Drones: A New Flight for Risk Management

For years, hobbyists have been flying unmanned aerial vehicles, better known as drones. Businesses have started exploring uses for this technology for their own use. Some commercial examples include:

• A research team in Zurich showed how flying machines are now capable of building a bridge strong enough for people to walk across;
• In the oil industry, Shell is using drone technology in hard-to-reach places in oil and gas facilities;
• In the rail industry, BNSF (owned by Berkshire Hathaway) used drone technology to scope hard to reach rail lines following flooding;
• EasyJet has been testing drone technology to inspect airplanes;
• And, of course, Amazon Prime Air is trialing drones for package delivery.

Many other industries are seeing benefits from the usage of drones as well. Some additional industries include security surveillance, photography and film, architecture and construction, engineering, residential and commercial building inspection, agricultural, mapping, and surveying.

Commercial Use in Your Business

Although drones are readily available, deploying them for use in your business is not just as simple as buying one off the shelf. To gain the full benefit of drone usage, it is important to understand the risks associated with commercial drone operations.

Start with the Regulations

Through Transport Canada, the federal government has primary jurisdiction over the commercial use of drones in Canada. While specific regulations have been created to oversee drone usage, certain aspects of the federal Aeronautics Act and the Canadian Aviation Regulations are also applicable to commercial drone operation.

In most circumstances, Transport Canada requires businesses to obtain a Special Flight Operations Certificate (SFOC) before operating a drone.

In 2014, Transport Canada did offer some exemptions for drones weighing less than 2kg and another exemption for drones under 25kg, provided it meets all conditions. For drones between 2.1-25kg, proper notice of the proposed operation will have to be provided to Transport Canada.

Beyond the Aircraft: Physical Loss

For many business operations, the real cost is not the drone, but what it is carrying. One of the primary utilizations for drones in today’s world is photography. Businesses in real estate, agriculture, construction, and insurance all have interests in photographing the land, and the cameras used can be much more expensive than the drone itself. Filmmaking, 3-D rendering, and other advanced equipment can be even more expensive.

Because drones’ price is coming down in the marketplace, the payload (what it is carrying) often has higher intrinsic value than the drone itself.

Obsolescence: On-Going Support

Drone manufacturing is not regulated or standardized, which means there are many manufacturers in the marketplace. Each manufacturer builds to its own specifications and standard. The risk in this is due to the heightened competition in this growing niche. While many manufacturers drive innovation while lowering the price, the same market forces can drive some of these manufacturers out of business.

An out-of-business drone manufacturer only becomes a concern for your business when seeking replacement parts. A relatively inexpensive motor today can become a total financial loss of aircraft years from now when a replacement part is unavailable.

Casualty and Liability

As with conventional aircraft, a drone crash could mean a significant casualty claim. Businesses, especially those operating in populated areas, should make sure to have adequate coverage in the event of property damage or injury to a third party.

Transport Canada requires all operators to obtain a minimum of $100,000 third-party liability insurance. We suggest looking at your current business insurance policy as most general liability policies exclude aircraft operation from coverage.

Accordingly, drone operators must ensure their specific drone usage is the same as their comprehensive coverage.

Fraud and Theft

While portability, weight, and technology are attractive benefits for drone owners, they are also very attractive for thieves. While some technologies are entering the market to track drone locations, it is far from an industry standard. In other words, there is almost no chance of recovering a stolen drone in today’s landscape.

Broad Use – Multi-Functional Usage

Another benefit of drones is their ability to be used for various tasks and in a variety of environments. It can be easy to want to, one day, use a drone to photograph an event and the next survey a commercial property.

This type of flexibility offers a broad number of business opportunities. Still, each opportunity brings with it a set of risks and exposures that compound on one another and may not be covered under the policy. Businesses will need to think through how they plan to utilize their drones to comply with Transport Canada and operate within their insurance coverage for commercial use.

Cyber Liabilities

Potentially, the greatest liability comes from cyber risks associated with drone operation. A hacker can hijack and take control of a drone in-flight. Once controlled, the hacker has the ability to cause serious havoc on populations and property.

While this is possible, what is more, likely is the more traditional avenues of cyber loss. Digital information – images, videos, data maps, etc. – is far more lucrative for hackers.

Putting This All Together

New technologies always come with new risks. Protecting your business means taking the time to assess and understand those risks to minimize your liabilities and exposure. To evaluate your business’ needs, it is best to discuss with your strategic insurance partner.

Give our team a call at Bryson Insurance today to discuss. You can call 1-800-661-5196 or send us an email.