Drones – Insurance Implications

March 12, 2015 – PAMIC – Nittany Lion Inn

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Agenda•Part One– Overview– Reported and Potential Uses– Potential Exposures and Coverage Issues– ISO Activity

• Endorsement Options• Rating Considerations

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Drones as an Emerging Issues

“By failing to prepare, you are preparing to fail.”

Benjamin Franklin

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Drones as an Emerging Issues•What is an emerging issue:

– New phenomenon: nature and effects are relatively unknown• E.g., nanotechnology

– New risk: nature and effects are relatively known but involve unique characteristics• E.g., hydraulic fracturing

•Potential Impact:– May go beyond existing underwriting and risk

management best practices– May go beyond existing actuarial calculations

Drones - An Overview

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What Are DronesThe FAA Modernization and Reform Act of 2012 defines:– Unmanned Aircraft System (UAS) - an unmanned

aircraft and associated elements (including communication links and the components that control the unmanned aircraft) that are required for the pilot in command to operate safely and efficiently in the national airspace system

– Unmanned Aircraft (UA) - an aircraft that is operated without a possibility of direct human intervention from within or on the aircraft

Technology And Design•Types– Fixed wing– Quad rotors and octo-copters– Micro air vehicles (MAVs)

• Flight Features– Mini: low altitude, short duration– Tactical: low to medium altitude,

up to several hours, line-of-sight– Strategic: medium to high

altitude, hours to days, long-range•Navigation– Remote control ground station– Automation systems– Satellite data link Source:

http://www.spyworld-actu.com/IMG/jpg_PH2007100801353.jpg

Source: http://uas.noaa.gov/workshops/workshop2/summary/ppts/Schlickenmaier.ppt

Source: http://uas.noaa.gov/workshops/workshop2/summary/ppts/Schlickenmaier.ppt

Drones – Reported & Potential Uses

“We’re not talking Internet retail giants anymore”

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Reported And Potential Uses•Military– Intelligence gathering– Combat missions

• Law Enforcement And Security Surveillance– Crime investigation– Border protection– Security of commercial properties– Neighborhood watch

Source: http://cironline.org/sites/default/files/styles/inline-medium/public/customs_and_border_protection_drone.jpg?itok=kCYlnFcw

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Reported And Potential Uses• Search And Rescue Operations– Search and rescue– Delivery of supplies and food to

disaster areas

•Agriculture– Monitor crops – Locate livestock and assess

available forage– Crop spraying

Source:http://uas.noaa.gov/projects/demos/altair-fire/index.html

Source: https://www.faa.gov/about/office_org/field_offices/fsdo/orl/local_more/media/fy14summit/145SafetySummit_NextGenOverview_3_20_14.pdf

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Reported And Potential Uses•Communications– Movie filming – Sporting events

•Delivery– Packaged goods and other mail

• Photography– Real-estate – Weddings

• Inspection– Insurance claims evaluation– Infrastructure evaluation (e.g. bridges and dams) – Underwriting inspections (e.g. roof)

Drones – Potential Exposures & Coverage Issues

“Just to name a few”

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Potential Exposures - Liability•Bodily Injury And Property Damage Liability– Potential defect in design or manufacture– Collision with persons or property– Interruption in data-link transmission

communication failure• Personal injury– Invasion of privacy– Trespass and nuisance– Infringement and defamation

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Potential Coverage Issues - Liability•Provisions expressly addressing aircraft under the ISO CGL today?– Coverage A

• An exclusion with respect to the ownership, maintenance, use or entrustment to others of aircraft

• Some limited exceptions may apply– Coverage B

• No exclusion expressly addresses aircraft

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Potential Exposures - Property•Property Exposures– First-party property damage– Perils of aircraft and falling objects– Business interruption losses– Hacking

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Potential Coverage Issues - Property• Property Coverage Issues– Under the ISO Standard Commercial Property Policy:

• Property not covered provisions address aircraft as property not covered if operated principally away from the described premises as well as personal property “while airborne”

• Specific provisions exist with respect to loss caused by physical contact of an aircraft; including caused by objects falling from an aircraft

– Business Interruption• With respect to direct physical loss to covered

drone(s), “period of restoration”?• Are the “operations” new to the risk?

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Potential Exposures and Coverage Issues

•What About Other Lines of Business?– Homeowners?– Businessowners?– Farm?– Cyber?– Workers Compensation?

Drones – ISO Activity

“Endorsement options and rating considerations”

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New ISO Liability Exclusion Endorsements

•Optional exclusion endorsements – ISO GL– Coverage A only

• Delineates existing aircraft-related exclusion– Coverage B only

• Introduces exclusion addressing Unmanned Aircraft

– Coverage A and B• Combines aspects of Coverage A and B options

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New ISO Liability Exclusion Endorsements

•Optional coverage endorsements – ISO GL– Coverage A only

• Delineates existing aircraft-related exclusion• Adds schedule to designate:

–Drones for which the exclusion will not apply

–The types of projects or operations the above exception will be limited to

–An optional designated aggregate (sub-limit) when coverage will apply

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New ISO Liability Exclusion Endorsements

•Optional coverage endorsements – ISO GL (Continued)– Coverage B only

• Introduces exclusion addressing Unmanned Aircraft

• Adds schedule to designate: –Drones for which the exclusion will not apply

–The types of projects or operations the above exception will be limited to

–An optional designated aggregate (sub-limit) when coverage will apply

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New ISO Liability Exclusion Endorsements

•Optional coverage endorsements - ISO GL (Continued)– Coverage A and B

• Combines aspects of Coverage A and Coverage B only endorsements

• Optional designated aggregate applicable to both coverages A and B

•Similar options were also introduced for use with the ISO Commercial Liability Umbrella Program (sans the designated aggregate limit options)

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Drone Rating Considerations – Liability

•Limited Data on Non-military Drone Losses•Crashes– Bodily Injury – Property Damage– Will all crashes yield one or the other -- or both?

•Location– Rural– Urban

•Drone Characteristics– Size– Capabilities and Operations (photography,

spraying, payload capabilities)

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ISO Drone Activity•Filed GL/CU/CX endorsements end of 2014– To become effective 6/1/2015

•Reviewing topic for following LOBs– Commercial Property– Businessowners– Farm– Commercial Inland Marine

Questions?

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Contact Information

William “Billy” MauroDirector

Commercial Casualty Product Development

ISOWmauro@iso.com

No part of this presentation may be copied or redistributed without the prior written consent of ISO. This material was used exclusively as an exhibit to an oral presentation. It may not be, nor should it be relied upon as reflecting, a

complete record of the discussion.

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