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Aviation

Drones, on Demand

More lenient FAA regulations allow drone pilots to launch new businesses in the U.S.
By: | November 2, 2016 • 7 min read

When the Federal Aviation Administration eased licensing requirements on piloting drones in late August, conditions ripened for explosive growth in their use. Yet the vast majority of drones are not insured, according to experts.

More than 600,000 drones will be sold this year for commercial use in the skies over the United States, according to FAA estimates. That’s three times more than manned aircraft such as airplanes and helicopters. An additional 1.9 million drones will be sold to hobbyists for recreational use, the FAA forecast earlier this year.

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Look ahead to 2020 and the FAA expects there will be more than 4.7 million drones flying worldwide.  Each and every one has the potential to crash into buildings, wires or worse, people. The downstream effect of these accidents could be more worrisome than the crash itself.

Increasingly, drones are a standard business tool used to survey crops and construction sites, photograph properties for real estate listings and insurance assessments, and even to deliver goods. Expect them to become much more commonplace as companies discover new and creative uses, and drone manufacturers find ways to make them smaller, cheaper, safer and easier to use.

Yet, 80 percent of all drones in use today may be uninsured, according to one estimate. Many are piloted by neophytes who sat on the sidelines until the FAA’s less restrictive guidelines opened the door for them to soar the skies this year.

“For the first time in aviation history, you’ve got tens of thousands of people bringing flying lawn mowers up into the air without any formal background in aviation training or any understanding of the international air space system,” said Alan Perlman, the founder of UAV Coach, a website offering industry information and training certification to drone pilots.

Swiss Re brought together drone experts, hackers, business leaders and insurance experts to discuss the risks and insurance underwriting of drones.

More drones taking to the skies add new risks and vastly change the insurance business, according to a report by Allianz Global Corporate & Specialty (AGCS): “Rise of the Drones: Managing the Unique Risks Associated with Unmanned Aircraft Systems.” The U.S. drone insurance market may be worth more than $500 million by the end of 2020, according to the report. Globally, it could approach $1 billion.

Global Aerospace Inc., a leading provider of aircraft insurance and risk management solutions, was one of the first to offer drone insurance under an aviation policy just four years ago.

“The sheer volume of requests for insurance is fast becoming overwhelming, and I think it will continue to grow at an exponential pace,” said Christopher Proudlove, senior vice president, general aviation team leader of the Northeast regional office at Global Aerospace.

“Covering the hazards and coming up with the appropriate products is probably the easiest part; dealing with the volume is going to be a challenge.”

Insurers are working to offer affordable products to the growing crowds of drone pilots. Niche brokerages aimed at commercial drone pilots are springing up, as are tech startups offering on-demand insurance apps, Uber-like drone pilot searches and safety features for night or long-distance flying.

On-Demand Drone Insurance

One company, Verifly, developed a mobile application offering on-demand drone insurance at hourly rates.

Verifly was launched in August in a partnership with Global Aerospace. It offers $1 million in liability insurance for as low as $10 an hour on any drone weighing less than 15 pounds and flying up to a one-quarter mile away from the pilot. Users order the insurance on their phones and receive instant approval.

Christopher Proudlove SVP Global Aerospace

Christopher Proudlove, SVP, Global Aerospace

Verifly uses geospatial mapping to assess the risks based on location and current weather conditions to provide a real-time quote. Users can purchase third-party liability insurance instantly. Coverage includes injury to people and property damage, unintentional invasion of privacy and unintentional flyaways.

“We are assessing ways to make the process of buying drone insurance easier because we recognize the fact that the vast majority of operators are millennials who rely on their smart phones,” Proudlove said.

“We definitely have some projects in the works that will help facilitate buying insurance. This is a user group that won’t be walking down to the local insurance office to fill out an application with a pen.”

FairFleet, developed in partnership with Allianz X (which helps develop new business ideas in the insurance space), is another new product that could be described as Uber for the drone business. Currently available in Europe — and planned for the U.S. next year — it connects “drone for service” pilots with nearby businesses in need of one-off jobs.

The FAA Requirements

Under the updated FAA rules, commercial drone pilots must pass a written test to receive certification. In the past they were required to obtain a manned aircraft pilot’s license first and submit detailed logs for each flight.

Now, owners register when they fly an unmanned drone outdoors weighing more than 0.55 pounds but less than 55 pounds. Under FAA regulations, devices can’t be flown higher than 400 feet and should not fly over populated areas, near airports or after dark. The operator must be able to see the device at all times.

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The FAA is working with companies such as CNN (on using drones for newsgathering in populated areas) and BNSF Railroad (on using drones in rural/isolated areas out of sight of the pilot) to test safety technology under a program called Pathfinder.

While operators must have a drone pilot certification, there’s currently no rules on the actual drone, unlike the rigorous requirements the FAA places on manned airplane manufacturers.

“Certainly a great distinction can be drawn between that and manned aircraft,” Proudlove said.

“You can go onto the internet, spend $800 and two days later a drone turns up on your doorstep that has no federal oversight whatsoever. Moreover, you can go off and operate it commercially and for recreation.”

It’s an interesting dilemma for insurers who have to consider the safety of the drone in the absence of any federal oversight. If just one commercial drone crosses into the path of an airliner, the collision damage could exceed $10 million, not to mention the potential loss of lives.

“I see a lot of people missing a lot of steps and this is where insurance is really important,” said Perlman of UAV Coach.

“You can go onto the internet, spend $800 and two days later a drone turns up on your doorstep that has no federal oversight whatsoever. Moreover, you can go off and operate it commercially and for recreation.” — Christopher Proudlove, SVP, Global Aerospace.

Far too often, he said, people watch a “cool video on YouTube and think they can buy a drone, get unmanned pilot certified, and instantly have a profitable business.”

“There’s a lot of work to do,” he said.

“That’s where the industry is now; helping to facilitate that path for drone pilots,” Perlman said, noting that his drone insurance guide is the most popular page on his website.

Insurers routinely mandate higher safety standards than those set by the FAA for traditional aviation risks, Global Aerospace said in a report.    Merely meeting the legal safety requirements to become a pilot may not be enough to guarantee that a new operator will be a safe operator.

“The minimum FAA standard is a great starting point and new commercial operators may need additional training to be proficient and safe,” said James Van Meter, an aviation practice leader at AGCS who helped to write the AGCS study.

“We are used to dealing with certificated pilots, certificated aircraft, a different level of sophistication and sort of a shared fate; if we insure a pilot in an airplane, his fate is in his own hands when he’s operating his own aircraft.”

112016_11_insindustry_drone_use_chart

With drone use, the pilot may be minimally trained and newly certificated, and operating equipment that cost under $1,000, so “there’s no shared fate,” Van Meter said.

“There are some challenges there, but the new regulation provides good basic training on air space, risk management and some introductory safety issues,” he said.

Alexander Sheard co-founded Skyvuze Technologies LLC, a brokerage specializing in drone insurance, after he had trouble figuring out how to insure the drones he used in an aerial photography business.

Sheard said Skyvuze bridges the gap between drone entrepreneurs and the underwriters that offer unmanned aviation policies. He helps other drone pilots figure out what insurance they need and additional safety measures they should take.

“It’s really looking at all the risk and exposure and coming up with a complete package for these new operators that are popping up every day,” Sheard said.

Any commercial drone operator should assume that their customers and partners will eventually require them to certify that they are insured, Sheard said. Many experts also expect to one day see a type of vehicle registration similar to that required on cars.

“The ones that recognize there are risks as a key part of their business every time they bring this bird up into the sky, those are the ones that are going to be successful,” Perlman said.

“Those are the ones insurance companies are going to want to work with because they are mitigating their risks anyway and they have a ‘safety first’ mind-set.”

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“We don’t yet truly understand the hazards, we don’t understand the capabilities of the system, how long they’ll last, what type of experience an operator needs to safely operate a certain make and model of drone,” Proudlove said.

“We are learning all this as we go. It’s really unbelievable what we are going to see over the next couple of years as far as the drone pilots and continued innovations,” Perlman said.

“That’s really exciting but I’m worried for that one operator who loses control for whatever reason and, maybe it’s cynical, but these things are dangerous.” &

Juliann Walsh is a staff writer at Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

The risk manager for Boyd Gaming Corp. says curiosity keeps him engaged, and continual education will be the key to managing emerging risks.
By: | May 1, 2018 • 4 min read

R&I: What was your first job?

I was trained as an accountant, worked in public accounting and became a CPA. Being comfortable with numbers is helpful in my current role, and obviously, the language of business is financial statements, so it helps.

R&I: How did you come to work in risk management?

Working in finance in the corporate environment included the review of budgets and the analysis of business expenses. I quickly found the area of benefits and insurance — and how “accepting risk” impacted those expenses — to be fascinating. I asked a lot of questions. Be careful what you ask for — I soon found myself responsible for those insurance areas and haven’t looked back!

R&I: What is the risk management community doing right?

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I have found the risk management community to be a close-knit group, whether that’s industry professionals, risk managers with other companies or support organizations like RIMS and other regional groups. The expertise of the carriers and specialty vendors to develop new products and programs, along with the appropriate education, will continue to be of key importance to companies going forward.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

As I’m sure many in the insurance field would agree, Hurricanes Katrina and Rita in 2005 changed our world and our industry. It was a particularly intense time and certainly a baptism by fire for people like me who were relatively new to the industry. This event clearly accelerated the switch to the acceptance of more risk, which impacted mitigation strategies and programs.

Bob Berglund, vice president, benefits and insurance, Boyd Gaming Corp.

R&I: What emerging commercial risk most concerns you?

The fast-paced threat that cyber security represents today. Our company, like so many companies, is reliant upon computers, software and IT expertise in our everyday existence. This new risk has forged an even stronger relationship between risk management and our IT department as we work together to address this growing threat.

Additionally, the shooting event in Las Vegas in 2017 will have an enduring impact on firms that host large gatherings and arena-style events all over the world, and our company is no exception.

R&I: What insurance carrier do you have the highest opinion of?

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With the various types of insurance programs we employ, I have been fortunate to work with most of the large national and international carriers — all of whom employ talented people with a vast array of resources.

R&I:  How much business do you do direct versus going through a broker?

We use brokers for many of our professional coverages, such as property, casualty, D&O and cyber. We are self-insured under our health plans, with close to 25,000 members. We tend to manage those programs internally and utilize direct relationships with carriers and specialty vendors to tailor a plan that works best for team members.

R&I: Who is your mentor and why?

I have been fortunate to have worked alongside some smart and insightful people during my career. A key piece of advice, said in many different ways, has served me well. Simply stated: “Seek to understand before being understood.”

What this has meant to me is try everything you can to learn about something, new or old. After you have gained this knowledge, you can begin to access and maybe suggest changes or adjustments. Being curious has always been a personal enjoyment for me in business, and I have found people are more than willing to lend a hand, offer information and advice — you just need to ask. Building those alliances and foundations of knowledge on a subject matter makes tackling the future more exciting and fruitful.

R&I: What have you accomplished that you are proudest of?

Our benefit health plan is much more than handing out an insurance card at the beginning of the year. We encourage our team members and their families to learn about their personal health, get engaged in a variety of health and wellness programs and try to live life in the healthiest possible way. The result of that is literally hundreds of testimonials from our members every year on how they have lost weight, changed their lifestyle and gotten off medications. It is extremely rewarding and is a testament to [our] close-knit corporate culture.

R&I: What’s the best restaurant you’ve ever eaten at?

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Some will remember the volcano eruption in Iceland in spring of 2010. I was just finishing a week of meetings in London with Lloyd’s syndicates related to our property insurance placement when the airspace in England and most of northern Europe was shut down — no airplanes in or out! Flights were ultimately canceled for the following five days. Therefore, with a few other stranded visitors like myself, we experimented and tried out new restaurants every day until we could leave. It was a very interesting time!

R&I: What is the riskiest activity you ever engaged in?

I am originally from Canada, and I played ice hockey from the time I was four years old up until quite recently. Too many surgeries sadly forced my recent retirement.

R&I: What do your friends and family think you do?

That’s a funny one … I am a CPA working in the casino industry, doing insurance and risk management, so neighbors and acquaintances think I either do tax returns or they think I’m a blackjack dealer at the casino!




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]