The growing commercial use of unmanned aircraft, popularly called drones, has created a new and sometimes perplexing set of insurance issues. We are already seeing a significant number of drone operators here in Southeastern North Carolina, mostly providing photography and video services for advertising, real estate and news-gathering purposes.
It’s a rapidly growing field, moving so fast that the Federal Aviation Administration is struggling to keep up in crafting a regulatory scheme for unmanned aircraft. Clearly, government oversight is lagging way behind the development and the commercial deployment of this technology. The insurance industry has moved out ahead of the FAA and already a couple of dozen companies are offering drone coverage.
To put the growth rate in perspective, I have seen estimates that in just four years, some 30,000 small drones will be in use for business. That hardware will be valued at billions of dollars.
Anyone using or thinking about using one of these remarkable little machines should understand that general commercial insurance does not cover anything aviation-related. That applies to robotic quadracopters just as much as it does conventional piloted aircraft. One expert in this field has warned, “Aviation is a litigious environment,” which means it’s a very good idea to have protection.
Right now, the available policies tend to fall into two broad categories: coverage for the drone equipment itself, commonly called “hull” insurance, and liability coverage. Think of them as comparable to how you cover your car: collision insurance protects your own property from loss or damage; liability insurance protects anyone else who may be injured or suffer property damage because of accidents or misuse of your equipment.
Drone owners can get “hull” coverage with a deductible of 5 percent to 10 percent, not too different from how auto collision insurance works.
One red flag area for drone liability coverage, which doesn’t have an equivalent in other types of property insurance, is invasion of privacy. To take one simple example: A commercial photographer is taking aerial videos over a residential neighborhood on behalf of a real estate company. The drone’s camera inadvertently sees over a homeowner’s privacy fence and captures images from their backyard, sundeck, pool or hot tub. The homeowner sues, claiming his natural expectation of privacy has been violated.
The trick for insurers is to understand how a drone will be used, what sort of data it will gather, and who will have access to that data. Knowing the answers to those questions makes it possible to select the most appropriate level of liability coverage.
Even the more straightforward issue of guarding against property damage is requiring agents and underwriters to be asking new kinds of questions. What’s the purpose for which the drone will be used? What are the operators’ qualifications? Where will it take off and land? Will it operate over populated areas? Over water? Indoors? How high or how low?
People who are playing leadership roles in the drone industry are advising their colleagues that having insurance may help them to sell their services. Clients are far more likely to be comfortable having a drone flying over their property if they’re certain both the machine and its operator are insured.
Insurers are looking for other types of evidence that a drone operator is a good risk. Pilots who have taken formal training, for example, can lower their premiums, much like the “good driver” discounts many auto policies include. Operators should have operating manuals for their equipment, keep detailed logs of maintenance, and even store downloaded data logs from the drones themselves. Those logs can often provide crucial evidence in the event of an accident.
One brand-new factor is becoming important. While the FAA is working out its long-term regulatory regime for drones, it is offering what’s known as a “333 exemption.” Commercial drone operators can apply for 333 status, which is the closest thing to an operator’s license that exists in the drone world so far. That is likely to become an important factor for underwriters to consider. Just during 2015, the number of 333-exempt companies rose from a handful to more than 2,000.
Responsible drone operators will get insurance. They will keep it by being diligent about maintaining logs, respecting others’ property and privacy, and in general operating ethically.
Jim Moore is the president of James E. Moore Insurance Agency. Established in 1954, it has become one of the most trusted independent insurance agencies in North Carolina. The James E. Moore Insurance Agency is a family-owned business and offers homeowners, automobile, life and health, employee benefits, and commercial insurance products. For more information, call 910.256.5333 or visit the agency’s website at www.jamesemoore.com.
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