Drones are making their way off the battlefield and into the mainstream for commercial applications. After a years-long blanket ban on drones for commercial usage, the Federal Aviation Administration in late March awarded 48 waivers for commercial drone use and established an interim policy to accelerate authorizations.

State Farm and AIG became the first insurers authorized by the FAA to test and research drones in March, and USAA became the third in April.

Aerospace and defense consulting company The Teal Group estimates that annual spending on drones, also referred to as Unmanned Aerial Vehicles (UAVs) or UAS for Unmanned Aerial System, for civilian and military applications will increase to $11.6 billion annually in 2023. The company notes that currently almost none of that figure is attributable to commercial use. However, the loosening of the drone regulations is opening opportunities for insurers to begin using drones to facilitate everything from risk assessment and underwriting to claims processes.

“Carriers are champing at the bit to use drones,” says Carol Kreiling, vice president and claims expert for Swiss Re. “You could deploy a drone to inspect a potential risk and analyze it visually, saving time, effort and money and increasing efficiency.”

Shawn Broadfield, vice president of claims strategy for Allstate, says the insurer has a long-standing interest in drones. “There are two claims use cases that we’re really excited about. One is catastrophe situations, where it might be hard to get into a neighborhood to survey damage and get our customers back on their feet,” he says. “The second one is roof inspections. We often have our adjusters up on roofs surveying and investigating the damage, or we send it out to a vendor. With the advances of camera technology and drones, we think there are some real possibilities.”

New Rules

The FAA’s interim policy will allow companies and individuals to start flying much more quickly than before. The agency now will grant authorizations, known as Certificates of Waiver or Authorization (COA), for flights at or below 200 feet to any drone operator with a Section 333 exemption, which relieves the need for a Special Airworthiness Certificate (SAC). Drone operators must have both a COA and a Section 333 exemption to operate legally.

Alternatively, drone operators can pursue a SAC. This requires applicants to describe how their system was designed, constructed and manufactured, including engineering processes, software development and control, configuration management and quality assurance procedures used, along with how and where they intend to fly, the FAA said.

As a result of the interim rules, drone flights now are allowed anywhere in the U.S., except restricted airspace and in major cities. For new Section 333 exemption holders, the FAA will issue a blanket COA at the time the exemption is approved. Anyone who wants to fly outside the blanket parameters must obtain a separate COA specific to the airspace required for that operation.

Previously, the FAA evaluated every drone operation individually. Operators had to apply for and receive a COA for a particular block of airspace, which could take up to 60 days, explains Chris Barrow, president and CEO of EagleView Technologies, a drone technology company, and chairman of the Property Drone Consortium (PDC), a lobbying group representing insurers, construction companies, drone manufacturers and others. The modification to the 333 exemption essentially means businesses now can apply for blanket authorization for pre-specified flight situations, he says.

“You would describe your use case with the FAA,” Barrow says. “You have to identify the drone you want to use by its model, manufacturer and even the serial number of the particular drone, apply and tell the FAA these are the parameters under which you will operate the drone. Then the FAA goes through a process of considering that. They compare that to other kinds of use cases and either approve it or work with you to modify it, and then either approve or deny it.”

So far, there have been 400 or 500 applications for COAs, Barrow says, and fewer than 50 had been granted by late March. “It is a very lengthy process. It takes many months, simply because of the backlog and the queues,” Barrow adds. The exemption requests are a matter of public record, available for download on the FAA Website. “You can pull them up and read them and see exactly under what circumstances the FAA is willing to grant these kinds of exemptions,” he says.

“The majority of commercial users of drones are not that disappointed in the rules,” Kreiling says. “They anticipated that the rules might be worse or more restrictive than they are.” Companies such as Amazon, which wanted to use drones for product deliveries, and oil companies, which planned to use drones for pipeline inspections, however, were less satisfied.

According to the current rules, drones must weigh less than 55 pounds, operate during daytime Visual Flight Rules conditions, operate within visual line-of-sight of the operator, and stay certain distances away from airports or heliports. They are also forbidden from carrying cargo.

“There certainly have been some positive moves in the last few months,” Barrow says, but there are still many other restrictions. For example, drones may not fly:

• 5 nautical miles (NM) from an airport with an operational control tower
• 3 NM from an airport with a published instrument flight procedure, but not an operational tower
• 2 NM from an airport without a published instrument flight procedure or an operational tower
• 2 NM from a heliport with a published instrument flight procedure

Lobbying Efforts

The FAA also requires that operators be able to see the drone while it is in flight, and that drones not fly over people, which could limit some of the use cases proposed by insurers.

“Imagine a scenario where there was a very significant weather event and I had a building that might be destroyed. People in those buildings may be injured or perhaps even worse. Today, drones would be restricted from flying over that airspace, because typically there are people on the ground,” Barrow says.
To identify and address this kind of situation, the PDC engaged the FAA in a three-year Cooperative Research and Development Agreement, to investigate ways that drones could be used safely within the national airspace by insurers, he continues.

“We’re going to create case studies and very logical arguments within our constituency and within the FAA to make the case that safety is not quite the concern that the FAA thinks it is in some of these environments. In fact, there might be a safety benefit to flying drones over some of these kinds of areas.” Barrow explains.
The PDC also intends to work with drone manufacturers and others, such as the National Roofing Contractors Association and the Insurance Institute for Business & Home Safety. The institute tests the safety and durability of building materials and standardizes hardware, software and data to identify roof-condition information, Barrow says.

“Over time, there needs to be better-designed components built into the drones that address the issues surrounding safety, security and privacy,” Barrow says. For example, most drones today do not have built-in geo fencing — either horizontal or vertical — which could be used to prevent the drone from flying outside of certain areas, he says.

Privacy issues also will be an important part of the regulatory regime for drones, as their primary function is to collect photo, video and other data, and to do so in places otherwise difficult to access. “These drones can be used by paparazzi, hackers or anyone [else] to peek into your window and hover around; there could be some invasion of privacy claims filed through insurance as well,” Kreiling says. More so than many, however, the insurance industry has a relatively successful history of handling customer data and potentially adaptable data management practices.

The rollout of Google Earth may offer a model for protecting people’s privacy, Allstate’s Broadfield says. After frequently comical images were uploaded to Google Earth, the company responded to the initial uproar by obscuring faces, license plates and other personally identifying details and coordinates. “In a sense, the same privacy issues we’re probably going to have to deal with,” Broadfield says. “What might be different is that there are a lot more agencies involved; the FAA and Homeland Security, to name a couple.”

Multiple Regulators

The FAA is not the only regulator that will have a say over the commercial use of drones by insurers and their business partners. In addition, state insurance regulators, the Department of Homeland Security and state and local law enforcement also will want to have a say in who can access airspace, how and when.

Seth Rachlin, vice president of insurance at business consultancy Capgemini, however, is optimistic that drones soon will be formally approved for insurance and other commercial purposes. “Even though insurance is regulated on a state-by-state basis, these guys get together and talk to each other,” Rachlin says. “They follow each other’s leads to some extent, and the industry spends a lot of time and money attempting to educate them.”

Barrow is similarly encouraging. “Insurance regulators have a bit of a wait-and-see approach,” he says. “It isn’t going to affect them at all until the FAA does in fact loosen up some of its restrictions. You’re going to see municipalities, perhaps counties or even states, try to implement regulations because of some of the concerns about privacy. The consortium is working with federal agencies and others to get rid of the perception that these things are spying on us.”

Stick the Landing

The FAA currently is in a 60-day comment period. After the close of the comment period, the FAA will review and consider the comments and potentially adjust the rules.

“The FAA has made it clear that they want to integrate commercial drone use with the national airspace, but they want to do it at a very deliberate pace,” Kreiling says. “They are just being very methodical. All of the eyes are on the FAA to see what kinds of comments come in and what the FAA does in response.”

Barrow expects to see regulatory approval later this year. ”We envision a day when you might have every insurance adjuster out there with a drone in the trunk of their car to be able to aid in the process of inspecting a property. By 2016, you’ll start seeing that really come to fruition; it’s coming and it is coming quicker than we think.”

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