Momentum continues to build around the ways Unmanned Aerial Vehicles (UAVs, also known as drones) will change a vast number of industries, including insurance fraud.1 What little anecdotal data exists involving drones for fighting insurance schemes has come from workers compensation and disability fraud. UAV technology was adopted early on by some private investigators.
Although the FAA only started providing exemptions for commercial drone use in September 2014, the lack of enforcement of vague regulations offered little to deter some private investigators from using drones to enhance their surveillance and evidence collection. A private investigator accessed private rural property to capture images of a man suspected of insurance fraud, reported the New York Post last year. Though the suspect claimed he was fully disabled, the PI’s drone took photos of him allegedly engaged in heavy physical activity. Such a photo op had eluded the investigator because she couldn’t access the property and the suspect disguised his healthy medical condition with ploys like walking with a cane while in public spaces.2
Other reports of PIs (and drone enthusiasts) describe using fixed-wing UAVs that can travel on auto-pilot to a preset location where they can slowly fly above a target undetected while obtaining high-resolution photos and video. Tim Wilcox of International Investigations predicts drones will help cut losses due to workers compensation fraud.3 Surveillance often is key to gathering evidence in workers comp or disability fraud investigations. Drones can provide quicker, cheaper and safer surveillance and documentation. They eliminate the risks involving physical trespass, reduce investigator visibility in rural settings and provide access to otherwise inaccessible areas of interest. However, insurers and private investigators may face more strict regulations as drones integrate into America’s airspace. A bill in California, for example, would consider it trespassing to fly a UAV over a property at or below 350 feet.4 Recent cases of UAVs for combatting property-insurance fraud are harder to come by. Yet fraud fighting will benefit tremendously from advances in other drone applications, especially in catastrophe responses. Organizations dedicated to research and testing UAV applications in emergencies and catastrophes are developing technology and processes that will enhance property-insurance fraud responses.
UAVs can quickly and efficiently survey a large area. This will make deploying drones after a catastrophe easier, faster and safer, because they will bypass many obstacles met by catastrophe responders on the ground. Damage from many weather events or catastrophes follows a predictable pattern, with the heaviest damage concentrated in the primary area (such as the center point in a ripple with hail and earthquakes, or the direct path in the line of the storm, as with wind and flooding).
Whether the peril moves in a ripple or wave, the less damage occurs the farther you move out from the center. A post-storm UAV survey can follow this pattern beginning with areas of greatest damage and moving out to areas of little to no damage.
Experience has shown us that fraud occurs most aggressively on the periphery of a weather event’s primary damage area, especially with an extended delay from the loss date. The farther out from the center, and the longer the passage of time, the greater the risk of fraud.
Drones will document the damage in disaster-stricken areas by focusing on the hardest-hit neighborhoods first. They also will survey the whole area, including the periphery where there likely is little to no damage.
Documenting data on properties in the area immediately after a storm will provide added information to compare with data collected weeks or months later during an inspection of a specific property.
This offers an improved solution to the obstacles created by the lag time that often occurs with weather-related claims. If no hail damage was captured by the high-resolution photos taken by a UAV 24 hours after a hailstorm, then the apparent damage to the roof a month later may need further scrutiny.
Accessing this post-storm UAV data will allow carriers to triage claims immediately after a damaging weather event, and claims that are sure to trickle in after a short or lengthy time. This data will provide invaluable evidence for suspicious claims.
In addition to viewing high-resolution images, insurers and others also will be able to process that data further.
For example, 3D point clouds can be created from geo-tagged photos collected by the UAV post-storm. These models can help measure any length, area or volume of interest. One example is the area of a roof surface or water depth during a flood. The ability to immediately collect data from the UAV after a storm, combined with post-processing capabilities, will provide more-advanced comparative data than ever.
Doppler radar is the current data source for generating storm reports used for weather-related losses. Yet radars cannot scan at the earth’s surface. Ground-level data thus is needed to determine what the weather was like on the ground. Crowd sourcing is one means of collecting this data. But UAVs offer a more-reliable alternative to collecting the ground-level data needed to accurately determine where weather struck and what damage occurred.
Drones improve upon Doppler because they can capture this ground-truth intelligence.
Uncovering crop scams
Drones also can help fight crop-insurance fraud. A fraud ring in North Carolina cost taxpayers upwards of $100 million. Fraudsters included farmers, agents and claims adjusters.5 The U.S. Department of Agriculture, which administers the federal crop insurance program, already relies heavily on technology such as weather data and satellite images to monitor the validity of claims. Drones will make it easier and cheaper to inspect crops for damage, collect more accurate data, and use that data in new, beneficial ways.
When a crop-damage claim is made, an adjuster can go onsite to survey and record the damage. But a thorough investigation by an adjuster is cumbersome, costly and time-consuming. A drone can quickly and easily survey an entire field, measure areas of interest, and then use near-infrared and multispectral camera and other sensor technologies to help determine the relative health of the crops.
The technology measures the reflection of light at different wavelengths, and post-processing software can calculate the health of crops by determining the chlorophyll content.
Other applications for fighting crop fraud include using drones to make regular records of crop condition and the condition of fields, and tracking crop growth throughout the year to make year-by-year comparisons. The real-time feedback on crop status can help guard against inflated or altogether false loss claims.
Drones an underwriting tool
“Several private firms like Donan have put tremendous resources toward promoting and legislating drone use for insurance and disaster responses.”UAVs are also a powerful tool for home or business underwriting surveys. UAVs expand the scope of property inspections, without necessarily adding costs or time. They can easily and efficiently collect a wealth of information about a property. This means insurers can better document the condition of a risk before issuing a policy. Drones provide great views of roofs, siding, windows, gutters and other components with a higher resolution than satellites or manned aircraft.
This documentation provides a valuable comparison when claims are filed after a short or extended term into the policy period. For instance, if a claim is filed for damage to a commercial roofing system, a pre-policy underwriting survey by a UAV will provide relevant data such as roof condition when the policy was written, or existing leaks or other issues.
UAVs also may help monitor whether paid claims are translating into repairs and replacements for insureds. Software programs already are being engineered to use drone imagery to determine a roof’s condition. This same technology can easily assess whether a claimant replaced a roof after a hailstorm settlement.
Fire departments around the world have for many years used drones in fire responses and investigations. Soon this practice will become commonplace in the insurance industry. Fire departments stream video imagery of the fire in action to optimize suppression activities.
Drone data captured during or after a fire can be analyzed to investigate why a fire spread the way it did. Was it wind and ventilation, or fuel, or was a foreign catalyst involved such as a fraudster armed with gasoline? Drones are a cheaper, faster resource to capture the broad view of a fire scene, which can be essential to identifying fire patterns.
Drones also make the perfect platform for observing high-resolution forest fire imagery, and already have proven useful in mapping the debris field following a high-order explosion such as a home or business arson.
Challenges to implementing
Research and development characterizes the present state of most insurer drone programs. That’s because despite the FAA’s awarding Section 333 exemptions to carriers and other industry firms, the restrictions for exemptions limit many situations in which drones can be deployed.
Several exemption restrictions that impact drones’ current usage in fraud investigations include:
- UAVs can only fly as high as 200 feet — about the height of an 18-story building;
- UAVs must remain 500 feet from all nonparticipating persons (unless persons are protected, such as under a roof). And they must stay 500 feet from any structure or vehicle unless they have the owner’s permission. That means about one-half to two city blocks (depending on the city). This will allow flights in rural or scarcely-populated areas, yet limit application in densely-populated areas;
- UAVs must remain five miles from large airports;
- UAVs must remain within the pilot’s line of sight; and
- Only daytime operation is permitted.The good news is that UAV restrictions are expected to be loosened when the FAA releases final regulations. Even so, these limitations will require the insurance industry to move forward more cautiously, taking time to test hardware and software and develop solutions that are operationally excellent.Drone research promotedThere is so much overlap both in post-catastrophe data collection by UAVs and in data that will prove most useful to anti-fraud efforts in property insurance. Thus it is easy to see why the current restrictions limit insurer ability to fully realize the potential of UAV technology. However, several private firms like Donan have put tremendous resources toward promoting and legislating drone use for insurance and disaster responses.
Donan committed resources to a UAV program in early 2013, and since has partnered with carriers to conduct pilot programs aimed at identifying and testing hardware, developing processes and defining applications for using drones. These efforts will speed implementation and help develop industry best practices.
Several partnerships dedicated to UAV research have formed as well. One is the Property Drone Consortium. It is headed by EagleView Technologies, and members include Allstate Insurance Group, Erie Insurance Group and Nationwide Mutual Insurance Company, among others. The group’s stated goal is to develop property-specific hardware and software solutions in 2015.6 It published research on several topics including operational issues, platform selection and risk management. The research is available on the group’s website.7
Another group that has conducted extensive research and released findings and recommendations is coordinated by Measure, a 32 Advisors Company. This group includes the American Red Cross, private-sector companies and federal agencies. Insurance giants USAA and Zurich North America also participate. The group’s policy recommendations have strong implications for anti-fraud efforts as well, and are published in full online.8
Privacy a concern
Privacy challenges involved with obtaining drone data must be addressed. The FAA is charged with keeping the airspace safe yet has no privacy jurisdiction and has shown little interest in the issue.
FAA exemptions are problematic because they are so broad. However, we expect these guidelines will be reduced, thus eliminating many current challenges. In the meantime, many states and local jurisdictions have implemented their own laws to fill the gap in privacy regulations. Language making it illegal to use drones for surveillance or reconnaissance is a common theme.
These regulations could have added impact on UAV applications in fraud investigations and should be monitored for continuing developments.
Social-media investigations have sparked a growing body of privacy lawsuits and case precedents over the last several years. Given the privacy sensitivities of drone use, it is possible that UAVs will generate lawsuits as well, and a corresponding body of case history to help clarify anti-fraud deployment.
Wait around, look ahead
The current environment sometimes feels like being stuck in a waiting game for insurers and companies like Donan that have committed resources to UAV research and testing. And to a great extent this is a waiting period.
Much of UAV implementation depends on what FAA guidelines will permit us to do, and we all have minimal influence over the FAA.
Though actual application of UAV technology is currently limited, this time is ideally suited for fine-tuning and perfecting our UAV programs: researching hardware, developing processes, creating best practices, training operators, and understanding how to apply cutting-edge software. This waiting time allows us to determine the best use of these tools, so when the FAA says go, you can guarantee we’ll be ready to go.
And “go” also includes going after fraudsters.
About the author: J. Lyle Donan is President & CEO of Donan, a nationwide forensic investigation firm and industry leader in the research and development of unmanned vehicles.