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Flight Risk: What to Look for in Drone Coverage

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As a result of their military applications and privacy concerns, drones make headlines frequently these days, but they may also be a part of your clients’ businesses, exposing them to unseen risks.

Drones are being used commercially in sectors that range from agriculture to construction to energy, and many more possibilities exist for them: rescue missions, for instance, that deliver medications to inaccessible regions.

According to a white paper written by Chris Proudlove, senior vice president for complex and unmanned risks at Global Aerospace, an international aviation and aerospace insurance provider, risk management is one reason drones are catching on commercially.

There’s so much promise in the use of drones, said Proudlove in the paper, that aerospace and defense analyst Teal Group estimated that by 2024, the drone industry will be worth some $91 billion. In addition, it’s expected that commercial drones will close the gap in investment, functionality and technology with military drones within the next five years.

Drones can end up increasing the very risk they’re meant to reduce, though—and that means unmanned aerial vehicle (UAV) operations need to be insured.

Proudlove said in an interview that Global Aerospace has “noticed in this industry […] that there are hundreds of manufacturers and training companies and distributors. There are so many people involved in the drone industry that have exposure, due to product liability, but very, very few buy insurance against that type of risk.”

Proudlove explained that unmanned aviation is different from manned aviation because there’s a lack of responsibility within the chain. “Contractual clarity [for UAVs] does not necessarily exist,” and as a result, “if your clients are involved in any way in the risk chain,” he said, “they may have exposure because the people around them are not protected.”

There’s also the matter of FAA approval for operators, he added, saying that it would probably be another two years before the FAA releases its final rules for the use of drones under 55 pounds operated within visual line of sight, according to the Notice for Proposed Rulemaking (NPRM) that the FAA released in February. “Lots of companies are going through the approval process, but the vast majority do not,” said Proudlove. “There’s potential legal exposure because people are operating without proper FAA approval.”

The NPRM made no mention of insurance requirements, but that doesn’t mean that such will always be the case—or that other parties in drone operations will be willing to forgo coverage.

So what does that mean for your clients? They need to be sure that they’re protected appropriately, depending on where they fit into the operation. “Every insurance carrier has their own set of guidelines by which they underwrite,” said Proudlove, “but any kind of professional drone user can easily get coverage at this point.”

Global Aerospace looks for training and experience among drone operators, he said, but the biggest risk factor is how closely operators will be flying to people who are not involved in the operation. “A mining company flying over a mine to take 3D images, with not a soul in sight,” he explained, “will find it easier to get insurance from us than [an operator] flying over a concert venue with lots of people.”

While coverage does exist for such venues, he said, “We wouldn’t take that risk. […] The risk of injury to a third party is the biggest risk in the whole unmanned industry.”

There are two basic forms of coverage for drone operations. First is physical damage to the insured unit—the drone—and second is the risk of third-party liability. At the time of our interview, Proudlove said figures indicated that there were approximately 800 drone manufacturers globally, and while some had been around long enough to develop a track record for reliability and system capabilities, obviously many others have not.

There’s also non-owned exposure for the company that hires a drone operator to perform some function for it. Here, too, pricing varies, depending not only on the dependability of the unit but also that of the operator.