The Paradox of Drones

A paradox is emerging in the area of drone or unmanned aerial systems (UAS) coverage.

On the one hand, capacity for UAS–related risks is fairly abundant, according to a report from Marsh. Yet at the same time, underwriting expertise and historical data are in short supply.

As the insurance industry waits for enough data to more comfortably underwrite the risk, carriers are working off of forms developed for traditional aviation risks. The lack of precise language to address the risks of drones is limiting coverage, and by extension the expansion of the commercial use of drones.

According to a recent report from Marsh, entitled “Dawning of the Drones: The Evolving Risk of Unmanned Aerial Systems,” insurance is currently available to cover drone-related property and liability risks such as:

• Physical Loss to the UAS itself (airframe, propulsion units, operating system, and flight controls).
• The payload—such as camera equipment and sensors, and the ground station/control unit, as well as spare parts, and coverage for transit.

On the liability side, coverage is available for bodily injury and property damage as well as product liability for re-sellers and manufacturers.

Underwriting Criteria

The report includes a checklist of risk factors influencing UAS underwriting decisions.

For instance, in determining whether or not to take on UAS liability risks, underwriters are looking at:

• Whether operators are certified by a governing body.
• The hours flown since the craft was manufactured.
• Engine type and redundancy as well as aircraft range.

In deciding about UAS property risks, all of the above concerns are taken into consideration as well as additional factors such as endurance, launch and recovery, navigation, operating environment (urban or non-urban) as well as maintenance, storage, countries and safety of the load while in transit.

Considering that much of the coverage that exists today evolved from the aviation market—and considering the shortage of UAS-related claims history, according to Marsh, some carriers are hesitant to underwrite the UAS sector, despite a general glut of capacity.

“It is difficult with the FAA just starting to open the commercial air space, to know what all of the risks are,” an executive with Marsh said.

“There just hasn’t been the claims history or litigation to tell where problems may lie.”

Exceptions to the rule do exist, however: One coverage that’s available which has some uniqueness to drones is insurance to cover the risks to the ground control equipment  — whether hand-held or via a full cockpit layout (often contained in a van).

“Such coverage varies depending upon the size and type of control station and functionality,” according to the Marsh report.

Still, risk specialists wanting a UAS insurance program addressing only what is needed for unmanned aircraft may want to consider markets who’ve been hard at work crafting specialized coverage for drones.

Another factor limiting the expansion of commercial drone use is a lack of regulation from the FAA. As an opinion piece in the Houston Chronicle recently pointed out, Congress asked the FAA to issue regulations by September of 2015.

The FAA recently announced it could miss that deadline by as much as two years.