Now’s the time to get in on the ground floor of the business of insuring drones.
That’s according to panel of experts speaking recently in a drone insurance webinar hosted by Insurance Journal.
The consensus from the panelists was that the drone business is a small part of the aviation insurance sector, which itself is a small part of the property/casualty business, but in a few short years the drone space will power the biggest growth in aviation insurance in 50 years.
The panelists on the webinar, “Drone Insurance: Coverages, Hazards and Claims,” were: Kathleen Swain, senior director of UAS programs at AOPA, Shan Rogers, senior vice president and director of RT Specialty Aviation LLC, and Chris Proudlove, senior vice president of UAS risks at Global Aerospace.
Following is a question-and-answer style outtake from that webinar. This has been edited for clarity and brevity. You can view the full webinar by clicking here.
Insurance Journal: I’d like to start out with a general question to introduce our visitors to drone insurance. What is it and what can be covered?
Swain: So, drone insurance can either come from a hobbyist standpoint or a commercial standpoint, really what we’ll talk about today is coming from the commercial use and what the commercial or business owner can look to do in the drone space. Coverages range from anywhere of covering the drone itself, and then that has various aspects of it, to cover the drone, so we commonly refer to it as whole coverage in the insurance world. So, that can be anything from property damage, covering the sensors, the ground equipment.
The commercial drone space has greatly expanded from the hobbyist sector and then you start looking at general liability coverages. And that’s where we get into a different world of drones, because we have sensors, we have cameras on drones, so we’ve got to address general liability, along with that comes privacy concerns, and along with that comes what do you do with the data. So, “How is the chain of custody and the data protected?”
Proudlove: Just to add to what Kat said, really, we’re talking about two basic elements, property and casualty, but I think it’s worth pointing out that this whole commercial drone industry really grew from nothing five years ago. When we started writing policy forms and trying to devise language and coverage that would be appropriate to the commercial drone sector.
So, while the policy forms issued by aviation carriers typically follow a standard aircraft hull and liability program, there are many additional coverage features and coverage items that are specific to the unmanned sector and that address the needs of drone users, such is coverage for payload items, things like cameras and sensors; these are items that can very easily be several multiples of the value of the actual drone itself. So, coverage for these types of items becomes very important.
Rogers: I think the point that is beneficial for insurance for our clients is the fact that, as Chris said, five years ago we started doing this, but about two years ago the FAA actually legalized it with their Part 107 requirements. And Part 107 is a legal certificate from the FAA to give drone operators permission to fly commercially in the national airspace, and that’s a very important legality that gives us a baseline to start our insurance and our proper company planning off of. Because we have an operator who has now met the minimum capacity and we know that they’re a responsible operator.
IJ: How big is this market?
Proudlove: It’s really hard to gauge what sort of premium value we’re currently talking about. I think what we can definitely say is that the U.S. is by far and a way the biggest market at this stage. The regulations are pretty well developed, drones are in pretty wide use in the U.S. compared to Europe and Asia, let’s say. But trying to determine the premium volume is very, very hard. I would say that if the aviation market is .1 percent of all property/casualty premium, then drones is probably .1 percent of the overall aviation premium. We’re talking very, very small premium numbers right now.
Rogers: If you give this a few years, what you’re gonna find is this will be the biggest growth in aviation in 50 years. Drones will definitely do that because the potential is there to do so many different things that’s dangerous and hard to do for someone else and therefore, much safer for a drone to do the exact same thing.
Swain: Yeah, I still think that we’re in the infancy of our insurance drone space and right there on the cusp of insuring to a new risk and how that will develop over the years as the technology develops and as the regulations expand.
IJ: What has the claims experience been like?
Proudlove: At this point, and I would say that we have experienced hundreds of mainly physical damage claims, so mainly damage to the drone itself. They seem to be particularly fond of lakes and trees, I would say those are the two areas that they seem to get lost in. But the industry is really in its infancy and I’m sure both Kat and Shan can talk to this, the technology is very new, the industry is learning an awful lot about the way that the ground station talks to the drone, how those signals can sometimes get broken, what the right kind of training is that these operators undertake before they fly.
But it’s very permissive, the FAA rules and regulations don’t have any kind of certification process for these drones, so unlike any other aircraft flying, you can build a drone and you can fly it commercially tomorrow without any regulatory oversights at all. As an operator, you need to pass a fairly basic test, which doesn’t involve any hands-on flying, it’s just a pure written test, so the barrier to entry for commercial drone operators is very, very low. You couple that with an industry that’s in its infancy, in terms of developing the technology and the framework for safe operations, and you’re going to have accidents, and we’ve certainly seen that.
Swain: To piggyback on what Chris said, I wholeheartedly agree with that, the whole regulatory structure was set up around educating to a certain point, but not educating to a hands-on type of flying, which is a lot different from the manned aviation space, where you do have that requirement. So, in the drone space, in the UAS space, you don’t have that hands-on requirement, so, yeah, the claims are gonna be a lot higher because of fly-aways or because of operator error, pilot error.
Rogers: The other thing is we haven’t seen, from my perspective, a major liability claim yet, and I think it’s really a matter of time before that happens. I mean, people are touching it, we see the physical damage issues, but we haven’t had a major liability claim happen, and it’s gonna happen, and it’s just a question of when.
IJ: How does one go about procuring coverage for their customers?
Rogers: We have an application, of course, because you can’t do insurance without an application. But at the end of the day, we’re gonna gather your data, we want to know the make, model, year, serial number, and value of the drone if you’re interested in whole coverage for it. We’re also gonna want to know the make, model, year, serial number of your gimbal, your payload. Payload’s gonna be a camera, it could be a thermal imager, they can be anything the drone carries, and we’re gonna take all that information and we’re gonna send it to our underwriters, in addition with that we want to make sure that our operators who are gonna be on the policy have their Part 107 certification from the FAA.
Once they’ve completed those steps and they’re gonna be using the drone in an approved manner, and of course if they’re following Part 107, they will be using the drone in an approved manner. Then we can start to work and secure them a liability and a physical damage quote, if so desired.
Swain: To kind of dovetail on that, along with Shan’s organization, AOPA also has an insurance agency of specialized brokers, specifically helping out the UAS community and helping out the 107 pilot with that right fit, and our application process is very similar to what Shan was talking about, going through the requirements, making sure that you have a 107 certificate, knowing exactly what type of drone that you’re operating, where you’re gonna be operating it, what type of operations are gonna be taking place within your 107 activities.
Rogers: What we really see, the other piece is, liability can range somewhere between $1 to $50 million, is kind of the limits we see, most people stay at the $1 million limit, but we are seeing more and more companies, like maybe power companies or oil companies who are requesting a higher limit, maybe $5 to $10 million of liability, in case that drone was to cause any sort of physical damage to their infrastructure. Like I said, most people really live at that $1 million dollar liability limit, but higher liability limits are available if you need it.
Proudlove: If I could add two quick points to this, which the first is that buying drone insurance has become on the one hand a lot easier in the last couple of years. A lot of companies have developed technology to make the process of buying the insurance much easier than it was, say two, three years ago. If I look back at the application that we first wrote four or five years ago now, it asks all kinds of questions about the takeoff procedures, and all kinds of things. We’ve whittled that application down to the bare bones, so from that perspective, buying the insurance is much, much easier.
On the other hand, it’s become much more complicated because there are more providers now of the insurance, you can find a number of different products that suggest that they do one thing or another, there are warranty programs, there are association linked programs, as always with insurance the devil is in the detail and I would encourage anyone that is buying insurance for a commercial drone operations to really look closely at the coverage that is being provided and also look at the ability of the broker and the carrier to make changes to the policy, because this is an environment where very often you have to make changes to a policy as you’re buying and selling drones, as you’re doing jobs that require higher limits. It’s a very work intensive environment in which to operate, so just be careful in terms of who you’re working with and whether they have the ability to not only provide the coverage at the right price, but also the ability to ably service your insurance policy during the course of the year.
IJ: I understand this is an active area for Insurtech to develop new products and services, with some even considering offering a short-term policy. Who’s in this space and are they having any success?
Proudlove: There’s one provider that is currently providing short term policies in the U.S., it’s called Verifly, they provide policies anywhere from one hour to eight hours, we understand that there may be other products currently being developed that would do a similar thing, both in Europe and in the U.S. I think the Insurtech market has looked closely at the drone industry for a couple of reasons. One, it’s new and sexy, and the second is because you get an awful lot of information that streams from the drone as it’s operating. The drone knows where it is, it knows what speed it’s going, it knows what time of day it is, so it’s pretty easy to link up the data that is coming from the drone with an insurance product, so that you get perhaps an insurance product that is more tailored to your individual needs.
Now, whether these products will ultimately prove to be the ultimate way to buy insurance remains to be seen, but it’s certainly a very interesting way to approach the Insurtech business and determine what the market capacity is for these types of products.