As the FAA continues its rulemaking process and grants individual permissions for commercial drone use, there’s a great opportunity for agents to educate their clients and prospects and consider how risk exposures related to drones might be managed.

As agents and brokers, you already may be getting requests or inquiries regarding insurance related to unmanned aircraft, or drones. You also may have heard a great deal of talk about drones: the design and technology advances, their seemingly limitless potential uses, and how their commercial use in the United States may be regulated.

The reality is that drones are no longer limited to science fiction or the military. If any proof is required, consider the drone that landed on the White House lawn earlier this year, which reportedly sent the Secret Service scrambling— and probably spoiled more than one intelligence official’s breakfast. At the same time, the Federal Aviation Administration (FAA) has been granting approvals for the commercial use of drones case by case and introducing proposed rules for commercial drone use that could take effect in the not too distant future. Make no mistake, drones have become a part of our lives, and there are several steps you can take to prepare your agency to serve a growing drone insurance market.

Educate your clients

In the current environment, with FAA approvals continuing and drone regulation on the horizon, it’s important to take a close look at what kind of insurance coverage may be appropriate for businesses that use drones and how those businesses can begin to manage the potential risk.

If this hasn’t already become a standard question when talking to clients, your first step may be simply to ask whether insureds (prospective and current) are considering using drones in their operations. As businesses look to start working with drones, they will need to insure their new machinery and new operational techniques, including first-party property and third-party liability coverages. These business owners may not be aware of the unique risks that drones can present or know that specialized coverage options may be available. Or they may assume, probably incorrectly, that the needed coverage is already being provided under their current policies.

Educating the insurance buyer in this regard is critical because, for example, many general liability policies already contain exclusions with respect to bodily injury and property damage arising out of the ownership or use of aircraft.

Understand individuat needs

The appropriate coverage for drone exposures can vary greatly based on individual needs. It’s also important to understand the risk tolerance of the carriers you do business with when it comes to drones. For example, the carrier may want you to find out who will operate the drones, the operator’s qualifications, and what kinds of operations the drones will perform.

You also will need to know how many drones your client is thinking about using. For clients who are considering using a significant number of drones, coverage may be more appropriately provided under a specialized policy written through the excess-surplus market. Conversely, when a business may have only a few drones involved in limited operations, it may be appropriate to modify an existing property or liability policy. For those businesses, requesting insurance for their drones and related operations could become as routine as getting contractors insurance for mobile equipment.

For this reason, it’s important to keep up with how the insurance industry is responding to the increased use of drones: what kinds of coverage options are being offered by different carriers and on what kinds of policies those options are being made available.

Find out what's available

Last year ISO filed several drone-related coverage options for its General Liability and Umbrella/ Excess programs. The options were designed to give insurers enhanced flexibility when underwriting risks that use drones. Six core options are available under each program (GL and Umbrella): three optional exclusions and three coverage options. The options give insurers the tools either to grant coverage or exclude dronerelated liability under Coverage A (bodily injury and property damage) only, Coverage B (personal and advertising injury) only, or Coverages A and B together under a single endorsement. Each option allows for limited coverage for designated drones with respect to scheduled operations or projects.

The endorsements were filed on a multistate basis and will be implemented in June 2015 in a majority of ISO jurisdictions. ISO also is reviewing the topic as it relates to commercial property, businessowners, homeowners, farm, and commercial inland marine insurance because liability coverage may not be the only concern a business may have when evaluating its exposures related to drone use.

The feature of done insurance

The good news is that the insurance industry has responded promptly to emerging issues and trends in the past and has shown that it can evolve to meet market demands. As the FAA continues its rulemaking process and grants individual permissions for commercial drone use, there’s a great opportunity for agents to educate their clients and prospects and consider how risk exposures related to drones might be managed. It may be only a matter of time before businesses in almost every industry are using drones in their operations in some way. As those businesses think about how drones could make them more efficient or profitable, insurers will be considering how to respond to related exposures. Agents and brokers who understand the risks of drones and the coverage options available will be the best prepared to meet the needs of clients.

The future of drones is already taking shape. It will be beneficial for both insurers and agents to recognize the potential problems hovering over business owners—and to address them with appropriate coverage options.

The author

Tracey Waller is Consultant, Commercial Casualty Product Development, for ISO, a Verisk Analytics (Nasdaq:VRSK) business.