According to the Federal Aviation Administration (FAA), an estimated 7 million civil and commercial drones will fly in U.S. skies by 2020, and nearly 600 drones flew too close to airports and airplanes between Aug. 22, 2015 and Jan. 31, 2016.

Adding to the already congested air traffic, many public entities have adopted drone use over the past few years in an effort to increase public safety. Local governments may have a number of uses for drones, including:

• Law enforcement surveillance
• Search and rescue operations
• Documenting and investigating accidents, crime scenes and fires
• Inspections properties
• Filming and photographing events;
• Monitoring and inspecting infrastructures
• Tactical advantage
• Live imaging
• Fire suppression

Navigation through current FAA regulations and future security of the drone market is foggy at best. Adding to the complexity, state and local jurisdictions are also exploring their own regulation of drones.

Here’s how to help your public entities clients understand the implications of operating a drone in their communities—and more importantly, understand what insurance coverages their policies provide.

FAA Regulations

Last month, the FAA finalized rules for “non-recreational or non-hobby operations.” Effective Aug. 29, 2016, the new rules define permissible hours of flight, line-of-sight observation, altitude, operator certification, optional use of visual observers, aircraft registration and marking, and operational limits. 

The FAA also released rules in December 2015 that require federal registration of any drone, civil or commercial, weighing less than 55 pounds. In addition to the registration requirement, the FAA also requires a Certificate of Authorization (COA) for any public entity using a drone in public aircraft operations. A COA allows the drone operator to use a defined block of airspace and includes safety provisions unique to the proposed operation. Issued by the Air Traffic Organization of the FAA, COA applications are available online and typically require fewer than 60 days to process.

In addition to national regulations, state and local governments are working on their own legislation. The National Congress of State Legislators (NCSL) reports that 30 states have enacted laws addressing drone issues, and five states have adopted resolutions. However, the FAA maintains ultimate authority over drone regulations with the power to pass laws regulating national airspace.

Insurance Implications

As the technology and use of drones continues to develop, the property-casualty insurance market for this specific coverage has been slow to follow. Lack of historical loss data is likely the biggest challenge insurers face in rating and pricing policies. Data is limited, but in 2015, the Academy of Model Aeronautics (AMA) analyzed each of the 764 “close call” drone sightings released by the FAA in the same year, concluding that only 3.5% of those “close calls” resembled a near mid-air collision.

With no significant loss data to evaluate, insurers must closely review the implications of public entity drone use, whether direct or through a third-party vendor. Considerations for risks include first-party exposures to equipment as well as third-party exposures including property damage, bodily injury and personal injury. The FAA has regulated drones as aircraft, which means the aviation insurance market is still the best option for specific coverage.

Mid-2015, ISO released drone endorsements for commercial general liability and commercial liability umbrella policies. Since then, new inland marine forms have appeared to provide insurers with the necessary underwriting tools to further address commercial drone operations.

Drone activity in U.S. airspace is complex and dynamically changing the aviation industry at a rapid pace. Now that the FAA has finalized rules for drone use, public entities should have a clearer view for how to operate commercial drones within a regulatory framework and under federal requirements.

If your local government clients have either adopted or are considering the use of drones, talk to your carrier partners to learn more about the drone coverages and limitations of their policies.

Bradley York is vice president of business development at OneBeacon Government Risks.