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Commercial Clients Using Drones? Here’s How to Deal

Despite difficulties associated with underwriting, pricing and finalizing regulation, drones present a definitive opportunity for the independent insurance channel to provide added value for commercial clients.
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The proliferation of drones—and what they’re capable of achieving for U.S. businesses—is picking up speed daily.

Mid-February, the Federal Aviation Administration (FAA) proposed a framework of regulations that would allow routine use of certain small drones (those less than 55 pounds) conducting non-recreational operations. And despite difficulties associated with underwriting, pricing and finalizing regulation, drones present a definitive opportunity for the independent insurance channel to provide added value for commercial clients.

“If drones are going to be subject to aviation regulations from the FAA, I don’t see your State Farms really wanting to get into this,” says Travis French, aviation broker at Arlington/Roe. “I think they’re going to take a ‘leave it to the experts’ stance and let the aviation companies run with it. Incorporating FAA regulations into insurance policies is more within the aviation companies’ wheelhouse.”

There’s “no question” that independent agents will need to address drones with their commercial clients in the coming years, says Doug Johnson, president of JSL Aviation Insurance. “Be advised to think of anything that’s now being done manually that could possibly be done better by a little robot with wings that could zip around and take pictures and report information,” he warns. “If agents insure anyone that has that need, they better be asking a lot of questions.”

Independent agents should “try to become familiar with how drones will be addressed in insurance policies,” agrees Ron Beiderman, vice president of commercial lines coverage products at ISO. “Drones are an emerging risk that can present a lot of unknowns, and demand for commercial drone use will likely increase in the coming years. Expect to see questions and requests related to drones from a wide variety of insureds.”

And don’t be deterred by the term “aviation insurance.” Whereas aviation insurance has always maintained status as a novelty line since most agents haven’t been involved with it, Chad Trainor, vice president of Arlington/Roe, says drones are a different story. “It’s not too often we have new exposures these days come up in the insurance world,” he points out. “The last few years it’s been cyber liability and everyone’s been all over that. Now it’s drones.”

As agents are considering this new exposure, Beiderman says it may be helpful to consider the following questions: Are your potential insureds looking to use drones in their businesses? If so, who will operate them, and what are the operator’s qualifications? What types of activities would the drones be performing? What is the risk tolerance of the carriers you do business with when it comes to drones?

“Keeping pace with drone trends can help agents remain in a position where they can best serve their insureds and tailor policies to accommodate certain requests,” Beiderman says.

French advises agents who are interested in staying on top of drone developments to look to organizations like the Association for Unmanned Vehicle Systems International, Academy of Model Aeronautics or Small UAV Coalition. Beiderman encourages agents to visit ISO’s Drone Resource Center for additional information, noting that ISOnet® subscribers can view updates on ISO activity related to drones and access research, news articles and studies for insight on drones and other hot topics with the potential to impact the insurance industry.

“The markets are changing literally daily,” Johnson says. “What insurers are willing to do and what they’re willing to charge is just in constant turmoil because it’s constantly developing. There’s no way someone who does it once or twice a year is possibly going to be able to keep up with it.”

Want to learn more about FAA regulations and how the agency's proposed rule for small drones will affect your agency and clients? Keep an eye on and upcoming issues of the Markets Pulse e-newsletter.

Jacquelyn Connelly is IA senior editor.