Birds, planes, helicopters and now drones? The use for unmanned aerial vehicles (UAVs)—more commonly known as drones—has greatly accelerated in the last several years, but there are still several risks and hoops to jump through.
Amazon, for instance, just recently received permission to begin testing its current drone prototype for its Prime Air service, which aims to transport packages to customers in under 30 minutes. While it marks another step toward the realization of Amazon’s ambitious delivery system, there’s still a long way to go. Currently, federal regulators are finalizing rules for what it considers unmanned aerial systems (UAS) that would encompass all commerical UAV use. The agency expects to finalize regulations in the next 12 months.
UAVs are expected to transform a number of industry sectors. The Federal Aviation Administration (FAA) has forecasted that the number of commercial drones could reach 30,000 by 2020, and the Association for Unmanned Vehicle Systems International (AUVSI) estimates that between 2015 and 2025, the drone industry will create 100,000 jobs and contribute $82 billion to the U.S. economy, according to the Munich Re study.
UAVs have been used to enhance public safety, support agriculture, help the environment, monitor the climate and mitigate disasters. Several industries, such as transportation, are slowly jumping on the drone bandwagon, as these devices are extremely cost-effective and can be used in several capacities.
As UAV technology improves, the potential commercial applications will continue to increase. For those in the transportation industry, the next generation of drone equipment has the capability to integrate audio and text with real-time video feed and the ability to overlay existing images to identify road and bridge wear and damage. UAVs can even be equipped with infrared cameras, which have the ability to detect water and air leaks, conduct inspections of buildings and bridges, and provide insurance claim adjusters more accurate information to assist in adjusting building and damage claims. The information garnered from UAVs can be incorporated to improve operations and safety, and also in the planning of new roads and other transit systems.
No longer original
UAVs were originally developed to perform jobs that were dangerous, inefficient and dirty. Although this seems to be relatively new technology, UAVs have been used internationally for years, primarily in agriculture. In the construction and transportation-management industries, there are a wide variety of applications. UAVs have been used to survey large areas and scale bridges and buildings, while taking high-resolution images to assess condition and even make basic repairs. The insurance industry is looking towards UAV technology to improve the efficiency and effectiveness of claims management, particularly in a catastrophic event where it’s extremely beneficial to have an “eye in the sky.”
Growing apps and regs
Not surprisingly, the growing applications and uses for UAVs have the FAA concerned with safety. Until February 2015, it was illegal to fly UAVs for commercial purposes unless the operator had a specific exemption from the FAA for testing or government use. On Feb. 15, 2015, the FAA took a big step towards legalizing commercial flights by enacting new rules that if adopted, would allow any company to fly so long as they abide by specific guidelines.
The most significant of these rules are that all operators need to be licensed pilots who pass a test at a FAA facility; tests must be renewed every two years; operators must be at least 17 years old; UAVs cannot fly above 500 ft or go over 100 mph and can only weigh as much as 50 lb. Another stipulation is that the operator must maintain line of sight with the UAV while operating. With these limitations, most companies will rely on third-party vendors when using the technology.
Before contracting with UAV-operating vendors, there are some areas of risk that need to be addressed in addition to risk-mitigation processes put in place. These include safety and privacy.
As far as safety is concerned, companies need to have a process that reviews UAV vendors on three components: qualification of the operator, environment in which the UAV is being operated, and type and quality of equipment being used. UAVs have crashed and/or caused injuries. Not too long ago, singer Enrique Iglesias got into a highly publicized incident when he sliced open his fingers and needed surgery after grabbing a UAV flying above him on stage. While musicians will not be on the same site as the engineers and builders, there likely will be people present or in the near vicinity posing an added risk.
Privacy concern is a much more complicated issue. The images taken may violate an individual’s privacy, which could result in liability litigation. For instance, a UAV might accidentally take pictures of someone in their backyard, nearby home or balcony—or even a business. Americans are taking the threat seriously, too.
A recent Reuters/Ipsos poll cited that 71% of respondents thought UAVs should not be allowed to operate over someone else’s home. Even President Obama weighed in by ordering the FAA and other U.S. agencies to make sure UAVs are not dangerous and that they do not violate people’s privacy. As such, careful consideration must be taken to understand what images will be taken, how they’ll be stored, for how long, and who will have access to the information.
There are a few other ways designers, engineers and transportation managers can mitigate the risks associated with UAVs:
- Ensure the UAV operator understands and is complying with FAA rules;
- Ensure there’s a contract that indemnifies the company from losses that occur as a result of UAV operations;
- Institute confidential information policies and procedures;
- Have restricted access to any images taken by the UAV;
- Restrict fly zones to avoid inadvertent privacy violations;
- Work with your insurance broker to understand where you may or may not be covered in terms of personal liability, personal injury, property damage and invasion of privacy;
- Weigh the potential savings of using a UAV and/or third party versus your liability;
- Ensure your insurance broker and carrier are aware of the intended use, takeoff and landing location, flying altitude and whether it’ll be operated over a populated area;
- Implement some sort of financial backstop from losses by either purchasing insurance or requiring the operator to have appropriate insurance coverage; and
- Weigh the potential savings of using a UAV versus your liability; costs for UAVs can vary between $800-$6,000.
What’s at risk?
As more businesses introduce UAVs into their operations, insurers need underwriting tools available. Since this is a relatively new insurance risk, very few carriers are covering UAVs right now. Some carriers are using separate policies. Since many UAV operators are smaller entities, carriers might wrap everything into one policy that has professional, general and aviation liability together.
As the industry continues to evolve and integrate more technology, one of the largest challenges for insurers will be evaluating key areas of risk: the type and quality of equipment, who is operating the equipment and what their qualifications are, and where the UAV is being operated. For companies that utilize UAVs, addressing the key underwriting risks and implementing best practices will ensure the use of UAVs remains practical and cost-effective. R&B