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Drone regulation updates expand insurance sector's horizons

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While the latest drone regulations don't resolve all issues related to using unmanned aerial vehicles, they do have welcome news for the commercial drone insurance marketplace and insurers that want to use the devices themselves for business purposes.

Federal Aviation Administration regulations Part 107, released June 21, didn't lift the line-of-sight rule for unmanned aircraft weighing less than 55 pounds flown for commercial operations, meaning one person still must watch each drone and making package delivery impossible, said Terry Miller, president of Conifer, Colorado-based aviation brokerage Transport Risk Management Inc.

Part 107, effective Aug. 29, does, however, remove roadblocks such as the requirement that an operator be a licensed pilot and the need for an FAA 333 exemption, which allows a commercial business to legally use a drone for specific tasks, a lengthy process that kept many players away, sources said.

The changes are of particular value for insurers as potential policyholders emerge — and as they find their own uses for drones.

“Some of the middle-market and smaller companies who don't have the same resources that the larger companies do were waiting for the regulatory environment to firm up before entering into the space, both on the coverage side and the usage side for insurers,” said Tom Santos, vice president of federal affairs for the Washington-based American Insurance Association.

James Van Meter, Atlanta-based aviation practice leader of Allianz Global Corporate & Specialty S.E., said the new rules are “a huge boost for the industry.”

“The 107 rules provide a clear path to operate drones legally,” he said. “Those on the sidelines are coming off and acquiring UAVs so they can integrate this technology into their business.”

The insurance business is already seeing an uptick in clients, according to Mr. Miller, particularly among operators in mining and agriculture or cell tower inspections, with higher-end systems costing up to $50,000 flown by trained pilots. “We're seeing higher-quality operators come out of the shadows,” he said. “They didn't want any visibility before 107, but now they are looking for insurance.”

Large property insurers are also using drones, said Dave Tobias, the Burlingame, California-based co-founder and chief operating officer of BetterView Marketplace Inc., a company that flies drones to capture aerial imagery for data analysis, primarily for roofers and insurers.

“We've had more than one conversation frozen from regulatory concerns that are now moving forward. A couple of those are with the top five property insurance companies wanting to use our drones,” Mr. Tobias said. There has also been a lot of interest from states with severe weather, such as Texas, which recently experienced bad hailstorms, he added.

Jill Bay-Weber, the Orange County, California-based president of the excess and surplus wholesale business division at Paragon Insurance Holdings L.L.C., a BetterView client, said the insurer uses drone data when underwriting and binding and for future claims.

Drones help Paragon review property, she said, allowing them to see roofs of several buildings at once or those with obstructed access. Drones can take pictures to confirm the quality of the roof.

“This will help if there are any future claims as well,” she said. “It is crucial to have the snapshot of the roofs at the time of binding the account versus when a loss may be turned in.”

Some insurers that use drones underwrite the risk themselves, sources said, but that is not always the case.

“It's only been on the scene in the last few years, so there hasn't been enough loss data collected because there haven't been enough losses that have occurred — or been reported” — so insurers don't know if it would be worth it to buy insurance or to take the risk and save the premium, said Rich Nocella, a New York-based vice president in Marsh USA Inc.'s Aviation & Aerospace Practice.

Mr. Van Meter said Allianz writes coverage for insurers using drones for claims adjustment because most insurers don't want to self-insure due to conflicts with the issuance of the policy and any potential claims that arise.

“It would be difficult for an insurance company to adequately and fairly underwrite its own exposure — the pricing and terms would be highly questionable,” he said. “The claims process would also be subject to intense scrutiny: Would the claim be handled in a fair and ethical manner? Are claims being paid that should not be paid?”

“Some (clients) don't insure the hull — it depends on the company and their price point — but most are getting hull and liability, third-party liability exposure for business interruption and first-party property damage for the drone's exposure,” he said.

Allianz sees interest from small, midmarket and big insurers, he said, using drones for claims adjustment, roof inspections and testing the technology for use in major catastrophes — “anywhere you can get a photo but don't want to put an employee in a dangerous position,” he added.

He said Allianz insures most of the drone manufacturers, distributors and facilities set up to train operators. He said it sees “a huge spectrum” of end users from Fortune 100 companies to startups purchasing units for $1,000 each. “Right now we are binding new UAV business every day.”