Eye in the Sky

When our nation and others began launching satellites into orbit around the Earth in the late 1950s, it is likely that few ever dreamed of the enormous commercial value these objects would someday represent. At that time, it was all about shooting something into space for bragging rights, but today high-tech satellites provide instant communications and information that help drive major industries and can assist with insurance claims.

Satellite imagery is simply a picture from a satellite in space of features on the ground, according to Frederick Lamont Norman, global product manager, Enterprise Business, for Pitney Bowes Business Insight. Images from space are becoming an increasingly important tool for anyone involved in the claims process because pictures of structural damage, for example, allow the insurer to validate the claim and avoid fraud costs. He adds that the latest estimates indicate losses from insurance fraud and policyholder misrepresentation at over $20 billion last year.

This technology, he notes, can be applied to a variety of claims, including storm, earthquake, and wildfire losses, as well as the effects of flooding from hurricanes or from rivers that overflow their banks. “Satellite imaging enables the catastrophe management team to better understand the extent of the damage, and it can reduce costs by projecting where claims will come from,” Norman explains. “It lets you know where to send your people.”

Donald Light, senior analyst at Celent, lists several important uses for satellite imaging, including before and after views for catastrophes—or even for losses at a single location. The technology can also provide directions and/or orientation for field adjusters after a catastrophic event, such as a windstorm, firestorm, or tsunami. “It can also be used to document the physical setting of certain losses, e.g., automobile accidents or major industrial accidents,” he adds.

“Satellite imaging is important because it speeds time to decision and service,” says Karen Pauli, research director for TowerGroup. “In the case of catastrophes, claims organizations can get a view of areas of damage and then plan for the appropriate deployment of claims staff. This is particularly valuable when underwriting also uses satellite imaging so that you can compare before and after pictures. It also improves the accuracy of decision in the case of assessing roof damage, say from hail. Climbing all over roofs is dangerous, and getting an accurate assessment is a challenge. Satellite imaging can definitely do that in an easier way.”

Technology Requirements

What kind of technology is required for insurers to take advantage of satellite imaging? “At its most simple level, an internal or external claims adjuster needs broadband connectivity to access free or subscription satellite imaging services,” says Light. “To make extended use of the images, there needs to be a way to cross-reference the satellite images with properties and locations involved in the given claim(s), typically by means of a GIS [geographic information system] which provides latitude and longitude for any given location.”

Norman points out that desktop or Internet GIS tools allow insurers to combine satellite imagery with their insured locations. Some level of training may be required for insurers to utilize more sophisticated tools, but a number of vendors have reduced the needed training time.

“I think the big ‘aha’ here is that it doesn’t take any technology to get business value from satellite imaging,” notes Pauli. “The third-party information providers have integrated imaging into products. Also, there are specific vendors that are marketing roof damage estimates using satellite imaging.” She adds, however, that insurers still need “a modern claims system that can deal with unstructured data–digital files. And depending on the degree to which satellite imaging technology is used, it can jump right into the data storage issues that insurers are dealing with for a number of reasons.”

Limitations

Despite the multiple benefits (including minimal technology changes), implementation of satellite imaging faces some limitations. The biggest challenge, says Pauli, is return on investment. “For large insurers that have significant numbers of geographically contiguous exposures, satellite imagery will make economic sense,” she explains. “However, for many other insurers, supporting the technology necessary to leverage satellite usage will not make financial sense. That is why this is a perfect time for outsourcing/partnering with a vendor that has satellite capability and a usage-based pricing model so that insurers can access the information but manage the cost within budgets.”

The “currency of the imagery”—making sure one is getting the latest images—might also be a limitation, according to Norman. “It can be difficult to get imagery of a damaged area in the time frame needed for the claims process. This is due to the position of the satellite as it orbits and the cloud cover in the damaged area.” Another limitation, he says, is the inability of the satellite to capture imagery that can help insurers identify damages on the sides of structures (which may not be visible from overhead).

Light agrees that demonstrating ROI is a challenge. “In order to create a compelling value proposition for insurers, providers of satellite imaging (and of GISs) will need to demonstrate uses not just in claims, but in pricing, sales, and underwriting as well,” he notes.

The Future of Satellite Imaging

Despite the challenges and perhaps because of the benefits, analysts see a bright future for satellite imaging. “There will be an increase in the availability of after-disaster imagery, and there will be new software tools that will help identify structure damage based upon imagery,” says Norman. Light adds that the future will see more integration of the images (and their associated GIS data) into broader data sets that can be used more seamlessly in claims and other insurance processes.

“The use of satellite imaging will grow as insurers expand their global business presence and cannot physically locate staff in certain geographies,” says Pauli. “Actually, satellite imaging has been a very important part of the growth of microinsurance globally, and it has been in use for three to four years. Microinsurers use satellite imagery to view geographical areas that have been hit by a weather event, then determine the level of damage (does it fall into the contract definitions?) and then just pay out figuring that everyone in the geographical area has sustained a loss.”

 “This is the only way that microinsurers can handle claims settlements economically because travel to remote locations is prohibitive,” Pauli says. “For standard P&C insurers, the growth will come about because cost containment requires innovation. Just laying off claims adjusters is out of the question; there are too few skilled adjusters as it is. Supporting skilled adjusters with technology is the only option for insurers.”