Expert: New Part 107 UAS operators shouldn’t overlook insurance

By Patrick C. Miller | August 18, 2016

Those who expect to get into the unmanned aircraft systems (UAS) business under the Federal Aviation Administration’s (FAA) Part 107 small UAS rule that goes into effect Aug. 29 shouldn’t overlook insuring their operations.

Shawn Ram, western regional manager for Crystal & Company in California—a strategic risk and insurance advisory firm with more than 80 years of experience—said there are four primary areas in which UAS businesses need to manage risks through insurance: bodily injury, property damage, technology failure and privacy.

With foundations in technology and aviation, Ram said it was logical for Crystal & Company to enter the realm of UAS insurance.

“We are very focused in the technology arena around risks that are generally difficult to manage,” Ram said. “That allows us to be more creative and sophisticated. We broker insurance policies for our clients, and drones certainly qualify under that standard.”

Ram has advice for those already in the UAS business or who plan to get into it once Part 107 takes effect.

“Most believe that their general business insurance policies will cover drones or bodily injury or property damages that come as a result of using drones,” he noted. “Unfortunately, most policies exclude anything aviation related. Many drone companies think they’re covered when, in reality, they’re not.”

Ram noted that even small UAS can cause a great deal of damage to property and hurt people when they crash or go out of control.

“Ensure that you take the proper protocols necessary to avoid bodily injury or property damage,” he said. “It is possible to leverage insurance policies to hedge those risks.”

Because most drone businesses are based on gathering and transmitting timely information, the loss of data due to hardware failure or software errors can cause potential financial loss, Ram cautioned. Privacy issues can arise when drones stray from intended flight paths or inadvertently capture data or images, he said.

“The first thing I would do is get your contracts right,” Ram advised new UAS operators. “Address the risks that you have so you can appropriately protect your company in the event that things go south. Be conscious of safety protocols and unintended consequences. Be prudent with insurance by backstopping your company financially. Insurance is cheap capital in terms of insuring a business against meaningful risks.”

Although not directly affected by Part 107, recreational drone pilots should review their homeowner’s policies to see if they are covered, Ram suggested.

“I’ve seen some policies that exclude anything aviation-related,” he explained. “I’ve seen other policies use the term ‘unmanned aircraft’ in granting coverage to anything but piloted private aircraft. I’ve seen policies that don’t say anything about it. I think it would be prudent to look at your homeowner’s policy and evaluate the risks.”

Ram said another group of drone pilots potentially at risk are those who don’t fly UAS as part of a business, but accept payment for photos or videos they shoot for others.

According to Ram, evolving FAA regulations and a lack of data that underwriters use to statistically evaluate risk has caused many insurance carriers to avoid offering policies covering UAS.

“There is still limited information regarding how individuals or corporations will use drones and the risks associated with them,” he explained. “Over time, that data will increase and the policies will become more specific and more tailored for the risks at hand.”


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