This is the first post in our three-part blog series on unmanned aerial systems and their potential impact on the insurance industry – which is a condensed version of an article published in the Spring 2015 edition of the Defense Research Institute’s (DRI) In-house Defense Quarterly. The full article, including reference citations, can be found here.
Emerging autonomous and unmanned technologies will become part of our daily lives within a few years. Many scientists believe that artificial intelligence and robotics will allow machines such as self-driving cars, robotic devices, and unmanned aerial vehicles to more safely and efficiently perform functions currently performed by humans.
Of all the emerging autonomous vehicle technology, unmanned aerial systems (UAS) – most commonly known as drones – are currently the most prominent. Drones are everywhere, and experts anticipate exponential growth in the near future. In fact, the Federal Aviation Administration (FAA) expects there will be 30,000 drones in the sky within the next 10 years.
These developments portend many things for the insurance industry. Drones mean new risks, new insurance opportunities and challenges, and new tools for underwriting and claim handling.
The Many Uses for Drones
UAS have many valuable and appropriate purposes and may be as simple as remote controlled recreational model aircraft or as complex as surveillance aircraft used in warfare. Perhaps the most widely known of these is the U.S. military’s use of Predators to target terrorists, but potential drone applications cross the commercial, consumer, research and public sectors of the economy.
Photographers and filmmakers use UAS for moviemaking, news and event coverage. Law enforcement agencies and homeland security use them to inspect suspicious packages and to conduct surveillance and search and rescue. Farmers use drones as an inexpensive and safe alternative to manned aerial vehicles like crop dusters and helicopters to monitor drought, frost, irrigation, crop disease, and livestock, and to apply pesticide and fertilizer in specific areas. Meteorologists use UAS for weather monitoring, and they are being tested for seeding clouds and clearing smog. Aerial imagers, scientific researchers, energy and utility companies use drones for mapping, searching for oil bearing rocks, monitoring power lines and pipelines, and transporting freight. Construction companies are using them to monitor job progress and identify quality issues and potential hazards.
More and more, businesses are seeking authority to utilize drones for commercial purposes—the most well-known being Amazon. UAS have been tested for pizza and laundry delivery in Europe and Japan and even were used to deliver beer through a smart phone app at a festival in South Africa. Commercially, drones have the power to change, save and protect lives because UAS can reach dangerous, treacherous or awkward locations without risking human life and can carry special equipment such as cameras. However, these benefits are accompanied by numerous risks that must be managed and understood. Even when they are used carefully, UAS raise tremendous privacy concerns, particularly in heavily populated areas. As media companies begin to use drones for news gathering, these concerns will be heightened.
Moreover, as drones have become less expensive, they are available to and popular with a wide variety of consumers from individual flight enthusiasts to “pranksters, troublemakers and criminals.” Many view drones as toys; they topped numerous Christmas lists last year. Injuries caused by drones are reportedly on the rise nationwide. Drone pilots have recently disrupted sporting events in the U.S. and Europe and have tried to smuggle contraband into prisons. French officials have been alarmed by more than a dozen illegal drone flights over nuclear power plants and sightings of multiple drones over Paris at night. And animal rights activists using drones to monitor alleged illegal hunting have come into conflict with hunters’ rights advocates who claim the drones are used to scare away prey.
The FAA has acknowledged that safety is at risk due to the increasing number of UAS-related incident reports involving model aircraft and small UAS. The government receives daily reports of close encounters between drones and other aircraft. Further, the January 2015 crash of a hobbyist drone on the White House lawn called stark attention to the growing security threat drones can pose.
History and Current Status of Laws Regulating UAS
The U.S. is behind the curve in terms of UAS legislation and rulemaking. Legislatures and regulators are scrambling to issue laws and guidance to catch up, if not keep up, with emerging UAS technology. So far, over 40 U.S. states have enacted or proposed some form of anti-UAS legislation. The FAA has been slow to regulate use of drones due to homeland security issues, privacy concerns, cyber security issues, technology issues, and the difficult task of safely assimilating them into the crowded national airspace.
In 2007, the FAA issued a policy statement recognizing that UAS fall within its definition of “aircraft” because they are devices “used or intended to be used for flight in the air with no onboard pilot.” The FAA divides UAS operations into three different categories: civil aircraft, public aircraft and model aircraft. To qualify as a model aircraft, the UAS must be operated purely for recreational or hobby purposes, below 400 feet, within the visual line of sight of the operator. Since 1981 the FAA has urged model aircraft operators voluntarily to comply with its safety standards.
Civil (non-governmental) drone operators must obtain a Special Airworthiness Certificate in the Experimental category in order to fly in the national airspace. The regulations allow flights for research and development, flight and sales demonstrations, and crew training; currently, carrying people or property for compensation is prohibited. Public entities such as federal, state and local governments and agencies and qualifying universities wishing to operate a UAS for uses such as fire-fighting, disaster relief, law enforcement, search and rescue, border patrol, or research must obtain a Certificate of Waiver or Authorization from the FAA. However, increasing demand is making this case-by-case process unworkable.
In 2012, Congress enacted the FAA Modernization and Reform Act of 2012 (the Modernization Act), which requires the FAA to develop and implement a comprehensive and ambitious plan to hasten the safe integration of UAS into the national airspace system by September 2015, a deadline the FAA will not meet.
On Feb. 15, 2015, the FAA released its Notice of Proposed Rulemaking (NPRM) for small UAS – which permits operation of UAS for non-hobby and non-recreational uses during daylight hours and subject to certain restrictions, including speed (100 mph), altitude (500 feet above ground) and weight (55 pounds). The UAS must remain in the visual line of sight of the operator or a visual observer at all times and must remain close enough for the operator to be capable of seeing the UAS unaided by any device other than corrective lenses. The UAS may not be operated over any persons except those directly involved in the operation and an operator may be responsible for only one UAS at a time. Additionally, UAS operators must meet certain requirements, including passing initial and recurrent aeronautical knowledge tests at an FAA-approved knowledge testing center, obtaining an operator certificate, and being vetted by the Transportation Safety Administration.
The proposed rule would also impose the same aircraft registration and aircraft marking requirements to UAS that are applied to other aircraft. However, an FAA airworthiness certificate would not be required. It would not apply to model aircraft, but it would codify the FAA’s enforcement authority by prohibiting model aircraft from endangering the safety of the national airspace system.
The NPRM requests public comment on a “micro-UAS” option that would apply to UAS that weigh no more than 4.4 pounds. That option would allow operations of micro-UAS in unrestricted airspace and over people not involved in the operation, provided the operator certifies he has the requisite aeronautical knowledge to perform the operation.
The NPRM may be a practical approach to allowing low-risk UAS operations, but certain issues anticipated to be included in the proposed rule are not addressed. It does not include any requirement that operators maintain liability insurance, for example, and does not restrict operators from flying over homes or property of others or establish any system for lodging complaints about improper use. Additionally, the NPRM does not include any express preemption provision, leaving open the possibility of conflicting state and local regulations.
The proposed rule allows the use of data gathered by UAS for any “authorized purpose.” No privacy protection provisions are included. However, on the same day the NPRM was released, President Obama issued an executive order creating standards for how the federal government will address the privacy issues associated with drones. He also directed the initiation of a multi-stakeholder process for creating privacy, accountability and transparency rules for the commercial and private use of drones.
The proposed rule is now open for public comment, but the regulations are unlikely to be finalized for at least a year. Until they are finalized, the current ban on commercial operations will remain in effect. Moreover, if the proposed rule is enacted in its current form, it will preclude many currently anticipated commercial applications, like commercial delivery service uses and long-range pipeline inspection.
Consequently, the development of the comprehensive rules required by the Modernization Act will be crucial to economic growth. It is estimated that the integration of UAS into the U.S. airspace will create over 70,000 jobs in the first three years, with an immediate economic impact exceeding $13.6 billion. By 2025, integration will create over 100,000 jobs, a third of which will be high-paying manufacturing positions, and the economic impact is expected to exceed $82 billion. Experts estimate that every day the government delays issuing regulations integrating UAS into the national airspace costs the U.S. $27.6 million.
In addition to the obvious need for definitive regulations in order for these forecasts to become a reality, another necessary development will be insurance to cover liabilities attendant to development, manufacture and use of unmanned aerial systems (UAS). We will explore this topic in depth in the second and final posts of our three-part series.