Risk & Business Magazine Cooke Insurance Group Spring 2016 | Page 26

Drones

A New Frontier in Risk Management
BY: JEFF COOKE, PRESIDENT, COOKE INSURANCE

W

hile hobbyists have been using
unmanned
aerial
vehicles,
better known as drones, for some time,
businesses are just starting to adapt the
technology for their own uses. Drones are
creating new opportunities and new risks
for businesses to evaluate, and regulators
and insurance carriers are scrambling to
keep pace.
Despite the fact that drones are readily
available, employing them for commercial
use is not as simple as just buying one
off the shelf. To reap the full benefits of
drones and to protect your investment, it’s
critical to understand the risks associated
with commercial drone operations.

Regulation
The federal government, through Transport
Canada, has primary jurisdiction over
the commercial use of drones in Canada.
Although Transport Canada has developed
specific regulations and guidelines
governing the use of drones, certain
aspects of the federal Aeronautics Act
and the Canadian Aviation Regulations
are also applicable to commercial drone
operations.
Under most circumstances, Transport
Canada requires businesses to obtain
a Special Flight Operations Certificate
(SFOC) prior to operating a drone. Since
2014, Transport Canada has offered two
categories of exemptions to its SFOC
requirement—one for drones weighing
less than 2 kilograms and another for

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SPRING 2016

drones weighing less than 25 kilograms,
provided all applicable exemption
conditions are met. For drones weighing
between 2.1 and 25 kilograms, proper
notice of the proposed operation will have
to be provided to Transport Canada.
Additionally, drone operators must also
observe all other applicable laws and
regulations, including the Criminal Code
and provincial and municipal laws related
to trespassing and privacy.

Physical Loss: Beyond the Aircraft
Businesses will want to consider their
potential physical losses carefully. With
drones, it’s often the loss of the payload—
not the aircraft itself—that can be the
most costly.
One of the most widespread applications
to date has been in unmanned aerial
photography. Businesses in real estate,
agriculture and insurance all have
interests in surveying and photographing
land, and the cameras used to do so can
get expensive. Filmmakers, who have
also been pioneering commercial drone
use, often employ even more expensive
cameras. Because of the increasing
affordability of drones, the payload often
has a higher intrinsic value than the
aircraft itself. Additionally, cameras and
other payloads are usually slung below the
aircraft, meaning that in the event of a
hard or emergency landing, damage to the
payload is almost certain.

Businesses will want to consider
their potential physical losses
carefully. With drones, it’s often
the loss of the payload—not the
aircraft itself—that can be the
most costly.
Planning for Obsolescence
Technology itself could prove to be
especially costly in the event of a drone
loss. The manufacture of drones is not
regulated or standardized, which means
there are a number of manufacturers in
the market, each adhering to different
standards. Many haven’t diversified, and
should some technological advancement
prove to be too costly for certain smaller
companies to adopt, they could potentially
go out of business.
Bankrupt or defunct manufacturers,
coupled with a lack of industry standards
for design, could mean that the loss of
a relatively inexpensive motor today
would instead be a total financial loss
on the aircraft five years from now,
when replacement parts are completely
unavailable.

Casualty and Liability
As with conventional aircraft, a drone
crash could mean a hefty casualty claim.
While the crash rate is actually relatively
low with conventional aircraft, drones
are not subject to the tight maintenance