Drones will soon be used for many applications, commercial and personal, and this blog will provide an update with a focus on the risk and insurance angle .
Drones are expected to be used with the ruling from the Federal Aviation Administration (FAA) on the use of unmanned aircraft systems (UAS) in U.S. skies. The United States has the most complex and busy skies anywhere in the world, so the regulations are highly anticipated. Clearly, many large business interests are angling for broad commercial use, and the FAA is working on regulations now.
There are already some regulations in place, but these regulations really are in place to limit the use of drones commercially. For civil operations, which include business use, there are two ways to operate a drone:
- The first is to obtain a Special Airworthiness Certificate (SAC). This certificate provides information about design, airworthiness, operating software, quality control and so forth.
- Section 333 is an exemption to the certificate. 289 have been granted in the whole country.
Thus, commercial use of drones is in a holding pattern until the FAA completes its new regulations. Both commercial and recreational use have great latent demand, and federal regulations are late to the show. 17 States have already passed their own regulations, but is airspace best regulated individually by the states and municipalities? This approach seems unnecessarily complicated.
Model and hobby use is permitted currently, but this is changing rapidly. Police logs will show that complaints are soaring, frequently for privacy concerns, but occasionally for damage. Traditionally, the FAA has not regulated airspace below 500 feet, meaning you own your airspace up to 500 feet. Under proposed regulations, the FAA is regulating down to the ground. These regulations include:
- Keep under 500 feet altitude;
- Conduct pre-flight checklists for safety and reliability;
- Keep in visual sight at all times;
- Keep away from people and stadiums;
- Keep clear of manned aircraft (including no flying within 5 miles of any airport);
- Weigh less than 55 lbs.
The FAA has a summary list of its proposed regulations for Small Unmanned Aircraft here: http://www.faa.gov/regulations_policies/rulemaking/media/021515_sUAS_Summary.pdf
Drone use clearly creates risks that the insurance industry is trying to quantify. Pricing for commercial use is difficult given the lack of loss experience, so this will develop over time, particularly once commercial use regulations have been promulgated. In the meantime, because the general liability policy is so broad, early commercial use may be covered until the industry excludes drone exposures to price buy-back coverage. On the personal recreational use side, we have not yet had a drone related claim here in our South Shore office, but they’re easy to imagine:
- A drone falls from the sky and damages someone else’s house, car or other property;
- A drone falls and hurts someone physically;
- Invasion of privacy. This is the one that bothers many of us the most.
Commercial use will be highly regulated, especially with a higher expectation of safety, privacy and predictability. Different industries have different reasons for wanting full access to drone use. Amazon has said it would like to deliver packages to your door by drone, and surely drone deliveries will play a large role in consumer product delivery. In addition, some jobs are more safely handled by drones than by humans; for example, inspections of high places, like high wire or antenna inspections.
The insurance industry has its own benefits planned for drone use. For underwriting, a visual view of insured properties will be less expensive and less intrusive than a human inspector. Working with security firms, physical security and early response to claims will be a benefit that should drive down the cost of risk to covered properties.
The biggest benefit for the insurance industry will be for claims, and particularly post-disaster assessment and response time. Today, insurance companies respond to disasters by bringing in teams from other regions, folks who do not necessarily know the local roads or resources. Prioritizing claims by severity is an inexact science at best: subjective claims descriptions vary tremendously. Insurers already know the physical concentration of their “rooftops”; sending drones in right after a big event will provide valuable information to prioritize claims and assign to the most qualified staff.