Evolving Risk

Rogue Drones

Drones are creating public safety hazards, and there’s little that can be done.  
By: | August 31, 2015 • 10 min read

This summer, at one of California’s numerous wildfires, the appearance of a drone over Interstate 15 forced firefighting aircraft to back off for about 20 minutes until it flew away.

Instead of 40 or 50 acres burning before that fire was controlled, a few thousand acres, along with about 20 vehicles, were destroyed, as drivers ran from the area, according to reports.

In July alone, there were about a half-dozen similar incidents in California. Anywhere from two to five drones appeared at fire sites, sometimes chasing after the air tankers and helicopters, and forcing the aircraft to delay dropping retardant or even calling off operations until the areas could be cleared.

Dennis Brown, chief of flight operations, California Department of Forestry and Fire Protection (Cal Fire)

Dennis Brown, chief of flight operations, California Department of Forestry and Fire Protection (Cal Fire)

“It has hampered our efforts,” said Dennis Brown, chief of flight operations at the California Department of Forestry and Fire Protection (Cal Fire), which has about 50 air tankers and helicopters that respond nearly daily to wildfires from March through November.

“The size of the drones, even though they look small, could cause significant damage to any of our aircraft,” Brown said. The tail rotor of a helicopter is particularly vulnerable and a tail rotor strike could be catastrophic. “We had one helicopter pilot coming in to land to drop off a crew and there was a near miss by a drone,” he said. “It was 20 to 30 feet away, right in the windscreen.”

Sometimes, the drones are operated by homeowners checking for damage to their property. Sometimes it’s just curiosity or a desire to photograph the scene and post it to social media that prompts the drone operators.

“The size of the drones, even though they look small, could cause significant damage to any of our aircraft.” — Dennis Brown, chief of flight operations, California Department of Forestry and Fire Protection (Cal Fire)

But regardless of the reason, interference from drone operators is obstructing firefighting efforts and increasing danger to the pilots and their aircraft.

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“The pilots are flying low and they are flying fast,” said John Glenn, chief of fire operations for the Bureau of Land Management. “There are a lot of hazards there. You throw drones or UAVs into the mix and there have been a number of cases where we have shut down operations until we can clear the air.”

Open Season for Drones

Public safety hazards due to drones aren’t limited to firefighting. The Federal Aviation Administration reports about two dozen drone sightings per month at airports throughout the nation, according to reports.

In one reported case, a plane headed from Washington, D.C. to LaGuardia Airport in New York had to pull up about 200 feet to avoid a collision with a drone in its path as it tried to land.

UAVs have buzzed French nuclear plants, landed on the roof of the Japanese prime minister’s residence (with radioactive material, no less), and even landed on the White House lawn. In August, a riot broke out in an Ohio prison yard after a drone dropped a package containing significant quantities of marijuana and heroin.

Drones have flown over sporting events and city parks — to sometimes deadly effect. One 19-year-old man died in a New York park when he lost control of his drone helicopter and the fast-moving blades cut him and killed him.

J. Matthew Ouellette, owner/general adjuster, Ouellette & Associates

J. Matthew Ouellette, owner/general adjuster, Ouellette & Associates

Drones have been sighted during a game of the Texas Longhorns football team and at a Philadelphia Phillies game. A triathlete in Western Australia had to be taken to the hospital just yards from the finish line after a drone fell on her.

“They take a pretty decent picture and they are fun and cute, but it’s not real smart to be flying a drone in an arena,” said J. Matthew Ouellette, owner/general adjuster at Ouellette & Associates in Indiana.

“The drone could fall out of the sky … and into somebody’s lap or into their beer,” he said. “Right now, it’s open season and people are flying them all over the place. There are just some idiots out there.”

And some people don’t take kindly to it, with reports surfacing of people shooting drones out of the sky. Of course, the reverse is also a grim prospect: One teenager was arrested after creating a drone that shoots a gun.

Coverage Options

As for insurance coverage, the typical general liability, property or homeowners’ policy does not cover aircraft, experts said.

Insurance policies covering drone use are generally purchased by either the owner/operator of the drone or the manufacturer, said Patton Kline, senior vice president, Marsh Aviation. “Obviously, the risks for those two groups are very different.”

And, in the end, he said, it is the manufacturers that may face the greatest liability.

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“If there is a significant event, we are concerned that litigation will come back to the UAS [unmanned aerial system] manufacturer because they will have the deep pockets,” he said.

“If you have a weekend warrior flying a drone for fun, they don’t necessarily understand the risks and if they are involved in a significant loss, they may not have insurance to pay for damages.”

“Right now, it’s open season and people are flying them all over the place. There are just some idiots out there.” — J. Matthew Ouellette, owner/general adjuster, Ouellette & Associates

For large aerospace companies that use or manufacture drones, it’s fairly easy for them to work with their insurers to add drone coverage to current policies or to add a stand-alone policy, Kline said.

Coverage may include physical damage to the UAS, propulsion units, payload/cargo (imaging, sensors or specialty equipment that may be more expensive than the UAS itself), ground station control units, spare parts and transit coverage.

All of that is available, he said, from up to a dozen insurers including AIG, Global Aerospace, Allianz, Starr Aviation, United States Aviation Underwriters and Berkley Aviation, as well as insurers that do not historically provide aviation coverage.

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The U.S. Forest Service began publicizing the need to keep drones away from wildfires this summer.

In addition, ISO has crafted a drone endorsement as a coverage extension to some of their commercial general liability (CGL) policy forms for insureds that seek to add drone coverage to CGL policies, he said.

The cost of physical damage coverage (also known as hull coverage) can be expensive, particularly for new or unproven unmanned aerial system platforms. Insuring $1 million in value could cost up to $100,000, depending on the UAV platform, with many policies typically in the $50,000 range, experts said.

Third-party liability, such as for bodily injury or property damage due to drones is also available, and is much less expensive, experts said. Product liability coverage would also be an important coverage to consider for UAV manufacturers.

A commercial stand-alone UAV liability policy for $1 million could start as low as $1,000, said Vikki Stone, senior vice president, Poms & Associates.

She said she has seen interest in such coverage from organizations that use drones in their business, such as entertainment, aerial mapping, residential construction and pipeline construction.

“We are seeing a lot of individuals who may have been hobbyists or pilots who are seeing an opportunity to start up a business,” she said.

“The bigger concern is rogue flyers. The industry has not yet really had enough time to assemble any sort of loss experience. As that evolves, we are likely to see changes in the marketplace, but it’s too new yet.”

Another issue that carriers and brokers are still grappling with is invasion of privacy, which could offer potential litigation concerns. That coverage is currently excluded by all drone insurers, according to Marsh’s recent report, “Dawning of the Drones: The Evolving Risk of Unmanned Aerial Systems.”

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Eamonn Cunningham, chief risk officer, Scentre Group

Eamonn Cunningham, chief risk officer, Scentre Group, said the first step to purchasing coverage would be to analyze meaningful gaps between what is in existing policies and what is needed.

“Absolutely do your homework in advance and sometimes you might need experts from outside the organization to understand what’s appropriate and what’s not,” he said.

“The processes that you go through in trying to determine what this relatively brand new risk means to you — it’s a real challenge.”

An organization may not need bespoke coverage once a gap analysis and risk assessment is performed, he said.

He compared drone coverage today with the purchase of cyber coverage a half-dozen years ago. At that time, many companies ended up buying a commodity — the typical cyber policy — instead of coverage that protected the specific risks faced by the organization.

“If you know exactly what you are buying, there’s less chance you will be disappointed when something happens and you find it doesn’t fit the specific manner in which you use, operate, sell or manufacture the drone,” he said.

Inadequate Regulations

Ella Atkins, associate professor, aerospace engineering at the University of Michigan, said federal regulations have hampered the safe use of drones because Congress exempted hobbyists flying under 500 feet from FAA rulemaking in the 2012 FAA reauthorization act.

“The problem is … the FAA’s policies focus on unmanned aircraft operating near airports,” she said.

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Ella Atkins, associate professor, aerospace engineering at the University of Michigan

“You need people on the ground to enforce low-altitude airspace flight, not the FAA. They have no presence away from airports [to control the situation].”

While Atkins doesn’t expect it to happen, some others are anticipating that the FAA may issue final regulations related to drone use by the end of this year.

But, if the FAA puts its focus on bans or strict regulations for low-altitude drone use away from airports, the effort will come to naught, she said. Instead, local and state governments and private landowners should be empowered to apply disorderly conduct and trespass laws as ways to control the hazards of rogue drone use.

“We need to start realizing that it’s a matter of what the person does with the drone, not the drone itself that is bad or good,” Atkins said.

In addition, she said, the FAA is ignoring a 1946 federal legal case that ruled property owners have control over the airspace immediately above their land.

Current rules mean that a farmer could be struck by a drone on his own property and have no recourse, or that Amazon.com could fly 10 feet over a home on its way to deliver a package and owe the property owner no compensation for use of the airspace.

“We need to start realizing that it’s a matter of what the person does with the drone, not the drone itself that is bad or good.” — Ella Atkins, associate professor, aerospace engineering at the University of Michigan

Recently, Amazon suggested a separate airspace lane for commercial drone delivery flights, which called for UAVs to fly between 200 feet and 400 feet. The air traffic control for that space would be handled by an automated computer system.

About 100 companies, including Amazon, Google and Verizon Communications, have agreed to work with NASA to help devise that air traffic system, according to reports.

There are no firm answers to the problem, said Jeff Power, regional aviation officer, U.S. Forest Service. He noted that one current law that could apply to firefighting is a restriction on interfering with public officials in the course of their duty.

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But, he said, it’s very difficult to track down the drone operators.

“A large part of it is education of the drone operators,” Power said, although he noted that one day soon it may be emergency service organizations that are operating drones to help combat hazardous situations.

In fact, Texas A&M University held a seminar this summer about the way drone technology could be used to help deal with deadly flooding.

“We understand the capabilities,” Power said, “but when we have the recreational drone operator who isn’t necessarily familiar with the FAA’s requirements and flight restrictions — that’s the big issue. It’s a matter of educating them and hopefully no one gets hurt in the meantime.”

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2017 RIMS

Resilience in Face of Cyber

New cyber model platforms will help insurers better manage aggregation risk within their books of business.
By: | April 26, 2017 • 3 min read

As insurers become increasingly concerned about the aggregation of cyber risk exposures in their portfolios, new tools are being developed to help them better assess and manage those exposures.

 One of those tools, a comprehensive cyber risk modeling application for the insurance and reinsurance markets, was announced on April 24 by AIR Worldwide.

Scott Stransky, assistant vice president and principal scientist, AIR Worldwide

Last year at RIMS, AIR announced the release of the industry’s first open source deterministic cyber risk scenario, subsequently releasing a series of scenarios throughout the year, and offering the service to insurers on a consulting basis.

Its latest release, ARC– Analytics of Risk from Cyber — continues that work by offering the modeling platform for license to insurance clients for internal use rather than on a consulting basis. ARC is separate from AIR’s Touchstone platform, allowing for more flexibility in the rapidly changing cyber environment.

ARC allows insurers to get a better picture of their exposures across an entire book of business, with the help of a comprehensive industry exposure database that combines data from multiple public and commercial sources.

The recent attacks on Dyn and Amazon Web Services (AWS) provide perfect examples of how the ARC platform can be used to enhance the industry’s resilience, said Scott Stransky, assistant vice president and principal scientist for AIR Worldwide.

Stransky noted that insurers don’t necessarily have visibility into which of their insureds use Dyn, Amazon Web Services, Rackspace, or other common internet services providers.

In the Dyn and AWS events, there was little insured loss because the downtime fell largely just under policy waiting periods.

But,” said Stransky, “it got our clients thinking, well it happened for a few hours – could it happen for longer? And what does that do to us if it does? … This is really where our model can be very helpful.”

The purpose of having this model is to make the world more resilient … that’s really the goal.”Scott Stransky, assistant vice president and principal scientist, AIR Worldwide

AIR has run the Dyn incident through its model, with the parameters of a single day of downtime impacting the Fortune 1000. Then it did the same with the AWS event.

When we run Fortune 1000 for Dyn for one day, we get a half a billion dollars of loss,” said Stransky. “Taking it one step further – we’ve run the same exercise for AWS for one day, through the Fortune 1000 only, and the losses are about $3 billion.”

So once you expand it out to millions of businesses, the losses would be much higher,” he added.

The ARC platform allows insurers to assess cyber exposures including “silent cyber,” across the spectrum of business, be it D&O, E&O, general liability or property. There are 18 scenarios that can be modeled, with the capability to adjust variables broadly for a better handle on events of varying severity and scope.

Looking ahead, AIR is taking a closer look at what Stransky calls “silent silent cyber,” the complex indirect and difficult to assess or insure potential impacts of any given cyber event.

Stransky cites the 2014 hack of the National Weather Service website as an example. For several days after the hack, no satellite weather imagery was available to be fed into weather models.

Imagine there was a hurricane happening during the time there was no weather service imagery,” he said. “[So] the models wouldn’t have been as accurate; people wouldn’t have had as much advance warning; they wouldn’t have evacuated as quickly or boarded up their homes.”

It’s possible that the losses would be significantly higher in such a scenario, but there would be no way to quantify how much of it could be attributed to the cyber attack and how much was strictly the result of the hurricane itself.

It’s very, very indirect,” said Stransky, citing the recent hack of the Dallas tornado sirens as another example. Not only did the situation jam up the 911 system, potentially exacerbating any number of crisis events, but such a false alarm could lead to increased losses in the future.

The next time if there’s a real tornado, people make think, ‘Oh, its just some hack,’ ” he said. “So if there’s a real tornado, who knows what’s going to happen.”

Modeling for “silent silent cyber” remains elusive. But platforms like ARC are a step in the right direction for ensuring the continued health and strength of the insurance industry in the face of the ever-changing specter of cyber exposure.

Because we have this model, insurers are now able to manage the risks better, to be more resilient against cyber attacks, to really understand their portfolios,” said Stransky. “So when it does happen, they’ll be able to respond, they’ll be able to pay out the claims properly, they’ll be prepared.

The purpose of having this model is to make the world more resilient … that’s really the goal.”

Additional stories from RIMS 2017:

Blockchain Pros and Cons

If barriers to implementation are brought down, blockchain offers potential for financial institutions.

Embrace the Internet of Things

Risk managers can use IoT for data analytics and other risk mitigation needs, but connected devices also offer a multitude of exposures.

Feeling Unprepared to Deal With Risks

Damage to brand and reputation ranked as the top risk concern of risk managers throughout the world.

Reviewing Medical Marijuana Claims

Liberty Mutual appears to be the first carrier to create a workflow process for evaluating medical marijuana expense reimbursement requests.

Cyber Threat Will Get More Difficult

Companies should focus on response, resiliency and recovery when it comes to cyber risks.

RIMS Conference Held in Birthplace of Insurance in US

Carriers continue their vital role of helping insureds mitigate risks and promote safety.

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]