This summer, at one of California’s numerous wildfires, the appearance of a drone over Interstate 15 forced firefighting aircraft to back off for about 20 minutes until it flew away.
Instead of 40 or 50 acres burning before that fire was controlled, a few thousand acres, along with about 20 vehicles, were destroyed, as drivers ran from the area, according to reports.
In July alone, there were about a half-dozen similar incidents in California. Anywhere from two to five drones appeared at fire sites, sometimes chasing after the air tankers and helicopters, and forcing the aircraft to delay dropping retardant or even calling off operations until the areas could be cleared.
“It has hampered our efforts,” said Dennis Brown, chief of flight operations at the California Department of Forestry and Fire Protection (Cal Fire), which has about 50 air tankers and helicopters that respond nearly daily to wildfires from March through November.
“The size of the drones, even though they look small, could cause significant damage to any of our aircraft,” Brown said. The tail rotor of a helicopter is particularly vulnerable and a tail rotor strike could be catastrophic. “We had one helicopter pilot coming in to land to drop off a crew and there was a near miss by a drone,” he said. “It was 20 to 30 feet away, right in the windscreen.”
Sometimes, the drones are operated by homeowners checking for damage to their property. Sometimes it’s just curiosity or a desire to photograph the scene and post it to social media that prompts the drone operators.
“The size of the drones, even though they look small, could cause significant damage to any of our aircraft.” — Dennis Brown, chief of flight operations, California Department of Forestry and Fire Protection (Cal Fire)
But regardless of the reason, interference from drone operators is obstructing firefighting efforts and increasing danger to the pilots and their aircraft.
“The pilots are flying low and they are flying fast,” said John Glenn, chief of fire operations for the Bureau of Land Management. “There are a lot of hazards there. You throw drones or UAVs into the mix and there have been a number of cases where we have shut down operations until we can clear the air.”
Open Season for Drones
Public safety hazards due to drones aren’t limited to firefighting. The Federal Aviation Administration reports about two dozen drone sightings per month at airports throughout the nation, according to reports.
In one reported case, a plane headed from Washington, D.C. to LaGuardia Airport in New York had to pull up about 200 feet to avoid a collision with a drone in its path as it tried to land.
UAVs have buzzed French nuclear plants, landed on the roof of the Japanese prime minister’s residence (with radioactive material, no less), and even landed on the White House lawn. In August, a riot broke out in an Ohio prison yard after a drone dropped a package containing significant quantities of marijuana and heroin.
Drones have flown over sporting events and city parks — to sometimes deadly effect. One 19-year-old man died in a New York park when he lost control of his drone helicopter and the fast-moving blades cut him and killed him.
Drones have been sighted during a game of the Texas Longhorns football team and at a Philadelphia Phillies game. A triathlete in Western Australia had to be taken to the hospital just yards from the finish line after a drone fell on her.
“They take a pretty decent picture and they are fun and cute, but it’s not real smart to be flying a drone in an arena,” said J. Matthew Ouellette, owner/general adjuster at Ouellette & Associates in Indiana.
“The drone could fall out of the sky … and into somebody’s lap or into their beer,” he said. “Right now, it’s open season and people are flying them all over the place. There are just some idiots out there.”
And some people don’t take kindly to it, with reports surfacing of people shooting drones out of the sky. Of course, the reverse is also a grim prospect: One teenager was arrested after creating a drone that shoots a gun.
As for insurance coverage, the typical general liability, property or homeowners’ policy does not cover aircraft, experts said.
Insurance policies covering drone use are generally purchased by either the owner/operator of the drone or the manufacturer, said Patton Kline, senior vice president, Marsh Aviation. “Obviously, the risks for those two groups are very different.”
And, in the end, he said, it is the manufacturers that may face the greatest liability.
“If there is a significant event, we are concerned that litigation will come back to the UAS [unmanned aerial system] manufacturer because they will have the deep pockets,” he said.
“If you have a weekend warrior flying a drone for fun, they don’t necessarily understand the risks and if they are involved in a significant loss, they may not have insurance to pay for damages.”
“Right now, it’s open season and people are flying them all over the place. There are just some idiots out there.” — J. Matthew Ouellette, owner/general adjuster, Ouellette & Associates
For large aerospace companies that use or manufacture drones, it’s fairly easy for them to work with their insurers to add drone coverage to current policies or to add a stand-alone policy, Kline said.
Coverage may include physical damage to the UAS, propulsion units, payload/cargo (imaging, sensors or specialty equipment that may be more expensive than the UAS itself), ground station control units, spare parts and transit coverage.
All of that is available, he said, from up to a dozen insurers including AIG, Global Aerospace, Allianz, Starr Aviation, United States Aviation Underwriters and Berkley Aviation, as well as insurers that do not historically provide aviation coverage.
In addition, ISO has crafted a drone endorsement as a coverage extension to some of their commercial general liability (CGL) policy forms for insureds that seek to add drone coverage to CGL policies, he said.
The cost of physical damage coverage (also known as hull coverage) can be expensive, particularly for new or unproven unmanned aerial system platforms. Insuring $1 million in value could cost up to $100,000, depending on the UAV platform, with many policies typically in the $50,000 range, experts said.
Third-party liability, such as for bodily injury or property damage due to drones is also available, and is much less expensive, experts said. Product liability coverage would also be an important coverage to consider for UAV manufacturers.
A commercial stand-alone UAV liability policy for $1 million could start as low as $1,000, said Vikki Stone, senior vice president, Poms & Associates.
She said she has seen interest in such coverage from organizations that use drones in their business, such as entertainment, aerial mapping, residential construction and pipeline construction.
“We are seeing a lot of individuals who may have been hobbyists or pilots who are seeing an opportunity to start up a business,” she said.
“The bigger concern is rogue flyers. The industry has not yet really had enough time to assemble any sort of loss experience. As that evolves, we are likely to see changes in the marketplace, but it’s too new yet.”
Another issue that carriers and brokers are still grappling with is invasion of privacy, which could offer potential litigation concerns. That coverage is currently excluded by all drone insurers, according to Marsh’s recent report, “Dawning of the Drones: The Evolving Risk of Unmanned Aerial Systems.”
Eamonn Cunningham, chief risk officer, Scentre Group, said the first step to purchasing coverage would be to analyze meaningful gaps between what is in existing policies and what is needed.
“Absolutely do your homework in advance and sometimes you might need experts from outside the organization to understand what’s appropriate and what’s not,” he said.
“The processes that you go through in trying to determine what this relatively brand new risk means to you — it’s a real challenge.”
An organization may not need bespoke coverage once a gap analysis and risk assessment is performed, he said.
He compared drone coverage today with the purchase of cyber coverage a half-dozen years ago. At that time, many companies ended up buying a commodity — the typical cyber policy — instead of coverage that protected the specific risks faced by the organization.
“If you know exactly what you are buying, there’s less chance you will be disappointed when something happens and you find it doesn’t fit the specific manner in which you use, operate, sell or manufacture the drone,” he said.
Ella Atkins, associate professor, aerospace engineering at the University of Michigan, said federal regulations have hampered the safe use of drones because Congress exempted hobbyists flying under 500 feet from FAA rulemaking in the 2012 FAA reauthorization act.
“The problem is … the FAA’s policies focus on unmanned aircraft operating near airports,” she said.
“You need people on the ground to enforce low-altitude airspace flight, not the FAA. They have no presence away from airports [to control the situation].”
While Atkins doesn’t expect it to happen, some others are anticipating that the FAA may issue final regulations related to drone use by the end of this year.
But, if the FAA puts its focus on bans or strict regulations for low-altitude drone use away from airports, the effort will come to naught, she said. Instead, local and state governments and private landowners should be empowered to apply disorderly conduct and trespass laws as ways to control the hazards of rogue drone use.
“We need to start realizing that it’s a matter of what the person does with the drone, not the drone itself that is bad or good,” Atkins said.
In addition, she said, the FAA is ignoring a 1946 federal legal case that ruled property owners have control over the airspace immediately above their land.
Current rules mean that a farmer could be struck by a drone on his own property and have no recourse, or that Amazon.com could fly 10 feet over a home on its way to deliver a package and owe the property owner no compensation for use of the airspace.
“We need to start realizing that it’s a matter of what the person does with the drone, not the drone itself that is bad or good.” — Ella Atkins, associate professor, aerospace engineering at the University of Michigan
Recently, Amazon suggested a separate airspace lane for commercial drone delivery flights, which called for UAVs to fly between 200 feet and 400 feet. The air traffic control for that space would be handled by an automated computer system.
About 100 companies, including Amazon, Google and Verizon Communications, have agreed to work with NASA to help devise that air traffic system, according to reports.
There are no firm answers to the problem, said Jeff Power, regional aviation officer, U.S. Forest Service. He noted that one current law that could apply to firefighting is a restriction on interfering with public officials in the course of their duty.
But, he said, it’s very difficult to track down the drone operators.
“A large part of it is education of the drone operators,” Power said, although he noted that one day soon it may be emergency service organizations that are operating drones to help combat hazardous situations.
In fact, Texas A&M University held a seminar this summer about the way drone technology could be used to help deal with deadly flooding.
“We understand the capabilities,” Power said, “but when we have the recreational drone operator who isn’t necessarily familiar with the FAA’s requirements and flight restrictions — that’s the big issue. It’s a matter of educating them and hopefully no one gets hurt in the meantime.”
If I mention the Scaffold Law, what springs to mind?
One answer is scaffolding — the pipes, boards and ladders that go up around tall buildings to enable the exterior to be worked upon.
The word “scaffold” has another meaning, the one I thought it had when I recently started reading an article on the Scaffold Law. The scaffold I was thinking of was the platform to which you send a man or a woman to be hanged. One would be sent to the scaffold to be executed for one’s crimes or, at less enlightened stages of history, for the amusement of others.
The article, by Don Riggin, principal at The Art of Captives LLC consultancy, suggested that captive insurance companies can be very helpful to those involved with the scaffold. Brilliant, I thought. Hang your opponents, victims, whatever, offshore. It’s statistically nearer the water, in which the hanged man may be deposited, thus lowering the cost of the whole exercise. What profit may remain is fed into a captive insurer, which operates in a tax-neutral environment, maximizing the rate of return.
This was not the direction Mr. Riggin took in his article, however. The Scaffold Law, he wrote, “imposes ‘absolute liability’ for elevation-related injuries to construction employees on any and all parties associated with construction, repair, and demolition projects.”
(Elevation-related injuries are also known as gravity-related injuries, or, in say-what-you-mean language, falls.)
In a way, of course, gravity-related incidents are the workers’ fault.
If people managed their lives better, so that they didn’t need to work, they wouldn’t have applied for the job in the first place, and then they couldn’t have been hurt.
“Absolute liability means that any employee who falls from one level to another and sustains injury is almost guaranteed a settlement,” Mr. Riggin wrote, and who among us would disagree with that? Not paying the costs of a person who is hurt at work doesn’t sound fair at all.
“The Scaffold Law, according to its detractors, provides a strong incentive for the employee to file an action-over liability claim against the property owner, project manager, and general contractor (assuming the injured claimant is employed by a subcontractor),” the article said. I don’t know exactly what that means, but it suggests that some people feel that those hurt at work should fend for themselves from there on out.
In a way, of course, gravity-related incidents are the workers’ fault. If people managed their lives better, so that they didn’t need to work, they wouldn’t have applied for the job in the first place, and then they couldn’t have been hurt. In certain countries, laws using that logic relate to foreigners driving, but in sane places, injured workers are usually helped by employers who make money off the work achieved before the worker is injured doing it.
Here’s the punch. The Scaffold Law is apparently held directly responsible by some for rising insurance costs and the withdrawal of many insurers that used to cover New York contractors’ liability.
Such risks could be more efficiently carried in a captive, Mr. Riggin said, “at rates commensurate with the loss exposure and not driven by market capriciousness.” By golly, he’s right, except that “caprice” is the word he was reaching for.
You can’t help feeling, though, that those pesky construction workers, pants worn too low, bellies too big, would do everyone a favor if they’d just stop working. If they must work for some obscure reason, then surely they could stop hurting themselves doing the work and costing their employers time, money and aggravation.
Is that too much to ask?
A Global Perspective
As any traveler knows, the world is full of uncertainty and dangerous places, where the challenges of simply trying to run a profitable business far from home are complicated by even greater risks, such as political violence, civil unrest, credit risk, corruption, expropriation of private assets by the government, and more.
Anyone doubting this need only take a look at current events. Some 70 percent of the world’s nations currently have serious corruption problems throughout their governmental and civil service framework. Nearly 40 percent of all nations are experiencing some form of significant civil unrest. Signs of economic distress are everywhere, from falling oil prices to Eurozone debt crises to economic slowdown in China.
Despite such geopolitical risks, the world still needs its businesses to continue running amid dangers that range from warfare and terrorism to punishing economic conditions caused by international sanctions, to simple graft and hostility toward foreigners.
For global and multinational companies, keeping an eye on their political risk profile is as important as handling worker safety, environmental impact, products liability, or any other insurable risk. Thankfully, political risk exposures are insurable as well, and Starr Companies is there to provide its clients with robust political risk insurance coverage, a suite of unique support services that truly is second to none, and the ability to educate clients on how to manage their political risk.
Political risk hazards generally fall into one of the following categories:
Breach of Contract and Non-Honoring of Financial Obligations
These related hazards involve the failure of a local actor to uphold their contractual or financial obligations to a foreign investor, and the inability or unwillingness of local authorities to intercede on the foreign investor’s behalf. This is perhaps the most common form of political risk hazard, as it is a major problem in any environment where there is substantial economic instability and/or corruption.
Confiscation of Property
Also known as “expropriation,” “ownership risk” and “nationalization,” this is when a government seizes property or assets without compensating the owners for them. An overt example of expropriation would be a revolutionary government seizing an office building or a factory belonging to a foreign-owned corporation. An example of creeping expropriation would be a series of successive events by a government to gradually deprive an investor of their property rights.
This is when the local laws change in such a way as to constrict foreign investors’ economic activity in some way. It could range from creeping expropriation to changing taxation or labor laws that might simply make it far less profitable or far less efficient for a foreign entity to operate in a local jurisdiction.
Inconvertability of Currency
Also known as “transfer risk,” this is when a government takes action to prevent the conversion of local currency to another form of currency, making it difficult or impossible for foreign investors to transfer their profits elsewhere. This tends to happen in countries undergoing some kind of political crisis, like when Zaire—now the Democratic Republic of Congo—declared a new national currency in 1980.
Property or income losses stemming from violence committed for political purposes, including, but not limited to declared and undeclared warfare, hostile actions taken by foreign or international forces, civil war, revolution, insurrection and civil strife (politically motivated terrorism or sabotage).
Kidnap and Ransom
Political violence might also manifest itself as a kidnap, ransom and extortion hazard, but that is typically covered by a separate, specialized policy.
To protect against these risks, insurers can provide comprehensive and custom-tailored political risk solutions, which at a client’s request can be broadened to cover investment contract repudiation, currency inconvertibility and political violence. Such policies typically last for periods of 5 to 10 years. Protected assets for this coverage include fixed assets (e.g., a factory, farm, warehouse or office), mobile assets (e.g., harvested natural resources, raw or manufactured inventory or mobile equipment), leased assets (e.g., aircraft, watercraft or construction vehicles) and investment interests in assets abroad (e.g., money dedicated to funding a foreign project, held in a host country bank and subject to expropriation).
Kidnap & ransom coverage protects company personnel and family by providing financial reimbursement for such an event. Depending on the insurer, some K&R programs also provide independent expert consultancy before and after a potential act of kidnapping, ransom or extortion.
Great insurance coverage isn’t enough to adequately protect against political risk, however. Businesses need extra support to stay on top of their exposures, and to know what the latest geopolitical developments are.
Starr Companies, for example, does this through Global Risk Intelligence, a specialized team of political risk experts with long-standing backgrounds in national intelligence and international affairs. GRI delivers to Starr clients a unique risk advisory service that spans the gamut of commercial property & casualty exposures. GRI also produces two assets that are extremely helpful. The first is the Executive Intelligence Brief, a world-class monthly analysis of ongoing geopolitical developments (especially in emerging markets) available exclusively to a carefully selected readership of top executives. The second is the Global Risk Matrix, a quarterly ranking of the overall political security risk of every country on the planet.
The world’s geopolitical landscape is changing at a remarkable pace, with new risks and uncertainties arising in even the unlikeliest of places. And yet, as business becomes ever more globalized, insurers can provide their clients with tailored coverage to absorb the losses that stem from political turmoil. By finding the right insurer, with the financial strength to cover their risks as well as the analytical acumen to help turn risk into opportunity, businesses can create partners in prosperity anywhere in the world.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Starr Companies. The editorial staff of Risk & Insurance had no role in its preparation.