The ups and downs (and lefts and rights) of insuring drones
Last summer, news broke about Amazon’s new Prime Air service, which will use drones to deliver packages. Though William Gerace, an aviation practice client representative at Marsh Canada Limited, says Canada is years away from having Black Friday purchases delivered by drones, the technology is developing so quickly that some Canadian companies are insuring their commercial drones for over $100 million.
Gerace, who works out of Marsh’s Toronto office, says his employer began insuring drones—or unmanned aerial vehicles (UAVs)—four years ago. Since then, he has seen almost 500 per cent growth in the sector and receives between 10 and 15 inquiries per week, insisting “it will only continue to grow.”
UAVs are governed and regulated by Transport Canada. The requirement for insurance “depends on if you’re operating from a recreational perspective or commercial,” Gerace says. “For recreational purposes, you wouldn’t need to carry insurance, but if you were selling or making any money from that endeavor, then you would be regulated by Transport [Canada],” Gerace explains.
Commercial drones under 25kg can apply for exemption from Transport Canada aircraft regulations, he adds. “If you’re a real estate agent using a 1kg unit to go and take some photos of one of your locations, for example, you don’t have to abide by the same rules as an aircraft operator.” Recreational drones under 35kg do not need to be insured, but must be operated according to Transport Canada guidelines. However, every commercial UAV under 25kg needs to have at least $100,000 of insurance.
Gerace considers several factors when insuring drones. “First and foremost, it’s always the use and what type of operation the client will be undertaking. And then part of the risk assessment is the type of the equipment; it varies from rotor wing to fixed wing. There’s many factors that are considered ‘out of the box’ and potentially preapproved by Transport Canada, versus if somebody has built their own unit.”
He also assesses the weight and location of the UAV. “Are they operating in Canada, are they following Canadian regulations, are they operating in the U.S., which is a little more stringent than we are, or is it some other country that we need to look up the regulations of. And lastly, and always the most important, is the training of the pilot.”
For drones to be used legally in Canad, they must be controlled by a pilot rather than fly autonomously, and must always be in sight of the operator. “You can’t view it through a video camera on a laptop or tablet you have to physically be able to spot the unit,” says Gerace, which is an obstacle for Amazon Prime Air, he adds. “Currently that operation is out of scope for Transport Canada’s regulations. Until Transport Canada implements regulations to that type of operation, you won’t see that in Canada.”
Though the required amount of insurance for commercial drones is $100,000, Gerace has written policies far exceeding that. “We’re seeing a lot of companies carry $1 million and $2 million, and that’s growing to limits of $5 million and even $10 million. Some of the larger corporations are scheduling this under their corporate umbrella for limits in excess of $100 million.”
Companies are getting large amounts of coverage because the main risk outlined in policies is third-party property damage. Since UAVs are airborne, the property could be a passenger jet. “Recently, there were two incidents of drones flying near the island airport here in Toronto. Imagine that unit had taken down an aircraft with 50 passengers on board. It would be catastrophic.”
To better regulate the risks associated with drones, Peregrine Storrs-Fox, the risk management director at the TT Club in the United Kingdom, says there needs to be more governmental control. “I think governmental discussions are likely to be quite significant both within jurisdictions and between jurisdictions at the intergovernmental level, to try to work out how this innovative tech can be used correctly, and manage it without increasing risks.”
Storrs-Fox believes the industry will continue to grow. “It’s genuinely an exciting area of development, and if it’s properly controlled and monitored, then it’s going to be quite successful in the years to come.”
Copyright © 2017 Transcontinental Media G.P. This article first appeared in the January/February 2017 edition of Canadian Insurance Top Broker magazine