surveying capabilities when some compromises in data breadth are acceptable.

Then again, remote surveying was hardly an impossibility for enterprising underwriters before InsurTech recently got high on aerial tech. Ever since Apollo 17 captured the public’s imagination with the Blue Marble, and long before Blue Marble Microinsurance sought to bring protections to the world at large, image after image of the Earth’s terrain has been photographed. Subject to applicable terms of use, some of these images are available via online tools that are relatively economical or even free and may be complemented by street views complete with pedestrians’ faces blurred for privacy protection. These images, captured via airplanes, satellites, and cars, may not offer an estimate for a roof repair or a count of damaged shingles, but they represent a relatively expedient avenue for surface diagnosis when operating at limited scale. The industry must now examine how to scale the technology for maximum benefit.

One leading insurer recently broke the hearts of many by decommissioning a beloved blimp used to capture images of sporting events over the years. This was arguably overdue given that such blimps reportedly require a full-time staff of dozens to operate holistically and cost millions of dollars—and commensurate return on investment is challenging to be seen. But as this dirigible drifts out of the picture, it presents a fitting metaphor. The InsurTech “bear” may point to how the zeppelin has hung on for decades as evidence for just how difficult it is to displace existing modus operandi that get the job done, however clumsy they may appear. The aerial “bull” will likely point to the blimp’s exit as signifying the end of an era in which high-quality aerial images were costly and difficult to obtain. The truth likely lies (or flies) somewhere in between, and where exactly that is will depend on insurers’ ability and motivation to make good on the potential to flesh out intriguing use cases throughout the policy life cycle.

Jim Weiss, FCAS, MAAA, CPCU, is director of analytic solutions at ISO, a Verisk (Nasdaq:VRSK) business.

Isaac Wash is a senior actuarial associate for ISO, a Verisk (Nasdaq:VRSK) business.

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