According to the Federal Aviation Administration, drones are the fastest growing segment of the aviation industry. Corporate risk managers predict that within five years, 40 percent of all businesses will be using drones as part of their operations. As commercial drone use rises, so will the need – and the demand – for commercial drone insurance.
By 2020, the FAA estimates that the skies will be filled with 30,000 commercial and civil drones providing such services as aerial photography, package delivery, crop and wildlife protection, and much more.
Businesses using drones will need to protect themselves from the risks associated with the use of unmanned aircraft – risks such as bodily injury, property damage, and invasion of privacy. Unlike commercial drones, most recreational drone use, at least for now, is predominately covered under most homeowner-insurance policies.
Over the past few years, insurance carriers have been aggressively developing policies to cover the use of drones in business, but expertise in assessing the industry’s risks has lagged.
In a post a year ago on Risk & Insurance magazine’s website, Vikki Stone of Poms & Associates Insurance Brokers wrote that there “are currently about 21 insurance companies writing aircraft products liability policies whereas in previous years there were only about nine.” Yet, she said, “there is little clarity of guidance in this area.”
ISO — one of the nation’s largest providers of property and casualty risk information for underwriters, risk managers, and insurance companies — has been working to solve this problem. Earlier this year, the company released a white paper about the drone industry, analyzing the potential exposure and risks that drones present to the insurance industry.
According to Insurance Journal, ISO has now implemented new coverage and exclusion options for commercial drone use. The options went into effect last month in most ISO jurisdictions and are expected to address the growing liability exposures of commercial drones.
In announcing the new options, an ISO spokesman said, “As more businesses introduce drones into their operations, insurers need underwriting tools available to them to address the potential wide range of exposures they’ll likely face.”
For businesses considering drone insurance, note that of prime concern to insurance providers will be whether the drones are going to be used in heavily populated areas and where they will be taking off and landing. A business that uses drones to fly over farms or forestland may be less of an insurance risk than a company flying drones over downtown Baltimore delivering packages. Risk of personal injury is far likelier in the latter scenario than the former.
Insurance carriers are also going to ask how any data captured by drones will be used. Privacy issues are going to be a major concern for any insurance provider given that a vast amount of data can be captured by drones, even beyond a business’s intended use.
Commercial drone use is still in its infancy. As the industry matures, the associated risks will likely be considerable. Companies that take advantage of this technology will be wise to consider carefully tailored insurance policies to manage those risks.
For more information, contact Alex J. Brown, Esq., a partner and the Insurance Group practice leader at Shapiro Sher Guinot & Sandler, at 410-385-4220 or at firstname.lastname@example.org.