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Rise of the Drones

May 27, 2015

www.canadianunderwriter.ca

Insuring unmanned aircraft systems has been a hot topic of discussion at recent industry events.

So why is the rise of drones a concerning issue for carriers and what can they do to be prepared?

Let’s start with how drones are being used today. Here are just a few of the many instances where drones are utilized:
  • Agriculture. Sweeping over farms to monitor crops, locate livestock, and to spray crops (80% of the current market share for drones is in agriculture)
  • Disaster Relief. Flying over a rampant forest fire, alerting firefighters to where the blaze is most hazardous
  • Construction. Hovering over a construction site, conducting a building inspection
  • Real Estate. Sweeping through a neighborhood, taking photographs of the exterior and interior of a home listing
  • Aid and Rescue. Flying over Nepal after the recent earthquake, to map and assess destruction in order to speed up search-and-rescue operations
 

This aerial photo from a drone provided by Shreejan Bhandari in the Associated Press, shows Basantapur Durbar Square, in Kathmandu, Nepal, Monday, April 27, 2015.

The use of small-unmanned aircraft systems (UAS), or drones is not only happening now, its commercial growth is predicted to considerably increase over the next 10 years. However, as with any new emerging technology or advancements, the rising use of UAS-related business uses creates a multitude of insurance liability and coverage issues that must be addressed.

These liabilities stem from a wide range of issues that drones produce:
  • Injuries: tiny drones could be breathed in by a human or animal
  • Privacy: drones flying over private property or past windows in high rise urban areas can take unwanted and unlawful photos
  • Accidents: WI-FI in a remote area could cause a drone to stop working, malfunction, and cause an accident

Insurers need to be prepared with policies that cover every drone liability from personal injury and invasion of privacy, to aerial surveillance and data collection.

So how can insurers be prepared with coverage for the emerging drone market? ISO has developed a suite of new endorsements that will help insurers limit or add limited liability coverage with respect to drones. The new endorsements modify insurance coverage provided under ISO's Commercial General Liability and Commercial Liability Umbrella/Excess programs and will be implemented in a majority of jurisdictions in June 2015. In addition, ISO has developed advisory policyholder notices that are designed to provide information concerning these new endorsements to policyholders upon renewal.

Even with the new ISO endorsements, insurers will still have challenges in this market:
  • FAA regulations. Class G airspace is currently the only class where drones can be used/operated. The FAA will integrate drones into federal airspace very gradually and very deliberately. Underwriters need to make sure they are current on FAA regulations.
  • Coverage. Insurers need to consider what to cover, how to cover it, and the current guidelines. Also consider that this market is very fluid and will change over time.
  • Risk. Risk is currently being determined by the operator (or pilot) of the drone, the nature of risk, the type of use, and the equipment.
  • Equipment. Insurers need to understand who will maintain it, both physical equipment as well as system/technology that controls the drone. For example, is there a risk of a data breach of the system to consider?
  • Pricing. Insurers base decisions on data. The challenge is that there is no relevant data on drones. Historical data on drones is from the military, which is not relevant in the civilian world.

What shouldn’t be a challenge when entering the drone market? Your forms. GhostDraft empowers the business user to create and manage declaration pages, schedules, endorsements and other forms to support rapid product launches and a quick response to regulatory change. With GhostDraft’s Customer Communication Management (CCM) solution, you can customize policy forms for the coverage of unmanned aircraft systems and boost speed-to-market with business-driven document creation. Click here to learn more.

How will the drone market play out? Will drone coverage become a general liability or will it become an aviation specialty? Or could it become a combination of both (i.e traditional or specialty)? Only time will tell, however we know that drone use will continue to increase. It will likely drastically increase when the FAA finalizes their regulations. Will you be ready to take a share of the drone market?
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