Drones and insurance have been closely linked since commercial drone services became mainstream. Insurance companies have utilized drone services for inspections and real estate appraisals, while also serving the other side of the market with a variety of new insurance products and aviation policies.
You don’t intend to run into any issues when you’re flying your drone, but sometimes things go wrong. If you’re particularly unlucky, they go very wrong. Anything from hitting a person with your drone to running into electrical lines could result in some costly liability problems, and simply crashing into a tree can lead to costly repairs. However, whether drone liability insurance is worth it or not depends on several factors.
The Drone Insurance Industry
The drone service industry is still in its relative infancy, so you see a wide range of options without a lot of consistency in the plans and pricing. One of the biggest drivers of cost for this type of insurance comes from the sparse regulations in place on a global level.
Many governments don’t know what to do with drones, and the laws vary significantly from place to place. They’re slow to address issues such as drone liability, so insurance companies ask for higher premiums to cover this untested ground.
Commercial drone operators have many different requirements than a personal owner. The commercial users have an increased risk of getting into situations where they could incur liability, and people may be more inclined to sue a business than a private citizen.
Some insurance companies may also lack a basic understanding of what they’re supposed to be covering you against, and you could end up with gaps in coverage that could lead to costly outcomes. That’s one of the biggest downsides with drone insurance currently, as opportunistic companies try to put services in place without enough information available.
One specialty provider offers drone insurance by the hour, limiting coverage to the time that the device is actually being used by the owner. As more insurance companies start to offer drone protection packages, you could drive your costs down by adding on this product from your current provider. Another price factor is how much coverage you take out. A $100,000 policy with a high deductible is going to cost you less than a $1 million policy with a $100 deductible.
Fear & Loathing
Insurance companies make money by selling policies to more customers and for higher prices. To achieve these goals, insurance providers must convince as many parties as possible that risks justify the costs. Drones are new, mysterious, and unfamiliar to most companies; thus, drone insurance very attractive to those looking to profit. Drones and their associated risks are mostly unfamiliar to typical businesses; while drone operators, on the other hand, are fully aware of the risks, capabilities, and lack thereof tied to their drones. Insurance companies are often able to convince these in-the-know individuals to buy more expensive policies by encouraging their customers to require certain levels of coverage.
Millions of drones have been sold and used in the U.S. News organizations and the media love sensational drone stories and will never pass on an opportunity to publish a story about chaos and mayhem caused by drones; and yet, stories of serious accidents and injury are conspicuously absent from headlines. That said, something technically could go wrong, and if it does, you don’t want to be the one making headlines.
Drone Insurance Providers
Perhaps unsurprisingly, there is an increasing number of new companies eager to sell and underwrite drone insurance policies. Insurance brokers are quickly providing more options for drone coverage as the industry gains traction. On-demand drone insurance is also growing in popularity and brought to the mainstream by startups such as Verifly (Thimble) and others.
The rapid growth in drone insurance providers is a direct result of the increase in the use and applications of drones, along with the inherent risk associated with flight. Every time a drone is in flight, there is the possibility of damage to the drone, property, or person as a result of malfunctions, crashes, or a loss in connectivity.
Choosing the right drone insurance plan is essential in order to eliminate the risk of too little or too much coverage. Too little coverage could result in a situation where the insurance doesn’t cover all necessary business expenses. Too much coverage would mean that less money could be spent on more applicable insurance options. It is essential to understand that different policies are needed depending if the drone is to be used commercially or recreationally.
Recreationaly, there are three preferred options for approaching the need for insurance. First, it is possible that the drone is covered under homeowners insurance and those drone operators should confirm with their insurance representatives. If not, it is encouraged to invest in a hobbyist drone insurance option such as an AMA membership and/or purchase hull insurance directly from the drone company such as DJI Care.
If you are flying your drone for commercial purposes, there are two main options in terms of insurance. Either the drone operator can use an insurance broker or an on-demand drone insurance. There are plentiful insurance brokers that are adding plans tailored specifically for drones such as AIG and Avalon Risk Management. Likewise, there are new insurance brokers forming specifically for drones such as UAV Protect and Unmanned Risk Management. Lastly, there is a rise in on-demand drone insurance such as Verifly, Skywatch, and DroneInsurance.com.
Coverage Options: What Can You Expect?
Similar to any insurance, drone insurance mitigates risk by providing coverage against specific possible negative outcomes.
There are different levels of mitigation provided by drone insurance.
The first level is a liability-insurance policy meaning that it will only cover damage to property and other people, but not the drone itself. Specific value of coverage is dependent on the chosen insurance. The second level is commonly known as hull insurance, or protection to the drone itself. Again, coverage is dependent on the specific insurance. The third level is extended protection of accessories and ground equipment if necessary.
In addition to different levels of insurance, there are also different durations. Insurance can be purchased for different durations such as per hour, day, month or year. It makes sense that the cost increases as the duration increases. However, the per time cost associated with the insurance will also decrease as the duration increases.
The expected risk of the application will also affect the total cost of insurance. Some insurance plans will charge more for high-risk flights such as over major roadways and less for low-risk flights such as over deserted land.
Hobbyist Drone Insurance
Hobbyist insurance plans often do not only provide UAV protection but also come with additional benefits. An Academy of Model Aeronautics (AMA) membership provides protection but also has additional benefits such as monthly model aircraft magazines, access to fly at club-only locations, a community of like-minded people, and friendly customer service.
The cost of the plan depends on the age of the drone operator. The standard price between the ages of 19 and 65 is $75, whereas the cost for ages 65 and above is reduced to $65. Fortunately, the plan is free for ages under 19.
The coverage of the plan includes $2,500,000 for personal liability, $25,000 for medical coverage, a $10,000 death benefit, and $1000 for fire, theft, and vandalism.
Check out specific details of the AMA membership here.
On-Demand Drone Liability Insurance
There are three main competitors in the market for on-demand drone insurance. These include Skywatch, Verifly, and DroneInsurance.com
The Skywatch plan has three options that are based on duration, liability limit, and safety score. The duration options for Skywatch are hourly, monthly, and annual.
Insurance can be bought starting at $7 per hour, $42 per month, and $500 per year. Insurance starts with liability only policies with the option to add hull insurance. The different insurance options can have liability limits of $0.5M, $1M, $2M, and $5M with the different price options depending on the length of insurance experience such as 1 month, 2-3 months, 4-5 months, or 6+ months. In addition, Skywatch offers reduced costs up to 50% off for pilots with safe flight histories, an app to track flight history and buy additional policies, and the ability to cancel plans up to 5 minutes before a scheduled flight.
Verifly (Part of Thimble)
Verifly launched in 2016 as one of the very first on-demand insurance providers for drone pilots. The company later rebranded as Thimble after expanding its scope to become an insurance provider to various gig economy workers. The Verifly plan also has three options based on duration. However, the focus is on short-term flexibility including 1, 4, or 8 hour insurance plans. Verifly insurance plans are also dependent on flight area, liability limit, weight of UAV, and whether the flight is indoors or outdoors. Area limits can be set at a quarter, half, one, or two miles. Liability limit can be set at $1M, $2.5M, $5M, or $10M. Weight of a UAV can be set up to 15, 25 or 35 pounds. Lastly, there is the option for the coverage to include racing and contests, and an easy-to-use app to manage insurance plans.
Insurance can be bought starting at $10.
Droneinsurance.com does not include options for hourly insurance like Skywatch and Verifly. Instead, options provided by the website can be tailored to 1 day, 30 days, 90 days, or 1 year.
The plan consists of two main layers with additional add on options. The first layer consists of coverage when not flying and starts at $7.07 per month. This policy covers 3rd party bodily injury, 3rd party property damage, and personal and advertising injury. The second layer consists of coverage when flying and starts at $30.30 per day for one day or can be reduced down to $1.66 per day for a year. This policy can cover up between $1M and $25M in liability coverage. In addition, physical drone protection can be added to the insurance for an additional $3.11 per month for a minimum of 1 year. This coverage includes repair or replacement of damaged or stolen drones. Lastly, there is optional sensor and equipment coverage for additional costs.
Hull Drone Insurance
Many insurance companies mainly focus on liability coverage since it is possible and often wise to get hull coverage directly through the drone company. For example, operators of DJI drones have to purchase hull insurance in the form of DJI Care. The policy of this plan can cover damages to the aircraft and the cost is directly dependent on the specific model UAV.
Drone Insurance Brokers:
Drone Insurance Brokers is often the most complicated for the typical drone operator, but has the potential to be the best option for commercial applications, especially with large drone companies.
Adverse Selection & Moral Hazard
On-demand drone insurance providers are so confident in the profit potential of drone insurance, they willingly look past the glaringly obvious adverse selection circumstances by such a structure. If you are unfamiliar with the concept of adverse selection, it is defined by Investopedia as follows:
Adverse selection refers generally to a situation where sellers have information that buyers do not have, or vice versa, about some aspect of product quality. In the case of insurance, adverse selection is the tendency of those in dangerous jobs or high-risk lifestyles to get life insurance. To fight adverse selection, insurance companies reduce exposure to large claims by limiting coverage or raising premiums.
It’s pretty easy to see how this plays out in the case of on-demand drone insurance. Before any given flight, the operator can choose whether he or she would like to be insured prior to taking off. The drone operator has full knowledge of what he or she plans to do and is better aware than anyone of the current weather conditions or other on-site factors that could make the planned flight more or less risky. The decision to pay or not pay is intuitively made by the operator after his or her consideration of all of these details. If everything looks great, the operator will likely decline the insurance and avoid paying the premium. If for some reason, the operator is performing the flight in spite of recognizable risk, he or she will pony-up to offload the risk to the insurance provider.
Moral Hazard is defined as the situation that occurs when someone increases his or her exposure to risk because someone else will bear the consequences. Selectively choosing to purchase insurance for one flight and one flight only would seem to be a picture-perfect scenario in which moral hazard could flourish.
The on-demand insurance providers are well aware of these concepts and scenarios. They sell these policies for $10-$30. Make of that what you will.
Improvements in Drone Safety Technology
Drone safety technology is improving every day, whether it’s a GPS to keep you out of no-fly zones or features that reduce the risk of an out-of-power dive bomb into the ground. These advances may influence whether you feel that drone insurance is worth it. It’s a no-brainer decision if you’re using drones commercially, but the decision is harder when you’re a hobbyist.
Are You Already Covered?
Another, albeit unlikely, possibility exists. You could already be covered under the terms of your existing liability, homeowner or renter insurance. The best way to figure out whether your drone usage is already protected is to call your insurance provider up and ask. If all else fails, an umbrella liability policy should keep you covered until the drone service industry matures and more areas have specific laws concerning drones.
Your insurance provider may or may not have a clue about what you’re asking, but either way, you have your answer. If they do have drone coverage, find out exactly what is and isn’t handled by your existing policy. In some cases, insurance that you hold for other assets would cover the drone-inflicted damage. For example, if you flew it into your window or ran it into your car, your home or car insurance would probably cover it.
Make sure you get clarification on the breadth of your insurance policy. The company may only handle claims that fall under what it considers “named perils,” which are specific situations defined in your policy. In other cases, you may have comprehensive coverage in place.
Of course you don’t expect to need it and you will probably never file a claim. But just like the seat belt in your car, it doesn’t need to serve its ultimate purpose to be worth using. Drone insurance isn’t outrageously expensive and can help you avoid potentially devastating fat-tail risks. Fly safe, avoid unnecessarily risky situations, and find an insurance coverage option that meets our budget.
If you’d like to learn more, please check out some of our other drone photography tutorials, or simply follow dronegenuity on our social media channels: YouTube, Twitter, Facebook, and Instagram, and subscribe to our mailing list for regular updates.