DRONE INSURANCE 101
There is simply nothing sexy about buying a stack of papers that promise to pay for a future loss that statistically has a low probability of ever happening. For this reason, many UAV owners make the critical mistake of focusing a minimum amount of attention on this vital component of their financial protection system. But since the aviation exposure likely presents THE largest financial exposure an individual or business faces, this can have devastating consequences.
“A lot of people don’t understand what’s in their insurance policy until they need to know it – and then it’s too late. Having an understanding of your policy – knowing what coverage you have – is key… This is not a task to give to your least qualified employee to handle, but rather just the opposite.”
VP, National Business Aviation Association
The most important decision you will make is the selection of the insurance broker.
If you do nothing else, getting this right will yield the greatest return, and is considered best practice by financial and legal experts in the aviation industry. But what is there to consider?
Hire the Right People
Should you allow your general lines insurance broker to handle the transaction?
They are probably very good at taking care of your overall insurance needs but if you needed heart surgery, you would hire a heart surgeon, not a General Practitioner. Business aviation insurance is no different. You need a professional aviation insurance broker on your side.
Unlike other lines of property/casualty insurance, which are written on standard forms, UAS policies vary from company-to-company, some are MUCH broader than others. This makes apples-to-apples comparisons extremely difficult.
A good UAS specialty insurance broker can help you navigate to the policy that best fits your operation. In addition, these brokers deal with the underwriting companies every day on multiple aviation risks, and have large books of business with each giving them more clout. A UAS specialist broker will know which underwriter at each insurance company is the most reasonable to deal with, what a competitive rate should be on a particular account, what coverages are available at no charge, and knowing when to negotiate – and how hard, to secure a lower premium, broader policy forms or ancillary coverages for their client.
If your local broker is sub-brokering your aviation policy through a wholesaler, be careful. This is a red flag. The more hands in the pie, the more chance an important detail will get missed.
The fact is; you’re going to pay the same commission either to your local agent or the best qualified aviation insurance broker in the business. That’s like having the option to buy a Chrysler or Lexus for the same price.
Credentials, Credentials, Credentials
Perhaps I’m convinced I would be best served hiring a UAS insurance broker, but how do I find the best candidate? Credentials, credentials, credentials. If you needed lasik eye surgery, would you pick an eye surgeon based on a marketing promotion? Of course you wouldn’t. The goal is to establish a relationship with a solid UAS insurance broker you can trust.
Your first task is to compile a short-list of respected UAS insurance brokers to choose from. Ask operators of similar UAS what specific broker they use, and then research that broker’s website for information. You want a broker that not only has advanced insurance training and experience, but also one that operates UAS. Negotiating with an underwriter from an operator’s perspective is a must. It’s like speaking a foreign language.
Other information you can glean from the broker’s website: how long they have been in business, how many other qualified brokers work there in case you have an important matter you need to discuss when your broker is not in the office [you’re looking for bench strength, not a one man shop.
Many brokers post a partial list of their customers to give you an idea of the caliber client that has chosen them. This is very useful information.
If there are recognized companies on the list, you can assume these companies are with them for good reason.
Do they promote safety and risk management solutions as a way to complement insurance, or are they just about the money? Membership and participation in professional UAS associations such as AUVSI and ASTMI provides vital sources of current information to enhance the ability of the broker handling your account.
It’s a Small Market
Don’t call several UAS Insurance Brokers to get competitive bids. While this tried and true strategy is effective with many other products, it’s normally counterproductive here. Why? The UAS insurance market is very small.
Unlike auto insurance where there are over 500 insurance companies writing policies, only 6 UAS insurance companies do business in the United States. No one broker can represent all auto insurance companies. On the other hand, any good UAS insurance broker can, and will represent all UAS insurance companies. As a rule, an insurance company will only work with one agent at a time and it’s strictly on a first come, first served basis.
Once a broker contacts an insurer on your behalf, any subsequent broker that contacts them will be blocked from accessing that insurer. If your UAS broker is doing his/her job, they will be shopping all interested aviation insurance companies for terms and will present you with the best proposals. Calling more than one is simply a waste of time for most buyers.
By now, you have learned what savvy UAS owners and operators already know. The financial stakes are too high to give anything less than full attention to your UAS insurance program. No one ever thinks it will be their UAS that’s involved in an accident. Unfortunately, accidents can, and do happen – even to the best operators. Take command now before the loss.
The Importance of Liability Coverage
Commercial UAS operated by a professional salaried crew provide an impressively safe operational environment. Yet the risk of an accident – although very low – must be considered.
A UAS operator must recognize and defend the loss exposure that a UAS represents. It is imperative they examine, and become familiar with available insurance protection and risk management strategies. Fortunately large liability coverage limits are readily available in the commercial UAS arena with limits of $1m, $2m, or $5m offered by numerous insurers at reasonable premium margins. In this section and the next, we will speak in a broad sense about the two primary insurance coverages – Liability and Hull – and their importance to a company’s overall insurance program.
Focus your closest attention here – this is your lawsuit protection. The potential legal liability for bodily injury or property damage claims arising from a UAS accident are extremely difficult to predict; you won’t know if you bought adequate liability protection until after a loss is settled.
Consider an accident involving injury or death. Imagine the potential settlement a jury of your peers might render for pain and suffering, wrongful death, or loss of earnings if an individual is injured or killed as a result of your UAS operations.
A UAS operator’s best friend in this field is a knowledgeable, well-respected UAS insurance broker. Not only can he or she help negotiate the broadest insurance coverage (making the protection as bulletproof as possible), but a broker is also a valuable resource in assisting your selection of the appropriate coverage limit.
How Much Coverage is Enough?
As mentioned, since there is no definitive method available to determine the appropriate liability coverage limit to select, your response to the following questions can help guide you in selecting a reasonable limit, based on your exposure:
- Number of people in the immediate area of operations?
Obviously, operations near expensive property, large crowds, audiences or work crews presents a greater exposure, and will require a higher liability coverage limit than remote agricultural, pipeline, powerline or mining operations.
- Average number of adjacent persons per flight?
Again, if your average number of people in the area of operations per flight is fifty, you would need to carry a higher coverage limit than if it was two.
- Composition of adjacent persons (Employee versus Guests)?
If the majority of people in the area of operations are employees such as a film set, you may be able to justify a lower liability limit since a properly structured Workers’ Compensation program is often the sole remedy for injuries to employees. Conversely, if the majority of those people are guests or general public, you would need to select a higher liability limit.
- What assets need to be protected?
Don’t let a holding company give you a false sense of security. Savvy plaintiff attorneys will attempt to pierce shell companies and corporate veils in an effort to get at the “real money” whether it is a larger corporation’s resources or an individual’s net worth.
- If you have an umbrella policy that covers the UAS exposure, you will need to make sure your primary UAS liability limit meets the minimum required umbrella limit.
Generally speaking, since it is impossible to determine the exact coverage limit you need, it is best to buy as much as you can reasonably afford. Obtain quotes for alternative limits each year, as rating of this coverage can vary greatly year-to-year.
The take-away for Board Members is that although corporate UAS operations tend to be very safe, the potential liability arising from an accident must be addressed and the corporation’s insurance/risk management defense must be considered carefully.