Hover Craft

In January 2010, a 7.0-magnitude earthquake wreaked havoc on the Haitian capital city of Port-au-Prince. In addition to the damage to buildings and structures, it also wiped out critical infrastructure necessary for disaster relief and damage assessment. The airport was crippled, roads were impassable and telecommunications systems were rendered useless, creating considerable challenges for first-responders, aid agencies and other people who needed accurate information quickly.

By the time of the even larger (7.8-magnitude) Nepal earthquake in April of 2015, there were signs that an interesting change was unfolding. The Nepal quake killed and injured thousands of people and reduced to rubble many of the country’s famed landmarks, religious symbols and other buildings. Subsequent media coverage from the disaster zone provided compelling evidence of how the adoption of unmanned aerial systems (UAS) – commonly referred to as drones – has begun to play an increasingly important role in performing quick and accurate damage assessments and providing other support in large-scale catastrophes.

CNN featured a number of haunting videos taken by drones over the streets of Nepal’s cities and towns, showing where roads were blocked, where people were gathered and where some buildings had collapsed, often right next door to others that appeared to suffer no damage at all.

Insurance industry leaders are keen to seize the advantages provided by the disruptive technology of drones. Companies that embrace innovation have started to take the first steps, deploying drones to perform risk assessments and determining what people, training and procedures must be in place for the safe and effective use of drones to assess damage and provide other forms of claims support, especially in disaster scenarios. In doing so, insurance companies around the world must develop a full understanding of the regulatory environment governing drone use in the jurisdictions where they operate.

The good news in Canada is that insurers here have a golden opportunity to become early-adopters and global leaders in employing drones in their businesses, thanks to a relatively more mature set of drone regulations.

THE REGULATORY LANDSCAPE

What is the current regulatory landscape governing drone use in Canada and the United States? A look at current regulations for drones around the globe reveals two key trends: the challenge of working towards international harmonization of regulations and standards; and that the landscape has changed a great deal in the last few years, with the pace of change accelerating.

Canada has had some form of safety rules for drone use in place – through Transport Canada – since 1996, a decade earlier than many countries.

In 2007, Transport Canada expanded the rules to allow for greater use of drones by commercial entities. Under the 2007 version of the Canadian Aviation Regulations, operators must apply for a special flight operations certificate (SFOC) for each individual or series of flights, submitting detailed flight plans, information about equipment and proof that the UAS operator is trained appropriately.

The number of certified flights has grown substantially. In 2014, Transport Canada issued 1,672 SFOCs compared to just 345 in 2012.

In November 2014, Transport Canada introduced two new exemption requirements to encourage the expanded use of small commercial drones. Operators of drones weighing less than 25 kilograms no longer require an SFOC, although they must apply to Transport Canada for the SFOC exemption.

By comparison, rules laid out by the Federal Aviation Administration (FAA) in the United States dictated that commercial and government drone operators there were, until recently, required to apply for a certificate of waiver or authorization and special airworthiness certificate from the FAA for any non-military drone use.

The application and approval process was lengthy, taking up to 60 days for a single approval. Under these strict regulations, few approvals were granted.

Three years ago, however, the passage of the FAA Modernization and Reform Act of 2012 mandated the FAA to introduce a framework that would relax laws to foster the integration of civil and commercial drones into U.S. airspace by September 30, 2015. Section 333 of the act gives the Secretary of Transportation authority to determine if an airworthiness certificate is required for a UAS to operate safely in the national airspace system.

In an August 2015 press release, the FAA announced that it began issuing this past March “blanket” certificates of waiver or authorization (COAs) to Section 333 exemption holders. “This COA allows flights anywhere in the country at or below 200 feet except in restricted airspace, close to airports, and other areas, such as major cities where the FAA prohibits UAS operations.”

The FAA has since granted 250 approvals per month in an attempt to fast-track commercial use, and by August, more than 1,000 exemptions had been approved, including several to insurance companies.

ADVOCACY AND APPLICATIONS

For insurers in the U.S. that want to use drones in catastrophe situations, further regulatory reform cannot come soon enough. This past April, the American Red Cross and Measure published the report, Drones for Disaster Response and Relief Operations – co-sponsored by, among others, Zurich American Insurance Company, Willis Group and Guy Carpenter & Co., Inc. – that suggests “integrating drones into emergency and disaster response protocols should be a top priority for the FAA and other federal, state and local entities.”

In Canada, insurers that want to use drones for the purpose of a risk assessment or a claims assessment may do so, as long as the companies abide by Transport Canada’s regulatory requirements for the weight class of the drone that will be used. Insurers are generally required to obtain the consent of the owner of the property to be surveyed; the location must be a sufficient distance from an airport; drone operators have to meet certain training requirements; and insurers themselves must have appropriate liability coverage in place.

There are a number of obvious immediate applications for insurers to use drones. Faster access to aerial images of affected areas in a catastrophe zone would give insurers the opportunity to better understand the type and extent of damage and allow them to proactively contact impacted customers.

Drones can also provide unique viewing angles at low altitudes not available to manned aircraft. In addition, drones are much cheaper and faster to deploy than manned aircraft, especially in those areas where there may not be an airport nearby, or when the airport is unusable because of damage. And drone technology would allow insurers to deploy claims adjusters and other experts such as structural damage assessors more effectively if initial analysis suggests the need for further review.

Drones have many applications for insurers in the pre-claim phase. Zurich’s risk services specialists, for example, have begun using small drones to perform risk assessments on customers’ properties in both Canada and Spain.

As noted in the American Red Cross report, drones are ideally suited for “3-D” jobs – those that are dull, dirty and dangerous. Small drones can often go places and look at things, such as the insides of pipes and tunnels, that would often be inaccessible or dangerous for humans.

A basic camera on a drone can provide measurements to be used for stacking in warehouse racking or fire dividers, while an infrared camera can be used to determine weaknesses in roofs and other structures. Drones can also be used to measure elevations on and around a plant, allowing for better assessment of potential water flow during a flood situation. And so-called “sniffer” drones can be used to detect radiation or gas leaks from ruptured lines.

The Red Cross study points out that drones can be critical during the first 48 hours of a catastrophe, but more study must be done to quantify cost and time savings for insurers using drones.

That said, many believe benefits will accrue to the customers of companies that are committed to helping their customers understand and protect themselves from risk.

More accurate and robust images and data, coupled with comments and assessments of risk services people and claims adjusters, will help ensure that risks are priced and underwritten accurately in the pre-claim phase, and that damage is assessed and resolved more quickly and more effectively in the post-claim phase.

Regulators around the world have begun to see the need to catch up with this fast-evolving technology, and positive developments are taking place. The FAA’s September 30 deadline to put forward less restrictive drone regulations is looming, and the European Aviation Safety Agency has also committed to introducing more modernized rules by the end of 2015.

Insurers in Canada can seize a golden opportunity to become thought-leaders and develop best practices for global export in the use of drones, such as establishing protocols and procedures for appropriate staffing, operator training and drone maintenance to protect the safety, property and privacy of everyone on the ground. No doubt, customers will be looking to see where insurers land, and how expertly they do so.