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Drone risks take to the air along with university research

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MINNEAPOLIS — Students and faculty members at universities have been engineering and flying drones for years, and underwriters’ main concern is invasion of privacy.

“There’s a litany of uses for drones,” Rob Leong, San Francisco-based first vice president of Alliant Insurance Services Inc. said Tuesday during the University Risk Management & Insurance Inc.’s conference in Minneapolis.

Aside from engineering schools, many higher education programs are designing and prototyping drones, including archeology and agriculture schools, he said.

“A deductible of 10% of the cost of the drone would apply to cover the drone itself,” said Mike Colson, New Orleans-based aerospace underwriting manager at Ace Westchester Specialty Casualty. “While some operators are self-insuring their drones, some universities are buying complete coverage packages.”

While there have been no issues with commercial drones causing an invasion of privacy, most insurers are excluding that coverage when covering drones, Mr. Colson said.

“Besides having them flying into a building or people, we are very concerned about the privacy issue. Drones can collect data that is sensitive or personally identifiable. Intentional acts are not covered in insurance policies; when the operator actually intends to collect sensitive data, those are cases insurance will not cover,” Mr. Leong said.

“The first and most obvious exposure is that of the person or organization operating a drone,” Mr. Colson said. Possible exposures could include midair collision with other drones or aircraft, contact with power lines, cellphone towers or damage to real property, Mr. Colson said.

“Recently, we saw an electric company spend $35,000 to remove a drone from a power line in Seattle,” Mr. Colson said. “It really is the wild, wild West out there. Without multiple years of claims data and because drone risk exposure is still so new to the aviation industry, the aviation insurance industry is watching its progression closely.”

While the Federal Aviation Administration issued rules during the summer for the personal operation of drones, it could be a year or more before it issues rules for commercial drone operators .

Jerry Ruth, New Orleans-based aerospace senior vice president of Ace Group, said the FAA is been slow to respond to the booming industry.

“The FAA is going to wait until a catastrophic event takes place to take action,” Mr. Ruth said. “They are well behind the curve and, from an insurance standpoint, it doesn’t sit well with us. The personal use of drones is going to cause a major catastrophe, and there will be serious injuries, something we pay claims on every day.”