In the last year, the federal government has responded to the emerging commercial industry of unmanned aviation by issuing new regulations.
|Commercial drones
A drone is operated for commercial purposes whenever the operator is being paid to utilize the drone or it is used in furtherance of a business. The Federal Aviation Administration (FAA) sought to address the widespread use of this technology by creating a path for commercial drone operators to obtain certification under a process known as the Small Unmanned Aircraft System (UAS) rule or (Part 107).
On Aug. 29, 2016, the FAA implemented Part 107. The rule created a regulatory framework for the civil and commercial operations of small UAS, weighing 55 pounds or less. Generally, Part 107 requires operators to fly under 400 feet, within visual line of sight and only during daylight hours. Under this process, drone pilots are issued a Remote Pilot Certification and each drone is registered with the FAA.
One of the requirements of Part 107 is that the drone pilot completes an online knowledge course and passes an exam. Part 107 also created a process for operators to obtain exemptions to its rules if the operator can prove mitigating factors to support the exemption. To date, more than 900 of these exemptions have been granted, with the vast majority permitting night time operations of drones.
|Hobbyist drone operators
The FAA has a separate set of regulations for hobbyist drone operators. On May 19, it was decided by the U.S. Court of Appeals that hobbyist operators are not required to be registered. This decision, however, does not affect commercial drone operators.
Prior to Part 107, commercial drone operation was only legal through a tedious process known as Certificate of Waiver or Authorization (COA) 333 Exemptions. Since the introduction of Part 107, more than 30,000 Part 107 certifications have been issued. Operators in Florida have obtained the second most certifications in the United States, just behind California.
Also before 107, many businesses were operating drones without legal authority. This is because the process to obtain a COA was lengthy and difficult. Many drone operators sold their services such as aerial photography and surveying to other businesses in conflict with federal law. Similarly, insurance companies would not insure the liability of a drone and its pilot unless the drone could prove it was operating legally.
|Commercial aviation insurance for property damage & BI
With the issuance of Part 107, the FAA made the process to legally operate a commercial drone much simpler. As a result, drone operators can now obtain commercial aviation insurance that covers property damage and bodily injury arising from the operation of a drone.
The insurance also covers damage to the actual drone, its payloads and remote control systems. A new insurance provider based in South Florida, UVI Insurance, LLC, has launched the first web portal for commercial drone operators to access and instantly purchase this type of comprehensive insurance.
Other insurers have also entered the marketplace to cover commercial drone uses. The first batch of insurers to cover the UAS was traditional aviation insurance companies that underwrote the risk similar to the way a manned aircraft is insured. One new UAS insurer has been offering liability insurance coverage through an as-needed on-demand app.
|Handsets & detachable payloads
Newer entrants created coverages specific to the UAS such as the inclusion of handsets and detachable payloads. In many cases, the payloads on a drone such as cameras and infrared sensing devices are significantly more expensive than the actual drone. At least one insurer has started to offer liability insurance as an endorsement or add-on to a professional liability policy.
Most general liability insurance policies carried by a business contain an exclusion for aviation activities. A business owner involved with operating a drone should be aware that they are engaged in an activity regulated by the FAA. To properly manage their risk, they should carry an aviation liability policy.
|Liability & risk of loss
Similarly, many property insurance policies will cover a drone as part of a company's business property. However, once that drone becomes airborne it likely will no longer be covered by a traditional property policy. Therefore, it is important that business owners insure both the liability that could arise from a drone operation and the risk of loss to the drone as a corporate asset.
As an emerging industry, most commercial drone operators are small businesses with revenues under $1 million. The annual premium cost to insure a drone operator and the actual drone can total less than $1,000. As drone usage becomes more mainstream, corporations and governments will rely on the insurance industry to provide risk transfer methods to shield themselves from unknown dangers.
Insurance designed for the UAS is a good example of how the insurance industry has provided a comprehensive solution to support an emerging industry.
Gary Reshefsky is a principal with Century Programs, the wholesale and program business division of Century Advisory Services, Inc., an independent insurance firm offering risk management and insurance services with offices in Coral Gables and Boca Raton. He may be reached at: [email protected]. Opinions expressed are the author's own.
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