Unmanned Aerial Systems About to Take Off in a Big Way
Into the light of dawn, first one, then a dozen, then scores. A humming flock rises into the sky until they practically obscure the sun. A second remake of Haskin’s The War of the Worlds? Not this time. This is reality. This is today. Unmanned Aerial Systems (UAS), aircrafts with no pilot aboard, commonly called drones, have begun to take flight en masse. Today, in relatively small numbers, but forecast to multiply like insects over the next few years, drones offer advantages to a broad range of users in commercial application. It’s a market set to, if you’ll excuse the Bondian double entendre, take off.
“Growth projections for the drone or unmanned aerial systems are nothing short of phenomenal, as the opportunities and advantages afforded by using this type of machinery become more apparent,” a June 2015 report from Marsh states. Marsh further forecasts that integrating UAS into American airspace alone wold have an economic benefit valued at more than $13.6 billion.
Globally the sector is valued at $0.5 billion today, and is expected to grow to $20 to $30 billion in the next five to ten years.
The quick pace of adoption and technological advances have left regulators and insurers playing catch up ball when it comes to UAS. That’s dropped brokers onto a landscape of uncertainty when it comes to policy coverage—even in today’s market conditions.
“Insurance brokers have been assuming that drones fall under the same classification as radio controlled model aircraft. But when it comes time to make a claim, they discover they’re mistaken,” says Caleb Winterburn of Air1 Insurance in Pitt Meadows. Air1, under founder and pilot Dave Fitzpatrick, has specialized in aircraft insurance since 1995. Winterburn, who along with Fitzpatrick, holds a private pilot’s license, now helps handle the Company’s aviation business.
“Even with the relatively inexpensive drones used by recreational flyers or hobbyists, a household policy won’t provide adequate coverage the way most people seem to think it will,” Winterburn says. So certainly when it comes to the larger UAS in commercial operation now on the horizon, businesses will need to look into the universe of commercial aviation to find solutions to insurance challenges.
In some cases, off-the-shelf language for manned aircraft can be updated with minimal effort. For example, the word “aircraft” can be simply replaced with the word “UAS” and “operator” cut in for “pilot.” But it can be more complicated than that.
For example, in recent years the aviation market has used agreed value as a basis for claims in the event of physical loss. With drone technology advancing at a quick pace, market value of older drones will fall quickly with rapid obsolescence, and losses will have to be adjusted to account for perceived value.
At present, drone operation has yet to turn up the steep section of the growth curve. That’s mainly because, even in commercial application, drones today fly under Visual Line of Sight (VLOS) rules that require a pilot on the ground to input guidance while keeping the drone in sight.The largest immediate growth segment of the insurance market is for these VLOS operations, in particular unmanned cargo, that require up to a $1 million in physical loss.
However, Transport Canada expects to introduce Beyond Visual Line os Site (BVLOS) by the end of 2016, and then it’s game on for higher dollar initiatives.
An extraordinarily broad range of business are expected to adopt UAS—according to Marsh as many as 40% of existing businesses will find ways to exploit the technology.
While current use includes such applications as film and video, construction, and to a limited extent site inspection for industries such as insurance—businesses that can stay within VLOS operation guidelines to carry out tasks, the potential for the more complex BVLOS drone use, where drones can operate beyond visual range, dwarfs present deployment.
Tasks such as pipeline or power transmission line inspection, geological prospecting, ecological monitoring and first response, disaster aid and delivery of medical supplies, commercial product delivery in the B2B space, forestry, and precision agriculture are but a few examples among a range of uses limited only by imagination.
As the sophistication and number of UAS flying grows the accompanying regulatory framework will have to mature to avoid utter chaos. Regulations must cover equipment in use, licensing and operator certification just as it does for piloted aircraft.
Underwriters need to build data and analysis structures around a number of risks: the actual equipment, the payload, liability, and privacy. That’s tricky, because there’s just not a lot of data out there.
Owners and operators can take measures to help address some of the risks. For example, brokers may want to point drone operators in the direction of training to better prepare them for flying a UAS.
Certainly, as we move toward BVLOS regulations, training will become more critical, both from a practical standpoint and possibly as a requirement for certification or licensing.
Whether VLOS or BVLOS, insurers must take into consideration a number of factors when writing policies for drones.
The levels of coverage required generally increase exponentially with the size and weight of the aircraft, according to Marsh. Most of the market growth today can be found in the lighter than 35 kg class. A typical level of liability coverage on a unit of this class would be $500,000, according to Air1’s Winterburn. He notes that few people cover these drones for damage, because the relative cost of premium and deductible compared to the price of a $1,500 drone simply doesn’t make sense.
Coverage also varies based on payload. Video or still cameras slung beneath a rotary wing drone often have more value than the drone itself. While it’s unlikely this gear will ever fall off, a hard landing, a water landing or a crash could do damage.
Fraud and theft are also considerable risks. The sub 35 kg segment, the sweet spot for current market growth, comprises mainly portable electronic rigs. Many of these airframes bear no serial numbers. Nor do many of the interchangeable parts on these units carry tracking codes. Light and easy to steal, and hard to track or prove ownership, drones make great theft targets.
Because drones can be used for a wide range of tasks, many with different levels of associated risk, the underwriting community faces challenges posed by lack of data and real world experience for various usage profiles.
In addition, privacy issues come into play. While most policy-related claims are excluded at present, coverage for invasion of privacy may constitute a considerable market.
There is, however, progress being made. Founded in 2003 by a small group of entrepreneurs and visionaries, Unmanned Systems Canada is a Canadian-registered not-for-profit association representing the interests of the unmanned vehicle systems community. USC has been working with Transport Canada to develop a regulatory framework for BVLOS drones.
According to USC Executive Director Robert Kendall, Transport Canada may release an initial regulatory framework for the more sophisticated BVLOS drones within 18 months.
“BVLOS flight is critical to operations in areas like hydro and pipeline inspection, agriculture, forestry and mining.,” Kendall says. “While we ant to see things move forward ASAP, Transport Canada and the aviation community will require proper sense and avoidance equipment on board, and operators will have to understand the basic of air traffic control, radio communications, meteorology, and air space structure to qualify for operating certification.”
When BLVOS flight takes off if Canada, expected to begin to in 24 to 36 months, insurers will face new challenges.
First, the dollar vales increase dramatically. A drone capable of operating at a great distance from the pilot comes in at $300,000 or more. That’s just for the airframe. Payloads on these rigs can be super-sensitive, costly equipment designed to measure infra red, chemical, or geophysical properties of a target ares, for example.
Flying a million dollar UAS from a remote station requires a remarkable depth of pilot training and expertise.
Paul Bennett, founder of Aerobotika, one of a number of flight schools that specialize in drone flight, sees a growing need for standards, training, and testing for drone pilots—especially those who plan to operate BVLOS systems.
“Right now, anybody can go online and order up a drone, pull it out of the box, throw it in the air and instantly they’re a drone pilot,” he says. In reality, responsible drone flight requires the same level of knowledge and experience needed to fly any other aircraft, and even more so when the more costly and complex BVLOS rigs go into more widespread commercial use.
“You’d be amazed at some of the stupid things that happen flying drones,” Bennett comments. He offers up a photo snapped 30 meters from the wing tip of a 737 in flight, at some two thousand feet altitude, with gear down on final approach to landing.
Bennett also comments that drones often don’t fly according to plan. He points to video on YouTube. A quadcopter flying near Sydney Bridge lost its bearings and, as programmed, automatically headed for home. Unfortunately, it thought home was in China. It flew between the bridge’s pillars, bouncing off one as it went. It then flew out over the water, changed its mind, turned 180 degrees, flew back between the bridge’s pillars, struck pillars once again, and then dove onto the railway tracks below the bridge. The last image from the drone was a shot of the train bearing down on the crashed copter before the screen snaps to black.
“It’s not about what happens under normal conditions,” Bennet says. “It’s about the pilot’s ability to add things up and make a quick decision when things don’t go according to the book.” For instance, disturbances in the ionosphere can distort GPS signals, and fool a UAS into thinking it is hundreds of miles off course. It is unlikely that an untrained pilot would react the right way in that kind of situation.
Even for recreational flyers, the potential for extensive damage from a crash can exceed all expectations. “Not too long ago in Surrey a pilot crashed a drone onto the roof of a warehouse. The impact didn’t cause damage. But when the battery exploded the entire warehouse burned to the ground,” Bennett says.
With the advent of more complex systems in commercial use, insurers will likely want to look not only at a client’s level of pilot training and certification, but also at inspection and certification data on the airframe itself. A certificate of airworthiness could be requisite when insuring BVLOS gear.
“Pilot knowledge requirements should be similar to requirements for a private pilot license in Canada,” Bennett says. That would mean training covering air space structure, meteorology, radio communications, safety and hours of flight experience under the guidance of a qualified trainer. “It may be that for some drone flying, pilots would also be required to pass a medical exam just as they would for a private pilot’s license,” he says.
While at some levels making training and certification a requirement for UAS insurance, in a competitive market it may make more sense to offer discounts to owners who take pilot training and who can offer proof of certification.
Still, today drone flying is more or less a free-for-all. Drone pilot training and drone flight schools are not specifically certified. Standards, testing and certification for drone pilots remain to be established.
Yet as drones get more complex, more expensive, and more widely deployed the need for a robust regulatory framework, training, certification and standards, and the right types of insurance, will become absolutely necessary.
This article first appeared in BC Broker