The number of ways you can use a drone to make money is mounting as rapidly as the number of drones now flying over the U.S.
Jim Pinegar, vice president of insurance services at the Aircraft Owners and Pilots Association, says commercial uses for drones are growing “exponentially larger” every day.
“We’ve seen some of our smaller aircraft operations just falling by the wayside—powerline and pipeline patrol, nature spotting, many things that used to require a physical set of eyes to get in a plane and go out and look, now don’t require that anymore,” agrees Travis French, aviation practice leader at Arlington/Roe. “That’s a radical change, especially for light commercial operators.”
Meanwhile, it’s getting harder and harder to name a risk the insurance industry can’t cover. “Believe it or not, even though it’s not legal in the U.S. yet, carriers are now preparing to write moving product or packages for hire,” Pinegar says. “They’ve already got the endorsements prepared in case that law changes.”
As quickly as the drone industry is proliferating, however, there’s still plenty in store for drones over the next decade that isn’t set in stone. Here are two ways drones will have to interact with insurance in the years ahead—and what it will mean for you and your drone-using clients.
Drones and cyber. Cyber liability is a hot topic in pretty much every commercial line—except general aviation. “It’s just not a huge segment of that market,” French says.
“Aircraft use electronics differently than a processing plant or an industrial facility or an office building or something like that,” explains Doug Johnson, president of JSL Aviation Insurance. “The connections are not the same, so they may not have the same cyber exposure.”
But because of their data-harnessing capabilities, drones are a different story. “Anywhere you’ve got data exchanged electronically, you’ve got the risk for cyber liability,” French says.
“These aircraft are capable of collecting huge amounts of data, and not just video or photo,” points out James Van Meter, aviation practice leader at Allianz. “Sophisticated units have LiDAR, they’re doing crop sensing, infrastructure inspection, shooting an image of whatever it is they’re looking at and looking for cracks, failures, density differences. It’s a huge amount of data that somebody could potentially benefit from gaining access to.”
Van Meter divides a drone’s cyber exposure into two components: the cyber threat directly to the drone while it’s in flight, vs. the cyber threat once it returns to base. “Some of these aircraft are connected in flight; at this point, most of them are not connected,” he explains. “But that doesn’t mean they aren’t hackable.”
It’s a practice called “spoofing,” Van Meter explains: “People can interfere with the signal. A lot of the lower-end drone units are controlled by Wi-Fi connections, so there’s great potential for someone to hack the signal and take control of the aircraft or possibly bring the aircraft down.”
That risk falls more on the hull liability side, Van Meter says, so it would probably factor in to war coverage. The cyber-specific exposure, though, increases when the drone returns to the lab.
“Data is just data until we use it, and at that point the drone’s back in the shop—it’s on the ground,” French points out. “Now we’re getting into OK, so the drone itself captured the data, but at what point do we become at risk for being negligent in terms of our cyber liability? Maybe that doesn’t happen until the day we get back to the lab or the base, and at that point are we still talking aviation? We get into a little bit of a grey area where you don’t know if this is fish or foul, so what type of insurance product do you need?”
In other words, is the fact that a drone collected the data even relevant anymore, when “the bulk of the cyber exposure is beyond that point—subsequent to the use of the drone?” French asks. “That’s a lot of moving parts with cyber liability.”
So far, insurance products for drones are evolving to “take into account what we know now,” French says. “That’s a concern most reasonable people would consider—‘If I’m going to operate this and I accidentally capture or share data I’m not supposed to, what are my potential exposures here?’ As the policies continue to evolve, they’ll continue to keep in mind the potential exposures coming through the pipeline that maybe we don’t know about today.”
Drones in insurance. Last year, when the Federal Aviation Administration (FAA) forecasted the top five uses for unmanned aircraft, it listed insurance as No. 4—estimating that the insurance industry as a whole will eventually account for about 15% of drone use.
Opportunities abound for taking advantage of drone technology in the insurance sector, beginning with risk assessment. “Think about the homeowners market—now, for many properties, insurance companies require an inspector to go on site and inspect the property, take pictures of the interior, make sure what was told to the agent is what they’re actually insuring,” Van Meter says. “I think every one of those inspectors is going to have a drone in their toolbox.”
Along with pictures of the bathroom, kitchen and improvements to the property, “they’ll also take an aerial picture, they’ll take a photo of the roof, the chimney, any attachments that have been added to a house, anything the homeowners insurance company is covering,” Van Meter predicts. “I think that’ll start to become the standard practice. It’ll be a rare exception if they don’t have aerial photos of the property in the file.”
Beyond initial risk assessment, there’s “huge opportunity” to leverage drone technology after a loss event, Van Meter points out. Instead of climbing a tall ladder to go up onto a roof to inspect damage, a claims adjuster can “safely, from the ground, use a piece of low-cost technology to take pictures.”
When Van Meter’s property sustained roof damage during a wind event last year, he used one of his own drones to snap photos. “I emailed them to my adjuster, and they didn’t even have to send somebody out,” he says. “It’s a huge opportunity to save on employee injuries for the insurance company.”
The potential for lowering workers compensation costs for insurance and inspection companies is one of the most appealing aspects of adopting drones throughout the industry. “I know a few adjusters personally who aren’t on the aircraft side—they use these for roofs and for large-scale destructions, and they’ve had fewer workers comp injuries because they don’t get hurt,” Pinegar says.
And once the FAA waives the visual line of sight rule, which requires operators to physically watch their drones fly, “you’ll be able to relay drones in different parts of the city, and have a central operator go inspect these large catastrophe zones out of their mobile van office,” Pinegar predicts.
Will using drones end up having an impact on premiums for insureds or commissions for agents? Pinegar doesn’t think so, but using drones for risk assessment and claims adjustment could end up changing cost structures. “A max loss is still a max loss,” Pinegar says. “Now you’re paying a drone operator vs. someone to climb up on a ladder, that’s going to help a little bit, but it’s probably more of a rounding error on the overhead side.”
The big difference, Pinegar believes, will be better, speedier customer service: “I do think claims will be paid faster—they can do mass-scale casualty analysis very, very quickly, and they’ll require fewer man hours to do it. All good things.”
Jacquelyn Connelly is IA senior editor.