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Drones’ soaring popularity drives insurance market innovations

Drones’ soaring popularity drives insurance market innovations

From firefighters using drones to scan burning buildings and forests, to media flying drones to cover breaking news, to insurers utilizing drones to survey damage caused by catastrophic hurricanes and wildfires, unmanned aerial vehicles are quickly becoming a critical safety tool, experts say.

With their rising popularity comes increased demand for insurance products to cover drone risks, which the aviation market can currently handle, according to experts. But as the laws and regulations governing drone use continue to evolve, there are lingering concerns about privacy violations that could result in claims.

The potential for drone usage is “endless,” said Dean Anderson, Atlanta-based senior vice president and aviation national practice leader for USI Insurance Services L.L.C. For example, drone use in the emergency response sector is rapidly increasing for both safety and cost savings reasons, he said.

“You can get a drone into the air in seconds versus getting a helicopter fired up and getting it to where it needs to be,” he said. “It’s not going to totally replace the human, but … it makes a big difference.”

And the increasing need for drone coverage is welcomed by the aviation insurance industry, said Richard Nocella, vice president with Marsh USA Inc.’s aviation practice in New York.

“We haven’t had a new sector to build upon for decades,” he said. “This allowed underwriters to find a new source of revenue to continue to build their books of business.”

In June 2016, the Federal Aviation Administration issued a rule commonly referred to as Part 107 to allow for routine civil operation of small unmanned aircraft systems, otherwise known as drones, weighing less than 55 pounds. But the rule has specific requirements for operators to keep the drones within their line of sight while in use and a ban on flying drones over people not directly participating in the operation that have limited expansion of the use of drones.

Beyond visual line of sight will allow for the commercial operation of drones on a much larger scale, said Chris Proudlove, senior vice president and underwriting executive for product development and UAS at Global Aerospace Inc. in Parsippany, New Jersey.

“Beyond visual line of sight is really the holy grail for a lot of companies,” he said. “I think it’s going to be a little while before the FAA is in a position to provide a suitable regulatory framework for those operations. But in the meantime, I do think there is sufficient regulation to allow for the immediate growth of the commercial drone industry.”

Competition in the aviation market for drone risks has escalated as insurers have warmed up to covering drones over the past three to four years, with buyers able to secure substantial limits for relatively small premiums, according to brokers. For example, a policy with a $1 million limit can be purchased for $600 to $1,000, while a $5 million limit can be had for $3,500 to $5,000, brokers say.

“That will change once a larger claim does happen,” said Bryan Holmgren, vice president with Aon P.L.C.’s aviation practice in Chicago. “Hopefully it never does.”

Drone-related losses paid out by Allianz Global Corporate & Specialty S.E. and Global Aerospace to date have been on first-party physical damage claims.

“So far, nothing has been catastrophic, but it’s only a matter of time before an accident happens that does cause serious bodily injury or that creates a serious liability situation,” Mr. Proudlove said.

In addition, AGCS and Global Aerospace are willing to write extremely high limits if needed, up to $150 million to $500 million, although purchases in that range are relatively rare at this point, according to experts.

Insurers operating in this space cover numerous risks related to drone operations, but demand for coverage generally centers on certain key exposures, namely physical damage coverage to the drone or attached cameras and other equipment, and liability coverage in case of an accident or injury and invasion of privacy coverage.

“The mere overflight over somebody’s premises or property would not be enough to trigger coverage, but if the camera is running and a video or series of pictures were uploaded to the internet and published in any way, then that would be the trigger for coverage to apply,” Mr. Proudlove said.

“Most states have pretty firm privacy laws, and there’s nothing that would make the drone space immune from the current privacy laws and precedents that exist in those states,” said James Van Meter, Atlanta-based aviation practice leader for AGCS.

But current privacy laws do not provide for a protected right to privacy from aerial surveillance by ordinary aircraft because they do not contemplate aircraft that can fly as low and as close to people and property as drones can, said Gregory McNeal, professor of law and public policy with Pepperdine University in Malibu, California, and co-founder of drone software company AirMap Inc.

“There are many who think privacy laws are going to need to change for those very low-altitude flights below 200 feet above property,” Mr. McNeal said. “Similarly, existing law has also said that overflight of aircraft doesn’t interfere with your use of property or your enjoyment of property. When you’re standing in your backyard and you see a helicopter at 1,000 feet or an airliner at tens of thousands of feet, of course it doesn’t interfere with your property. But a drone just above fence height while you’re having a barbecue or 100 feet above your property — there are many legal scholars, myself included, who believe the facts there will be so different as to cause a different way of looking at it.”




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