By Jay Shelton
Unmanned Aerial Vehicles (UAVs)—or drones—are often used to enhance public safety, support agriculture, help the environment, monitor the climate, and mitigate disasters. Several industries, like real estate and construction, are slowly jumping on the drone bandwagon, as these devices are extremely cost-effective and can be used in several capacities. In fact, the Federal Aviation Administration (FAA) forecasts that the number of commercial drones could reach 7,500, and other reports estimate the number could be as high as 20,000 by 2020.
As drone technology improves, the potential commercial applications will continue to increase. The next generation of drone equipment has the capability to integrate audio and text with real-time video feed and the ability to overlay existing images to identify property wear and damage. Drones can be equipped with infrared cameras, which have the ability to detect water and air leaks within a facility. All these systems have a significant commercial application in construction, real estate, facility management, and insurance industries.
Drones were originally developed to perform jobs that were dangerous, inefficient and dirty. Although this seems to be relatively new technology, drones have been used internationally for years, primarily in agriculture. For the construction and property management industry, there are a wide variety of applications. Drones have been used to survey large areas, scale bridges and buildings taking high resolution images to assess the condition, and even make basic repairs. The insurance industry is looking towards drone technology to improve the efficiency and effectiveness of claims management, particularly in a catastrophic event where it’s extremely beneficial to have an “eye in the sky”.
Not surprisingly, the growing applications and uses for drones have the FAA concerned with safety. Until February 2015, it was illegal to fly drones for commercial purposes unless the operator had a specific exemption from the FAA for testing or government use. On February 15, 2015, the FAA took a big step towards legalizing commercial drone flights by enacting new rules that if adopted, would allow any company to fly so long as they abide by specific guidelines.
The most significant of these rules are that all operators need to be licensed pilots; drones cannot fly above 500 feet and can only weigh as much as 50 pounds. Another stipulation is that the operator must maintain line of sight with the drone while operating. With these limitations, most property/facility management companies will rely on third-party vendors when using drone technology.
Addressing Risks
Before contracting with drone operating vendors, there are some areas of risk that need to be addressed in addition to risk mitigation processes put in place. There are two key areas of risk when operating drones: safety and privacy.
As far as safety, companies need to have a process that reviews drone vendors in three components: qualification of the operator, environment in which the drone is being operated, and type and quality of equipment being used.
Privacy concern is a much more complicated issue. The images taken may violate an individual’s privacy, which could result in liability litigation. As such, careful consideration must be taken to understand what images will be taken, how they’ll be stored, for how long, and who’ll have access to the information. There are a few other ways real estate professionals can mitigate the risks associated with drones:
• Ensure the drone operator understands and is complying with FAA rules.
• Ensure there is a contract that indemnifies the company from losses that occur as a result of drone operations.
• Institute confidential information policies and procedures.
• Have restricted access to any images taken by the drone.
• Restrict fly zones to avoid inadvertent privacy violations.
• Work with your insurance broker to understand where you may or may not be covered in terms of personal liability, personal injury, property damage, and invasion of privacy.
• Weigh the potential savings of using a drone and/or third party versus your liability.
• Ensure your insurance broker and carrier are aware of the intended use, takeoff and landing location, flying altitude, and whether it’ll be operated over a populated area.
• Implement some sort of financial backstop from losses by either purchasing insurance or requiring the operator to have appropriate insurance coverage.
Addressing the key underwriting risks and implementing best practices will ensure the use of drones remains practical and cost-effective.
Shelton is the Senior Vice President of Risk Management Services at Assurance. He is an expert in integrated and enterprise risk management across multiple business industries. He has hands-on experience in performing a full range of risk, insurance management, and compliance functions as well as extensive experience in emergency response, business continuity planning, cyber risk mitigation and breach management. He earned a Masters of Business Administration from the University of Notre Dame and Bachelor of Science in Criminal Justice from Indiana University. He is a member of the Risk Insurance Management Society.
