Expanded use of drones, or unmanned aerial vehicles, as they are also known, offers great potential to many industries. Although it has been for decades limited primarily to military or government use, commercial, agricultural, civic, and artistic organizations now see more value in a bird’s eye view.
With new proposed rules for use by the Federal Aviation Administration and the insurance industry ready to service this new niche, drones are rising fast, as are the controversies and concerns associated with them.
And even if drones are not in wide – or fully licensed or regulated — use yet, there is no shortage of commercial interest. A 2014 study conducted by the Teal Group estimated that worldwide spending on UAVs, currently at $6.4 billion, could ultimately swell to $91 billion in the next decade. About 89 percent of existing use continues to be governmental in nature, but Teal predicted a shift to more civil use over time.
Bard College, located in New York State, takes a closer academic view of the military and surveillance use of drones, offering the public ways to spot drones. From a privacy standpoint, drones set off concerns that the devices could be used to spy on citizens, either by law enforcement officials or by the more technical of the “peeping Tom” set. This prompts a reasonable and well-timed discussion of whether states or the federal government should be regulating their use.
A September 2014 paper from the Brookings Institution observed that privacy concerns attached to drones would appear to fall under state law’s jurisdiction.
“The law of ‘private’ privacy and aerial surveillance largely is state law,” said Wells C. Bennett, a Fellow in national security law at Brookings. “It is mostly tech-neutral, and accordingly has protected privacy from varied forms of surveillance by nongovernmental actors over time. When the drones take to the skies in greater numbers, a body of varied state rules will be waiting for them. And it will do much of the work in addressing civilian drone surveillance—though how well remains to be seen.”
As of September 2014, 10 states had passed laws relating to drone use, with another 25 considering legislation. Most of the enacted laws pertained to requiring police departments to obtain warrants before using drones to tail suspects or gather information. Other laws, such as North Carolina’s, restricted use of drones for surveillance and taking photos of any person or private property. It also creates private right of action for any person who feels their privacy has been violated by drone use.
Congress directed the FAA in 2013 to come up with drone regulations by September 2015. The FAA recently released a draft proposal in February and has also been issuing guidance on a case-by-case basis for entities such as film and television production companies interested in using drones. The yet-to-be-finalized rules would allow “routine use of certain small unmanned aircraft systems (UAS) in today’s aviation system, while maintaining flexibility to accommodate future technological innovations,” per the FAA.
The rules would require a licensed operator over 17 years of age to have proved their aeronautical knowledge, to maintain constant visual contact with the aircraft, and to not fly over people except those “involved in the flight.”
Despite the growing body of law regarding drones, a recent whitepaper from Swiss Re finds a “groundswell” of support from potential and existing commercial users, all hoping for flexibility in regulations and more approved aircraft.
“The FAA approval is seen as a first step in unleashing a potentially multibillion dollar industry that so far has been largely limited to military and law enforcement applications,” said the insurer in its report. “In the meantime, dozens of companies are chomping at the bit for the FAA to certify their own more affordable drones, saying there’s no way farmers and many others can invest in the type of UAVs that received certification in the past months for the monitoring of pipelines.”
Farmers are just one of the groups – but also one of the largest — showing interest in surveying their lands more quickly and more effectively through the use of drones. Just last month, the snow-battered city of Somerville, Mass., used drones to inspect damage done by the winter to municipal buildings, preventing injury to workers and residents. Other stakeholders include real estate professionals looking to show properties, insurance companies and adjusters evaluating damage to insured properties after disasters,
Recreational use of drones is currently allowed, as long as the vehicles remain at least five miles away from airports. According to a recent paper from the National Association of Mutual Insurance Companies (NAMIC), “UASs were one of the most popular Christmas gifts in 2014, prompting the FAA to issue a holiday bulletin and video advising on their use. Amazon is reportedly selling more than 10,000 UASs a month, and Best Buy expanded its selection from one last year to eight different models in stores – and five more online – to meet rising demand.”
However, in one case last year that appeared to merge recreational and commercial use, the FAA quickly quashed the use of drones by a Minnesota brewery delivering cases of beer to ice fishers.
As Swiss Re points out, the insurance industry stands to benefit from the wider use of UAVs.
“After a natural catastrophe, a drone could reach a remote scene much faster than a claims adjuster. In addition, drones could be deployed to areas unreachable by claims adjusters, for example, in a flood zone. Besides the speed of deploying resources to insureds, the cost savings to insurers could be significant. No longer must underwriters travel in person to inspect the exterior of a building or property. Details of a risk could be validated without incurring travel costs or costs to make in-person inspections. Claims departments could also save costs using drones,” the firm said in its report.
In terms of insurance coverage, physical damage and the liability surrounding it are the primary focus and the aviation market has proved the most logical line of business to take on the underwriting risk, along with the homeowners insurance market for liability for recreational drones. With the potential for data collected by drones, the cyberliability market could also be involved, particularly on the privacy issue.
The insurance market for drones is “largely in its infancy,” according to Tom Klaus, vice president in Willis’ aerospace division. He explained that underwriters are examining the qualifications of drone operators and where they fly. Even without a final set of federal regulations, his brokerage firm is getting “more and more” calls from clients interested in UAVs or organizations that have invested time and money into researching their capabilities.
If enacted, he commented, the FAA rules will “definitely accelerate the maturity process for underwriters, which will guide the coverage and the pricing that they offer.”
Drone operators are, however, not necessarily aware of the risk posed by the technology.
“I think a lot of companies have dived in without thinking of the insurance implications,” said Klaus.
According to NAMIC’s general counsel for federal affairs, Tom Karol, the implications are wide-ranging and potentially costly, beginning with a “gray area” surrounding the determination of national airspace and private property.
Recreational drones can fly no lower than 400 feet, but case law that has existed since 1946 does not effectively determine how much airspace above a property a property owner can truly own for the purposes of trespassing and privacy violation concerns. It might be clear that crashing into a person or property constitutes liability for any damages, but questions remain.
“In 1587, matters were simple and clear under the common law – the owner of a piece of land also owned everything above and beneath it, Cujus solum ejus est usque ad coelom – from heaven to hell,” said Karol in his paper. “Then modern law came and muddied it all up. In 1946, the U.S. Supreme Court determined that Congress had declared a public right of transit in navigable airspace and national sovereignty in that airspace. The court declined, however, to draw a clear line as to where that airspace over a property began. In the almost 70 years that have passed since that decision, that clear line remains undrawn.”
Drones also present a conundrum related to the regulatory authority – when can operators truly be held liable if regulations are still in the formative stage, insurers have questioned. Swiss Re also expresses the view that violation of existing regulations and guidelines would likely void policies.
“In the US, commercial operators face the prospect of a monetary fine by the FAA if they don’t have an FAA-issued Certificate of Authority,” said the insurer. “This type of fine is unlikely to be covered by any type of insurance policy. To date, the FAA has issued very few Certificates of Authority relative to the number of drones purchased.”
While underwriting for UAVs may be in early stages, the insurance industry has signaled its full intention to work with federal and state officials on a technology that offers as many societal benefits as it does challenges.
Erin is the managing editor of Advisen’s Front Page News. She has been covering property-casualty insurance since 2000. Previously, Erin served as editor-in-chief of The Standard, New England’s Insurance Weekly. Erin is based in Boston, Mass. Contact Erin at [email protected].
