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The Drone Factor: An Insurable Risk?

Joshua A. Jeter - Ironshore Aviation

The answer is yes and no. The multi-faceted, expanding drone industry spans non-military commercial operators to trained enthusiasts to recreational amateurs. The opportunity and controversy inherent in drone activity has ignited heated debate. Unquestionably, however, there is resounding industry agreement that the number one risk is safety.

Widespread usage of non-military drones for commercial and business operations rapidly surfaced within the past five years. Collaborative discussion is underway to effectively integrate Unmanned Aerial Vehicles (UAVs) in compliance with parameters of the Unmanned Aircraft System (UAS). Drone manufactures and operators are increasingly conscious of much-needed safety measures, establishing protocols for UAV applications that adhere to performance and reliability standards. In February of 2015, the Federal Aviation Administration (FAA) issued a proposal for regulation of drones weighing less than 55 pounds. High risk drone operations typically deploy UAVs at weights exceeding that threshold, which are capable of flying over 500 feet, thereby visually out of sight, and for longer periods time. Industry advocates claim the proposed FAA regulations do not go far enough to assure public safety.

The FAA proposal was primarily triggered by drone safety issues surrounding private, consumer usage in areas posing potential harm to individuals and disruption in the aerospace highways. Drone enthusiasts are, in most cases, trained or licensed pilots. Usage is under controlled circumstances and coverage for liability risk may be insurable as an endorsement under casualty programs. Recreational amateurs embody the greatest threat. Lack of drone operational knowledge and reckless behavior in usage of the relatively inexpensive UAVs, such as the popular “Phantom,” can at times place the risk beyond the bounds of insurability.

Large, global insurance carriers within the aviation insurance sector began introducing liability coverage for commercial UAV manufacturers and operators under certain conditions. Insurance coverage solutions address the legal liability exposure and asset protection of the operation. Commercial drone operations are becoming prevalent within the energy, agriculture and real estate sectors. Until very recently in the industry, casualty programs explicitly excluded drone use under the very broad aviation exclusion; yet, program options that specifically address complex, liability risk of drone operations apply strict underwriting guidelines for prudent risk management

Safety protocols for sound risk management strategy of commercial drone applications are based on three fundamental risk mitigation prerequisites: Training, Supervision and Licensing. Operator training provides instruction, enabling users to recognize exposures to risk. Drone certification programs, pilot training and aeronautical college courses have become popularized. In just ten years, an estimated 100,000 new jobs will be created in this career field with an economic impact of $82 billion, as reported by the Association for Unmanned Vehicle Systems International.

Insurance coverage solutions will be aligned with supervised operational mandates. Commercial operations must provide evidence of safety protocols from pre-flight checklists to flight plan documentation to maintenance for vehicle operability. Also required is authorization of the commercial flight endeavor from the FAA or similar regulatory authorities, such as the European Aviation Safety Agency (EASA).

Drone usage is and will continue to be a highly regulated industry. Commercial usage of UAV operations holds the potential for advantageous applications as the industry becomes more technically advanced. Public interest missions, including disaster relief, search and rescue, law enforcement, and humanitarian efforts can ideally benefit from UAV systems. Forward thinking aviation casualty programs that target aerial vehicle strategy embrace thoughtful underwriting initiatives to oversee the safety of this complex, commercial risk in the global aerospace sector.

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