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Unless you have taken a vow of no media, social or otherwise, you are aware of drones or Unmanned Aviation Systems (UAS) and their impact both now and in the future.
August 2016 ushered in regulatory changes by the Federal Aviation Administration (FAA) that made it much easier for individuals and businesses to operate aerial drones or Unmanned Aviation Systems (UAS) for commercial uses. Referred to as FAA Part 107 it consists of two basic sections for UAS, less than 55 lbs., with specializations applicable to those sections. First, all drones operated commercially and recreationally must be registered with the FAA. The majority of businesses today will qualify to work under Part 107.
A number of restrictions apply to Part 107 UAS flight and can be found on the FAA website. They include, but are not limited to; no night flights, no flying of multiple UAS at the same time, no operations in Class B, C, D & E airspace without FAA approval, no beyond visual line of sight (BLVOS) operations etc. If you can prove to the FAA that you can operate in these conditions safely you may be granted a waiver.
The second requirement is that operations of the UAS be performed by, or under the direct supervision of, a Remote Pilot Airman Certified (RPAC) pilot. Minimum age is 16, with the ability to read, speak, write and understand English, be in a physical and mental condition to safely operate a small UAS and pass the initial aeronautical test at an FAA approved testing center. Once vetted by the TSA the pilot will receive his/her license which is valid for two years. At the end of those two years the license holder must pass a recurrent knowledge test. Approximate cost is $150 and information can easily be found on the FAA.gov website. Slightly different requirements apply for those who have their manned aviation license.
One of the exciting developments regarding UAS is the FAA’s LAANC (pronounced Lance) for Low Altitude Authorization & Notification Capability. LAANC is an automated system providing near real-time processing of airspace authorization requests. This will be a big improvement over current waiting times for FAA authorization and a step closer to FAA and NASA’s UTMS or Unmanned Traffic Management System.
The goal of a UTMS is to create a ‘highway’ allowing drone operators to work with a central system managing unmanned operations under 400 ft, the current maximum altitude for UAS. Creation of this system will allow for safe flight beyond visual line of sight and for highly automated operations.
Industries Using Drones
The surge of UAS operators due to Part 107 has resulted in some drone operations moving to a support business such as software, consulting or maintenance. An area gaining attention is drone defense. Meanwhile other drone businesses are growing in areas of mapping, survey, energy, education and more.
Due to the easing of regulatory requirements, the market for drones is booming: estimates are that by 2022 the commercial drone market will reach $15billion with the largest anticipated markets being Delivery & Logistics along with Building & Infrastructure.
Currently agriculture, real estate, construction and conservation efforts are all areas where an eye in the sky can be helpful. A quarry can find out exact inventory in a few minutes by using a UAS to make volumetric measurements. A drone measuring pipeline construction can spot an alignment error that could cost hundreds of thousands if left unchecked. Fuel is being saved and the environment profits when industrial fishing companies use drones to help locate schools of fish. Energy companies use the drones not only for surveying but for gas and pipeline inspections. Insurance companies can use drones to check for damage on buildings or properties. Companies using UAS were called in to collect data from the 2017 hurricanes; Harvey and Irma. Methods are constantly evolving to protect, compile and use the tremendous amounts of data collected. Will the day come when products on store shelves are embedded with sensors that enable aisle flying drones to compile inventory and re-order stock, when we don’t even look up at the buzzing above our heads?
UAS are being used more in STEM education (Science, Technology, Engineering and Math). Educators have commented that UAS draw more female students into the STEM programs because drones are intriguing not intimidating. They are also a natural fit for students who have grown up using electronic devices and are used to immediate cause and effect results. Universities and community colleges are also offering courses in aerial drone operation.
New technology, new liabilities and an identity conflict
How do we insure an industry that is growing at such a rapid rate? There have been losses but nothing catastrophic yet. Regulation helps because the insurance industry likes rules and there are finally rules to follow. But with more businesses finding uses for aerial drones, questions are multiplying about the insurance liability that comes with the devices. Aviation insurers have developed UAS specific policies and some are offering great low cost deals but insurance is a contract so always read the fine print. The best way to protect yourself is to work with an agency specializing in aviation and UAS risk management.
One of the problems the industry faces today with the public is an identity conflict. Is a drone a toy or an aviation vehicle? Does the use determine the answer or is it always one or the other? As a vehicle flying in National Air Space it is an aviation vehicle governed by federal regulation. You may purchase it at a big box store or online with the intent of using it for your own enjoyment but it is still an aviation vehicle.
Using a drone that was purchased for hobby use leaves a business vulnerable on many fronts. Most private homeowner’s policies do not cover aviation, so an amateur operator may have no insurance coverage. Using an inexperienced operator can be a substantial risk to your company and a lawsuit is not going to focus on the uninsured student. There are a number of apps that can be downloaded on a cell phone and used to purchase insurance by the hour for both commercial and personal use. Hiring a professional drone operator, with the proper certificates and insurance, is a smart investment for any business.
Policies and exclusions
If your business buys its own drone (or drones), the drone should be treated as another business vehicle and needs its own policy. With most insurance carriers, each drone will be scheduled, or listed, separately. So far, few carriers are writing policies for drone fleets.
Just as a company would have an auto insurance policy for a company car or truck, a drone that is company-owned needs an insurance policy that can cover multiple things: aviation liability for property damage (PD) and bodily injury (BI); hull coverage to protect the drone itself; and payload such as a camera. Batteries and spare parts can also be insured.
If a drone carries cargo (which is different from “payload”), that cargo is usually excluded: companies can buy coverage for cargo in some instances, but the insurance company is going to review any such policy very carefully. In addition, any dispersed material (such as pesticides, in an agricultural setting) is excluded. Drone racing is also, not surprisingly, excluded from insurance coverage.
If, instead of buying its own drones, a company uses a UAS service, the rules are slightly different. A company that hires a UAS operator with his or her own drone should make sure the operator has liability coverage.
Another possible drone ownership scenario would be if your company owns the drone, but hires an operator to fly it. In most cases like this, an operator should have a “non-owned liability” clause in their coverage.
To clarify the point, here are two instances where a non-owned liability clause would apply:
- A real estate agency hires various operators with their own drones. To protect its interests, the company requires a Certificate of Insurance (COI) from each operator, with the real estate company listed as additional insured, but it also purchases an annual non-owner policy for about $1,000 a year. If it turns out an operator has dropped his policy, the agency’s policy becomes primary.
- I own a drone business and my drone is insured but I’m hired by another drone company to fly their drone. My liability does not follow me so it would be wise to add a non-owner endorsement to my policy. It is also a good idea to have the hiring entity add me to their drone aviation policy as a pilot and additional insured.
Finally, if your company hires an operator or aviation expert to do repair work on a company-owned drone (but not fly it), that operator should have a general liability policy.
Additional coverage is available for specific risks or issues. It’s worth noting that personal injury coverage was hard to purchase by UAS operators for a while, but some carriers are now offering such policies. At this point, very few personal injury cases against drone operators have been successful. But even if an operator is vindicated, the defense costs can be crippling.
There are also emerging insurance issues, such as cyber risk. One fear is that “maldrone” operators could take control of a drone from its original operators, or cause it to crash. Carriers are currently looking at possible coverage options that would address that risk. Insurance against terrorist acts or seizure of a drone in times of war is also available from some carriers.
Drone insurance basics to remember:
- Aviation insurance expires annually so make sure any UAS provider has a valid certificate of insurance
- Using a drone within five miles of an airport requires a signed agreement with the airport
- Hired operators should have a Remote Airman Certificate from the FAA
- Some UAS operations are still illegal: flying at night, flying over pedestrians, flying a drone beyond the line of sight, and operation of multiple drones in a swarm. If a business needs an exemption from these rules, they must seek it from the FAA.
Experts note that with such a rapidly changing technology that is still just beginning to get serious regulatory scrutiny, there can be sudden changes to insurance coverage as well. Insurers are still figuring out the new field, and will be for some time. Carriers are currently working with UAS associations and educational institutions to develop training and insurance standards.
So far, there has been no major accident caused by a drone. If that misfortune should happen, regulators and lawmakers may feel pressure to tighten restrictions on this technology. Insurers and operators would no doubt be affected by such changes.
Brokers who work with UAS businesses ask a lot of questions because the landscape is changing all the time. We learn from our clients as, hopefully, they learn from us. Businesses that want to take advantage of this growing technology will be best-served by working with a company experienced in this new field and excited to part of this growing industry.