According to recently Business insider According to the article, consumer drone shipments reached 29 million units in 2021, and the total drone market size reached $ 100 billion. In addition to recreational use, drones are currently used in agriculture, security, energy, law enforcement, construction, and the entertainment industry. You can buy a small, sophisticated drone with advanced photo and video capabilities for about $ 2,000, and the price will increase according to your specifications.
But how has this new technology changed the insurance industry? This article describes the basics of drone insurance.
Drone regulatory environment
In 2016, the FAA announced new rules for the operation of small drones under the 14 CFR Part 107 Small Unmanned Systems (commonly referred to as “Part 107”). The rules of Part 107 apply to drones that weigh less than 55 pounds and are used for non-recreational purposes. They explain how and where to operate the drone and how to become a certified drone pilot.
These rules have eased the tedious requirements and restrictions that were previously in place, resulting in a flood of new commercial drone pilots and businesses.
Even pure recreational leaflets that are not covered by Part 107 have some important rules and requirements to be aware of, such as passing safety tests.
Drone insurance market
When small drones became widespread in the mid-2010s, there was a period of adjustment as insurance companies tried different approaches to providing insurance. There was a question about the coverage of commercial drones under what would eventually be Part 107.
Is coverage provided by a traditional non-life insurance (P & C) insurance company? Does it come from an aviation insurance company? At first, the answer was both. Some traditional P & C carriers have (and will continue to) offer limited General Liability (GL) coverage. Aviation insurers initially insured their drones with traditional aircraft insurance policies, but eventually most insurers created drone insurance policies. Created with that exposure in mind, these policies can accommodate a variety of drone operator-specific exposures. Therefore, by 2022, almost all drone policies will be provided by airline insurance companies.
In response to a very large number of small and usually simple drone policies, some airlines have developed an online portal that allows brokers or policyholders to enter exposure details and receive quotes quickly. Did. In addition, some direct purchase options are now available online and from smartphone apps. In some cases, hourly options are also offered.
This first step in the process of procuring drone insurance is to collect the required underwriting information.
This information can be provided via an outdated insurance application via an online portal. The question focuses on six main areas.
- Details about the drone: year, manufacturer, model, value, and payload or ground support equipment
- How to use the drone and how often it flies
- Operator qualifications such as drone pilot license status, experience and training. This information is especially important for Part 107 operators.
- What liability limits do I need and do I need to compensate for physical damage to the drone?
- In addition to the insured drone, can a third party be hired to operate the drone on behalf of the company? Or do you occasionally use employee drones in your company’s business?
- Lost / accident history
What are the exposures to consider?
The most important exposure to drone owners / operators is liability to third parties in terms of potential size, complexity, and unpredictability of claims. This exposure may be the responsibility for personal injury or property damage resulting from ownership and use of the drone.
Current regulations help minimize the operation of drones in densely populated areas and near airports (several updates were issued by the FAA last year). Anyway, the possibility of pilot errors and equipment malfunctions remains small. If you purchase a drone policy, this coverage is not an option and it is unlikely that your airline will issue a policy without this coverage. For drones, liability limits ranging from $ 1,000,000 to $ 10,000,000 are common, and the $ 1,000,000 limit is common to smaller drones.
Another major component of the drone policy is the physical damage coverage of the drone itself, commonly referred to as “hull” coverage. The hull coverage is drone property insurance and can be extended to include payload and ground support equipment coverage.
Hull deductions are common. Depending on the value of the equipment, adding hull coverage to the policy can have a significant impact on overall insurance premiums.
Hull coverage is optional. For small, cheap drones, it is not uncommon for policyholders to reject this coverage option.
Not to be confused with physical injury liability insurance, personal injury is an important enhancement of coverage that can add protection against several risks such as false arrest, defamation and defamation. However, personal injury also covers unintended violations of privacy rights, especially when operating drones.
Owned and non-owned
As a rule, drones are insured by the owner. Suppose an organization buys a drone, takes a picture, and probably records a remote video. The organization is legally responsible for the flight of those drones and must have insurance coverage.
There are some other non-trivial scenarios that can occur.
- An employee of the same organization owns the drone and offers to use it for some of the employer’s photo and video flights.
- The company hires a third-party drone service provider to develop its own drone and carry out some of these photo and video flights.
In these two scenarios, the responsibility for insuring the drone rests with the employee and the drone service provider (that is, the drone owner). So where does it leave the organization that asked them to do this job from a liability protection perspective? Ideally, the organization should provide proof of liability insurance to the employee or drone service provider and request a certificate that designates the organization as an additional insured.
In these situations, you may have an insurance policy, which is usually not the case. Organizations can extend the coverage provided by drone owners by purchasing unowned coverage, either as a standalone policy or as an approval of the organization’s own drone policy.
What impacts the cost of drone coverage?
Many factors affect the cost of drone insurance, some of which are outside the control of policyholders.
The three main drivers of drone premiums are:
- market conditions: It is well known that the aviation insurance market is cyclical. As with other insurance, aviation insurance premiums fluctuate over time, and drone insurance buyers are affected by these market conditions.
- Insurance amount: The number of drones insured, the liability limit, and the amount of hull insurance (if any) are the main factors in the premium. With the addition of physical damage areas for drones, payloads, and ground equipment, it can be an important source of additional premium.
- Use of drone: Will the drone operate only in remote areas or near people or property? Is the drone operated by a trained and experienced licensed pilot?
Drone insurance buyers need to work closely with brokers to understand how risk is perceived in the market and identify steps that can be taken to maximize market interest.
It is exciting to witness the continued evolution of drone technology over the next few years, not to mention the growth of other emerging technologies such as UAM, AAM, electricity and other alternative power sources.
As these innovations emerge and become part of our lives, Woodruff Sawyer will continue to work to identify and mitigate business risks through custom solutions, expertise and advice.