Transcript Slide 1

Drones
PAMIC Spring Conference
March 12, 2015
State College, PA
Gerry Finley
Sr. VP Casualty Underwriting
Munich Re America
[email protected]
Image : http://www.faa.gov/
Drones
Agenda
Part Two
Underwriting Considerations

Legal Regulatory Landscape

Risk Selection
 Nature of Risk
 Use
 Equipment
 Operator Qualifications

Pricing

Marketplace

Wrap-Up
Drones
Legal/Regulatory Landscape
Federal Aviation Administration (FAA)
Responsible for Regulating all Aspects of Civil Aviation…
……Including Drone use (Confirmed in
Administrator v, Pirker (FAA case No.
2012EA210009, NTSB Docket No. CP-217).

FAA’s first attempt to control small
drone use under existing
regulations.

March, 2014, a Federal NTSB
judge threw out the fine imposed
by the FAA saying the equipment
used was not an “aircraft”

FAA appealed to the full Safety
Board of the NTSB in November,
2014 and won.
http://www.faa.gov/
Drones
Legal/Regulatory Landscape
U.S. National Airspace System
Generally Speaking:
Class A : 18,000 ft and up
Class B: busiest airports - up to 10,00 ft
Class C : airports with radar -up to 4,000 ft
Image: Integration of Civil Unmanned Aircraft Systems (UAS) in the
National Airspace System (NAS) Roadmap - FAA 2013
Class D: airports with tower
control only - up to 2,500 ft
Class E: unless designated
as A-D 14,500 to 18,000 ft
Class G: Uncontrolled by Air
Traffic Control
FAA Aeronautical Information Manual,
Chapter 3, Section 2, FIG 3-2-1
Drones
Legal/Regulatory Landscape
U.S. National Airspace System
 By law, FAA is responsible for regulating the use of
“navigable airspace” in the US.
 “Navigable airspace”: “airspace above the minimum
altitudes of flight including airspace needed to ensure
safety in the takeoff and landing of aircraft”
 Personal (hobby) use of drones is permitted as
“model aircraft.”
 Use of drones for commercial purposes prohibited
until regulations are introduced.
Image: Integration of Civil Unmanned Aircraft Systems (UAS) in
the National Airspace System (NAS) Roadmap - FAA 2013
Congressional Directive: In 2012, the US Congress directed the FAA to issue regulations for
commercial drone use by 2015; also prohibited new restrictions on the non-commercial
(hobby) use of drones.
Types of UAS operations for FAA Certification Purposes: Commercial (Civil), Commercial
(Public) and Model/Recreation Aircraft.....
Drones
Legal/Regulatory Landscape
FAA Certification - Personal Use
FAA Advisory Circular 91-57 limits use to:
 Below 400 feet,
 Minimum 3 miles away from airports and air traffic without
FAA authorization
 Within sight of the operator.
June 2014, FAA Federal Register Notice - Interpretation of the statutory special
rules for model aircraft in the FAA Modernization and Reform Act of 2012.
 Clarifies the FAA may take enforcement action against model aircraft operators
operating their aircraft in a manner that endangers the safety of the NAS.
 Explains that this enforcement authority is designed to protect users of the
airspace as well as people and property on the ground.
Drones
Legal/Regulatory Landscape
FAA Certification – Commercial (Civil and Public)
All Commercial use of Drones requires:
 Certified aircraft
 Licensed pilot
 Operating approval :

Special Airworthiness Certificate (SAC) for Civil use
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Certificate of Airworthiness (COA) for Public Use
Case By Case Approvals - Provisions of Section 333 of the FAA Modernization
and Reform Act of 2012, "Special Rules for Certain Unmanned Aircraft Systems,"
 Recognizing the demand to expedite integration of UAS into the NAS.
 Allows commercial operations in low-risk, controlled environments
Drones
Legal/Regulatory Landscape
FAA Certification – Commercial Approvals
 Public: COA Approvals > 400 Approvals reported as of June 2014 – Examples:
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DHS Border Patrol and Port Surveillance
NASA and NOAA - Scientific research and environmental monitoring
State Universities - Research,
Local Law Enforcement – Various support of public safety(e.g., Texas authorities were granted
temporary permission to use drones to search for a missing person..
 Fire Fighting (e.g., WA State Department of Natural Resources will use a drone to monitor
wildfires that pose an urgent threat)
 Public (government) Entities Supporting various other missions – public safety and otherwise..
 Civil: @ 2/27/15 - 668 Section 333 exemption requests/ 39 approvals - Examples
 Agricultural – Crop monitoring and management
 Energy – BP will use Drones to survey pipelines, roads and equipment at Prudhoe Bay in Alaska.
 Hollywood Film Production – Several filmmaking companies have been given permission to
use camera equipped drones on movie and television sets.
 Dangerous, Difficult or Expensive - Use drones in situations deem too difficult, expensive or
dangerous for manned aircraft (e.g., Several companies received approval to The industries
involve are agriculture, mining, energy, construction and mapping..
 Real Estate – e.g., AZ Realtor will use a 3lb drone to photograph homes for sale)
Above Subject to Constant Change
http://www.faa.gov/uas/legislative_programs/section_333/
http://www.faa.gov/about/office_org/headquarters_offices/ato/service_units/systemops/aaim/organizations/uas/coa/
Drones
Legal/Regulatory Landscape
FAA Certification – Commercial Approvals
 Process , Applications and Approvals can be viewed at:
http://www.faa.gov/uas/legislative_programs/section_333/
 Approvals generally are for 2 Years
Some
things
to
Know
 Only Applications for “low risk, controlled environment” use are
being Considered at Present
 Applications are Reviewed on a case by case basis and focus
on the “unique circumstances of each application”
 120 day Process for Review from public notice to action
Drones
Legal/Regulatory Landscape
FAA Commercial Use Draft Rules (February, 2015))
Lifts some restrictions (All other current restrictions would continue to apply) subject to
(among other things):
 Drone Pilots: Pilot Certification required (at least 17 years old; pass an aeronautical
knowledge test; vetted (security) by the Transportations Security Administration)
 Where and When
 Only Daylight flights permitted
 Flying near bystanders is prohibited
 Must remain in the pilots line of sight
 Airspace conditions: Class A prohibited; Class B, C, D and E allowed subject to ATC
permission; Class G allowed without ATC permission
 Maximums: Weight – 55lbs; Height - 500 ft (152 meters); Speed – 100mph (160 kph)
Also leaves open the possibility for greater flexibility for Micro Drones (< 4.4 lbs) in the future
Drones
Legal/Regulatory Landscape
Integration of Civil UAS in the NAS Roadmap
Goal: Type Certificates (TC) and Production Certificates
with appropriate limitations
Documented in the
Aircraft flight manual
Developing design
standards tailored to
a specific UAS
applications and
proposed operating
environments
Potential Airworthiness Path for UAS Industry
Source: Integration of Civil Unmanned Aircraft Systems (UAS) in the National Airspace System (NAS) Roadmap - FAA 2013
Drones
Legal/Regulatory Landscape
Transition from COA/Experimental to Standard Airworthiness Approvals
The Commercial UAS
Industry Recognizes the
importance of
Reasonable Regulations
But
No Sudden Change:
Integrating Drones into
the National Airspace
….will happen over an
extended time……
with gradual evolution of
regulations
Source: Integration of Civil Unmanned Aircraft Systems (UAS) in the National Airspace System (NAS) Roadmap - FAA 2013
Drones
Legal/Regulatory Landscape
State Regulations
States are actively considering drone bills and resolutions….
@ 12/14
 20 States have
Laws
 All other states
have laws pending
except DC, DE, FL,
ME MS, NM and
SD
 Subject to change
http://www.ncsl.org/research/
civil-and-criminaljustice/current-uas-state-lawlandscape.aspx
National Council of State Legislatures
Drones
Underwriting Considerations
Essential:
Company Specific Guidance
Evolutionary Dynamics, Legal Landscape, Technology, Coverage Flexibility
Risk Appetite:
What Type and How
Much Risk do you want?
Underwriting Approach:
How do you want to
satisfy your Risk Appetite
Guidelines
How do you apply the
Underwriting Approach
Consistently?
Drones
Underwriting Considerations
Risk Selection
Operator
Nature of
Risk
Use
Equipment
Drones
Underwriting Considerations
Risk Selection – Nature of Risk
 Does the insured conduct its own drone activities?
 Does the insured hire others to conduct drone activities on their behalf?
 Does the insured provide drone service to others?
Has the Insured contracted with another party
(manufacturer, drone service provider, customer, etc)?
 Does the insured contractually assume liability or otherwise provide insurance coverage
(name as additional insured)
 Has the insured contractually transferred liability or is otherwise protected by 3rd party
insurance coverage (named as additional insured) by such parties?
Obtain copies of all relevant contracts
Drones
Underwriting Considerations
Risk Selection – Equipment
Drone Track Record, Capability and Primary Function
Detailed
Description
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Manufacturer
Drone and Control System, including Model and Serial Number
Intended Use
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Maintenance
and Security
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Size (Wing or Rotary Span)
Max Lift Off Weight
Flying Height and Distance Capability – in or out of line of sight?
Nature of Sense and Avoid capabilities
Applicable Federal, State & Local requirements for Equipment based on Intended
Use
Number of UAVs operated from a single Ground Control Station?
Frequency, nature and documentation of equipment maintenance;
Details on how the equipment is secured including applicable restrictions on
operator use to ensure only qualified operators use the equipment.
Cyber Security
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Nature of security in place to protect against 3rd party system intrusion or disruption of the equipment.
Nature and Extent of the levels of redundancies for data link interruptions.
Drones
Underwriting Considerations
Risk Selection – USE
Is it Legal?
 Federal, State and Local Permission – Certificate of Authority (Obtain Copy)
 Does the COA match the specific Equipment and Intended use
Note: Liability Insurance applies even if Drone is used
Illegally and causes injury to a 3rd Party. Illegal use may
result in:
 Heightened Traditional BI, PD, PI, Risk
 Reputational Risk
Beyond the Question of Legality
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Nature of intended and potential use.
Frequency of use.
Is the indicated use consistent with the specific equipment?
Location and proximity of use to populations, buildings, etc
Drones
Introduction
Use of Drone Technology….A Sample
Cost
Efficiency
Effectiveness
Safety
Surveillance/
Monitoring
Imaging / Data
Recording
 Aerial imaging/mapping
 Agriculture/Ranching (e.g.,
precision crop spraying and
pollination, monitor crop health,
cloud seeding, monitor livestock)
 Cargo Delivery
 Construction
 Disaster management (e.g., search
and rescue, food and supply
delivery)
 Education and Research
 Environmental monitoring
 Firefighting including wildfire
mapping
 Freight transport
 Insurance claims & risk management
“Delivery”
 Law enforcement (e.g., crowd control,
search/recognizance, fugitive pursuit)
 Moviemaking
 Oil and gas exploration
 Security
 Sporting events
 Structural inspection (e.g., pressure
vessels, pipelines, oil and gas rigs)
 Telecommunications
 Television news coverage
 Thermal infrared power line surveys
 Utility surveillance – powerlines,
train tracks, electrical grid, etc.
 Weather monitoring (e.g., storm
tracking, collecting meteorological
data, generation of maps and models.)
Drones
Underwriting Considerations
Drone Use Categories…For Underwriting Purposes
Nature or Extent of Drone Use categories
Tier 1
Commercial (Revenue Generating)
Drones used as the primary source of revenue or as a primary aspect of
day to day operations; e.g., Drone Service Providers, Aerial Photography,
Surveying, Deliveries, Law Enforcement, etc.
Tier 2
Commercial (Revenue Supporting)
Drone use supports other primary sources of revenue; e.g., farms (crop
monitoring), Construction or Energy (asset surveillance), etc
Tier 3
Commercial (Contingent)
Subset of Tier 2; Organization contracts with another (e.g., Drone Service
Provider) to perform the drone-related activities
Tier 4
Personal/Recreational
Drone use is for purely recreational non-revenue related purposes.
Drones
Underwriting Considerations
Risk Selection – Operator Qualifications
Basic Focus: Will the Drone be operated by someone fully qualified to do so.
Operator Qualifications – Operator, Use and Equipment specific
1. Who will be operating the drone? Name and position of every operator
2. Is certification required – if so, who certifies? Are all operators properly certified,
sanctioned and approved by the FAA or other appropriate body?
3. What is/are the operator’s training and experience with the specific equipment –
what is the level of qualification? How many hours has the operator logged on the
drone equipment at risk?
4. Safeguards – Protection against unauthorized use of the drone
5. Regulatory Aspects – Federal, State and Local
1. Applicable laws or regulations relative to each drone activity and operation
2. Is operation within the parameters of all applicable laws and regulations?
Drones
Underwriting Considerations
Risk Selection – Operator Qualifications..
The Challenge: Lack of Consistent Credible Standards
Sources of Pilot Training (Varies in Content and Quality):
 Colleges/Universities
 For Profit UAS Training Programs
 Manufacturers Original Equipment (OEM) Training
FAA – Currently ther are no defined FAA standards for a UAV operator.
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As of October 2014, the FAA has not issued any UAS pilot requirements
Plan is to publish a final rule on required pilot qualifications - expected in 2016.
These rules will apply to pilots of small, commercial UAVs 55 pounds or less.
FAA rules, when published, will be incorporated into existing training programs.
Civil Organizations – Most cite Manufacturer (OEM) training as a minimum
operator qualification in their COA application for FAA approval to operate
Public Agencies - Most also require that the UAV pilot be an FAA sanctioned
commercial or private pilot.?
Drones
Underwriting Considerations
CGL Coverage – ISO Drone Coverage Endorsements
Description Of Unmanned Aircraft
Description Of Operation(s) Or Project(s)
Limit Of Insurance
Unmanned Aircraft Liability Aggregate Limit:
$
Information required to complete this Schedule, if not shown above, will be shown in the Declarations.
Drones
Underwriting Considerations
Pricing
Challenge
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Historical Claim Data
 Mostly Model Aircraft or Military Data
 Questionable Relevance and Credibility
for Commercial Use due to different
circumstances (Training, Equipment,
Use, etc)
More Exposure Based than Data Based
Exposure Differentiators include:
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Type of Equipment
Where
How Used
How Often Used
Operator Qualifications
Transfer of Liability Specifics
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Military – USAF “Mishaps” 2004-2013
 27.5% - pilot/human error
 57.9% - hardware failure.
 14.6% - Other (weather, software, etc)
Recreational - American Model Aeronautic 2014
Annual Insurance Report
 ~ 400 reported in the US over the last
several years (35 liability claims annually
 BI typically involve operators (rather than
spectators/ bystanders)
 PD usually minor damage to parked
vehicles
 12 to 15 involved serious injuries.
Settlements often > $500,000 each,
Recent UAS Incidents
 March 2014 - regional jet ~ 5 miles from the Tallahassee airport passed a drone at 2,300 feet altitude
 July 2013 - airline into LaGuardia in NY flew ~ 500 feet above a small drone.
 March 2013 - pilots on Boeing 777 near JFK Airport in NY, reported a drone helicopter within ~ 200 feet of their aircraft.
Drones
Marketplace
Anticipated Economic Impact of Drones
Use Will
Increase
Personal and Commercial - common in many civil or public activities
Jobs
New Jobs…Requiring New skills
Bottom
Line
Reduce Expenses and Increase Productivity
US $82 bn
US $482m
• Economic impact of drones between 2015
and 2025
• Projected State Revenue…Based on jobs
created in the 1st 11 years after full
integration
Source: AUVSI The economic impact of unmanned aircraft systems integration in the US, 3/13
Drones
Marketplace
Done Marketplace
General
Liability
Market
General Liability Market
Starting to develop (ISO,
AIG, Allianz, Chubb, XL
among others)
Aviation
Market
Cyber
Market
Aviation Market has been
actively covering products
liability and is developing
broader coverage as well…
Aircraft Liability / Technology Liability
Scope of Coverage, Risk Appetite/ Selection Criteria and Pricing will vary significantly pending
some stability in the Legal Landscape in the Form of FAA Regulations and Case Law
Drones
Wrap-Up / Take-aways
Numerous Underwriting Challenges…
…….But not a Systemic Problem
Significant growth in Drone Use expected once the FAA
releases formal Regulations…for some
industries/insureds…will be a common part of their day to
day activities
Guidelines:
Essential
Operator
Qualifications Critical
Drones - Underwriting Considerations
PAMIC
March 12, 2015
State College, PA
Gerry Finley
Sr. VP Casualty Underwriting
Munich Re America
[email protected]
© Copyright 2015 Munich Reinsurance America, Inc. All rights reserved. "Munich RE" and the Munich Re logo are internationally protected
registered trademarks. The material in this presentation is provided for your information only, and is not permitted to be further distributed
without the express written permission of Munich Reinsurance America, Inc. This material is not intended to be legal, underwriting, financial, or
any other type of professional advice. Any descriptions of coverage reflected in this presentation are meant to be general in nature and do not
include and are not intended to include all of the actual terms, benefits and limitations found in an insurance policy. Only the insurance policy
will form the contract between the insured and insurance company, and governs in all cases.
Image : http://www.faa.gov/