Commercial Insurance Market for Drones Taking Shape
As the commercial and recreational use of drones continues to expand rapidly throughout the U.S, businesses and government entities relying on them face potential liability exposures, which may not be covered under standard commercial general liability (CGL) insurance policies. Meanwhile, insurance companies are becoming increasingly concerned about aviation risks the proliferation of drones represents.
A new white paper–prepared by Assurex Global in collaboration with insurance brokerage Shaw Sabey & Associates and managing general agent Plus Underwriting Managers–finds a growing number of insurance companies envision a large, robust insurance market for liability and property coverage associated with drone use. However, many insurers currently are proceeding with caution in light of uncertainty about how the drones will be used and scope of the related risks they represent for owners and operators.
The paper lists an array of potential property and liability exposures for drone operators, ranging from theft of the drone and its related equipment to property damage and bodily injury caused by drones, as well as premises liability at sites used for scheduled flights, malicious damage, system hacking and contractual liability.
According to the paper, larger insurers operating in the U.S. generally have been reluctant to offer specific coverage for drones as they wait for the Federal Aviation Administration (FAA) to finalize and completely implement the regulatory framework it proposed in 2015. In the interim, several specialty insurers, including many based outside the U.S., have begun offering liability insurance and other commercial coverages for drone-related risks.
The FAA’s proposed regulations “allow routine use of certain small unmanned aircraft systems in today’s aviation system, while maintaining flexibility to accommodate future technological innovations.” The proposed rules address such issues as height restrictions, operator certification and operational limits.
“As the commercial insurance market for drones evolves, businesses and government entities planning to use drones or to expand their deployment should assess their risks and evaluate available insurance coverage,” said Jeffrey McCann, vice president, digital strategy for Shaw Sabey & Associates, a member of The Vertical Insurance Group.
The Assurex paper cites several key reasons for drone operators to purchase insurance. Most insurance company commercial general liability (CGL) policies contain exclusions for aviation exposures, which are likely to apply to drones. Customers may require liability insurance as a condition of doing business. Carrying drone insurance signals prospective customers that the insured firm is professional, thorough, and reputable. Finally, there are legal considerations, as the plaintiffs’ bar may be gearing up to bring suits against companies whose drones cause property damage or bodily injury.
According to Assurex Global, businesses seeking insurance to address exposures potentially created by their drones should start by establishing comprehensive standard operating procedures. This can help the firm demonstrate a commitment to safety and qualify for available insurance.
Businesses applying for insurance coverage should be prepared to provide extensive details of their drone utilization, including: standard operating procedures; drone operators’ experience, training and certification; flight and maintenance logs; FAA approval or exemption from regulatory requirements for manned aircraft; flight conditions, including travel routes and times (day or night); and accident history.
In selecting an insurance company to cover their drone-related risks, businesses should work closely with their insurance brokers. According to the Assurex Global paper, the market for drones might expand significantly early on and attract many new insurers; however, it could contract dramatically following any large losses. In the event of such a scenario, underwriters already specializing in aviation risk may have the most staying power on the basis of their experience with these types of exposures.
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