The Rise of Commercial Drones—Are Yours Insured?

By Kristin Casler, Featuring Vikki Stone of Poms & Associates

By 2020, the U.S. is estimated to have more than 30,000 commercial drones with a total value of $80 billion. Companies involved in everything from pipeline surveying to movie making are integrating unmanned aircraft systems (UAS) into their businesses. They’re saving money on labor and carrying out tasks more quickly and safely than when done by humans. But because this Jetsons-as-reality endeavor is still new, many companies fail to obtain any or sufficient insurance.

Industries tapping into the drone movement include aerial photography, cinematography, terrain mapping, construction, real estate, law enforcement, pipeline surveying, and power and utilities. For example, drones could be used to deliver an automated external defibrillator (AED) to a heart attack victim. South Africa is using them to capture poachers.

“Applications for this technology are unlimited, and it will change our world,” said Vikki Stone of Poms & Associates.

A spurt of commercial drones is expected in the coming months, as organizations take advantage of new registration rules that vastly reduce the wait to obtain FAA permission to fly. Until the end of August, companies needing the required FAA 333 exemption for pilots to get their drones in the air often had to wait months. On August 29, new regulations took effect that no longer require a pilot to obtain a part 333 exemption.

New FAA Rules

The newly enacted part 107 rule includes new pilot and operating requirements. According to the FAA, drone pilots must hold a remote pilot airman certificate with a small UAS rating. To qualify for the certificate, the pilot must pass a test at an FAA-approved testing center or hold a part 61 pilot certificate. A pilot must be at least 16 years old and be vetted by the Transportation Security Administration.

Stone has been obtaining insurance for commercial drones since they first began appearing in the skies. The new rules, she said, makes the whole underwriting process easier. Because the FAA requires documented, experienced drone pilots, so, too do the insurance companies, Stone said. And of course, she’s seeing a lot more interest and volume of business now than in the early days.

What risks are insured? Stone said she can obtain coverage for the vehicle, the payload, including such items as camera; propulsion units; sensors; packages; the ground station; and control unit, among others. There’s also liability for property and physical damage and product liability for manufacturers.

She reports receiving a large number of applications from hobbyists who want to start a commercial business. They often don’t know what business or who will obtain the pilot’s license, but they’re aggressively moving to join the commercial fliers.

Despite the increased interest in coverage, there are still a lot of uninsured drones in the skies, Stone said. Even software and component manufacturers who are intensely marketing their products don’t have insurance (yet).

Beware Exclusions

Commercial enterprises seeking coverage must use caution, Stone said. Not all insurance forms are the same. Some have multiple exclusions or don’t offer coverage for claims like invasion of privacy. And some general liability policies specifically exclude unmanned aircraft.

“It’s an interesting space to be in right now,” Stone said. “We are just planting our seeds in our garden.”

There have not been many claims industry-wide, yet, hence pricing for coverage is pretty inexpensive. Liability coverage for a single drone ranges from $850-$1500 a year. Physical damage for a hull is about 8% – 10% of value. There’s a lot of education to be done, and those seeking coverage should examine multiple options for the best coverage. Stone said she expects the low prices will continue until there is some loss experience.

And there will be losses. Videos and news accounts about hobbyist drone accidents abound—a ski racer nearly clobbered by a crashing drone, a toddler in the UK who lost an eye, an operator whose drone struck him in the head, killing him. Drones have smuggled drugs into prison, smashed against skyscrapers, impeded efforts to fight wildfires and nearly collided with airliners. So it’s inevitable that there will be claims in the commercial space, Stone said.

And there will always be rogue fliers who don’t care. One company was flying drones for a couple of years without a 333 exemption from the FAA. It was hit with a $1.7 million fine.

To help maximize commercial coverage, Stone encourages enterprises to engage in a rigorous pilot training program, flight planning, logging, following best practices, scrupulous maintenance, and to find a broker who knows what they are doing in this emerging space.