At Cheetah Software Systems Inc., the future of picking up and dropping off packages is in the sky – drones, specifically. The Westlake Village company has developed software used by FedEx Corp., Macy’s Inc. and other large companies for managing and coordinating deliveries. Now it wants to bring that expertise to unmanned aircraft in warehouse settings to check inventory and track the locations and cargo of shipping containers and truck trailers. “You can easily fly around and detect the position of a trailer and send that to your management system,” said Cheetah Chief Executive Bobby Darroll. But what might not immediately come to mind for operating such aircraft is the financial risk in the event of an accident or, heaven forbid, they injure someone. That is where Vikki Stone comes in. A senior vice president at Woodland Hills insurance brokerage Poms & Associates, Stone has become an expert in landing drone coverage. She has spoken on the topic and written columns for industry publications. Cheetah is one of her clients. She notes that with the proliferation of the aircraft for commercial use, the likelihood of mishaps is inevitable. “It is way too early, but there will be accidents, there will be injuries and there may be deaths,” Stone said. “Things will happen.” Defining ‘drone’ The Federal Aviation Administration estimates there will be 7,500 small commercial drones operating in U.S. airspace in 2018, provided that the agency approves regulation for their use. Currently, operators must receive a Section 333 exemption from the FAA to use drones in the United States. Uses for such aircraft can include infrastructure inspections, police surveillance, surveying, cinematography, photography and construction. “I went to one conference where they were showing how in Africa they are using drones to catch people who are poaching,” Stone said. Yet when it comes to drone insurance, it remains an immature market. Industry professionals estimate there are only a handful of companies offering the coverage, including multinational giant American International Group Inc. and Lexington Insurance Co., the largest surplus line insurer in the United States. (Surplus line policies protect against a financial risk too high for a regular insurance company to take on.) Carriers already operating in the aviation space are the ones providing coverage for unmanned aerial vehicles, or UAVs. Policies handle liability for bodily injury or property damage as well as provide coverage for the air frame, propulsion unit and flight controls of the aircraft itself, the ground control unit and any payload such as camera or sensors, Stone said. Taylor Chien, co-founder of DroneFly, a Westlake Village retailer of unmanned aircraft made by DJI, a Chinese company that is one of the largest manufacturers of commercial and recreational drones, said that just last month DJI began to offer its own protection plan starting at $99 for six months or 12 months that covers damage to the aircraft, gimbal or camera under normal use and pilot error. “The benefit of having insurance is if you crash your drone, it is not such a burden,” Chien said. “As long as you have the drone back in your hands, they cover it.” When it comes to industry figures, Stone said that liability coverage can cost $850 to $1,500 a year. Full coverage is between 8 percent and 10 percent of the full value of each individual drone. The more units on the policy, the lower the rate, she added. “A lot of clients are choosing to get liability only because some of these are so cheap that if they crash they will just go and buy another one,” Stone said. There is currently no requirement by the FAA that drone operators need insurance but that could change on a state-by-state basis. California Assemblyman Mike Gatto (D-Burbank) has proposed legislation that would require, among other things, inexpensive insurance policies for drone owners. Just last month, Hawaii lawmakers considered a bill requiring UAV operators to have liability insurance. Tom Karol, general counsel with the National Association of Mutual Insurance Cos., an Indianapolis-based trade group, said that its members, which are primarily insurance companies owned by the policyholders, would like to offer coverage for UAVs but cannot because the FAA has not released its regulations for commercial use. On top of that, it’s not clear how to define what a drone is. They can range from a small helicopter used by an individual to large planes, Karol said. “We can tell a subcompact from an SUV, but a drone is a drone is a drone,” he said. Airborne applications Stone got in early on drone coverage a few years ago when she received a call from a client who wanted to use the aircraft at a special event for delivering tacos on behalf of a national fast-food chain. The FAA objected, however, and the event never took place even though Stone said she had arranged the insurance. As a result of her participation in that incident, the same client called again a few months later and asked Stone if she wanted to speak at a UAV event at New York University. She agreed, she said, because she had a feeling that something big was happening when it came to commercial drone use. “You could see the evolution just spinning and growing and churning in front of you,” Stone said. “It was all these tech guys with their toys but with serious applications.” Today, Poms provides about 10 clients with drone insurance, with another 10 that have been quoted and await orders from the brokerage. The clients include Cheetah and Unmanned Aerial Surveillance, an L.A. company that uses UAVs for surveillance of pipelines, utilities and other critical assets in South America. Ed Rigney, chief operating officer at Unmanned Aerial Surveillance, said he had contacted large insurance companies about coverage before working with Poms, which he had done business with in the past. “They were willing to partner with a business like ours to go down this road knowing this would become more prevalent,” Rigney said. Unmanned Aerial Surveillance uses both fixed-wing autonomous airplanes that can fly hundreds of miles and smaller quadcopters with four propellers used for area-specific coverage. Cheetah has a four-propeller Matrice aircraft that costs $6,000 to build and an eight-propeller S-1000 drone, both built by DJI. The firm utilizes its own software for controlling the craft and adds anti-collision devices, cameras and sensors that can pick up radio frequency identification tags from trucks. The company spent more than two years perfecting the drone software, Darroll said. Cheetah has received two Section 333 exemptions from the FAA to research using drones for delivery of and picking up packages as well as a project with a customer for aerial mapping and 3-D imaging. Darroll and Edan Cain, the chief technology officer responsible for writing the drone software, foresee using the aircraft in large shipping yards where containers and truck trailers are stored. Instead of a time-consuming process of having a worker seek out specific cargo by checking each trailer, a drone could fly by, scan an attached RFID tag and send that data to a central location. “It is easy to see what’s on the trailer and where it is,” Darroll said. Cheetah has been a client of Poms for about eight years and uses the firm for its general liability and directors and officers insurance – as well as drone coverage. It purchased a liability policy for a 20-minute demo for a large retailer, although Darroll described it as hugely expensive. Cain said that insurance is a budding market considering how the industry is still relatively new. “There’s a lot of confusion,” Cain said. “There has not been any precedent.”
Taking Flight Risk
