Hello, and welcome to today's webinar titled, Drones, Underwriting and Managing Unique Risks. I'm Eileen Monreale, and I'm pleased to moderate today's webinar. Please be aware of the IMUA statement. I'm happy to introduce today's presenter, James Van Meter. James is an aviation practice leader for Allianz Global Corporate and Specialty based in Atlanta. James serves as the regional head of programs and product development for North America. He is also the subject matter expert and product head for unmanned aircraft systems. James earned a Juris Doctorate from Southwestern Law School and is a graduate of Embry-Riddle Aeronautical University, where he earned both a Master of Business Administration in Aviation and a Bachelor of Science Aviation in Aviation Business Administration. James is an active licensed pilot with commercial multi-engine and instrument ratings. James served honorably in the U.S. Marine Corps and is a veteran of Operation Iraqi Freedom. He is a licensed attorney in the state of California and a licensed property and casualty insurance agent in the state of Georgia. James has presented and spoken about unmanned aircraft systems and insurance issues at numerous conferences, including the Aviation Insurance Association Conference, RIMS, the American Bar Association Aviation Litigation Conference, and the McKenna, Long, and Aldridge UAS Symposium. James, welcome. The floor is all yours. Thanks so much, Eileen, and thanks, everyone, for joining us today to learn about drones and drone insurance and issues surrounding this unique class of business. As Eileen mentioned, I am an active commercial pilot. I would like to start the presentation by pointing that out and showing the aircraft that I fly. I fly an SR-22, and I also have a DJI Phantom that I fly, and I have a Part 107 drone operator's certificate. I've been doing aviation for a little over 14 years on the underwriting side. I broke my first drone account, interestingly, our drone associated account, in 2008. It was for a products manufacturer who was making components that go into unmanned aircraft. I would like to start off with the poll and get an idea of who's listening to the presentation and what involvement you may or may not have with drones or what knowledge you may or may not have about the subject matter. It's always interesting when we do this presentation live to see how many people have drones, how many people have placed drone coverage, and how people view this class of business. So we'll give a minute for the polls to sit out there and everyone to get their response in. All right, so it looks like we definitely have some drone owners or folks that have family members that have drones. That's an interesting question. Another one is, you know, do you think it's more suitable to place drone risks with an aviation company or on an ISO write-back form? It looks like the majority agrees that it should go on an aviation form, and about 42% of the folks here have placed a drone risk, and it looks like a lot of undecideds on whether or not you feel comfortable having a package delivered to your home via drone. Thanks a lot for taking the time to do that. We'll go back to the presentation. So one thing that we're going to talk about over the course of this presentation is how drones are regulated, how they're viewed by the Federal Aviation Administration. One thing that we like to point out is Allianz has been writing drones now since 2014 in the United States, but we're not just a drone insurance company. We're not a company that just started up and decided we're going to insure drones. Globally, we write general aviation, airlines, aerospace, in-orbit satellites, space launches, and aviation work comp. So we view drones as an extension of aviation and an extension of what we've always done, which is really any aviation risk from a hot air balloon up to a satellite in orbit. We're very proud of our heritage, and we actually have 103 years now insuring aviation. We wrote our first aviation policy in 1915, which started with airship coverage. There are a lot of parallels between when we started writing aviation insurance coverage back in 1915 and the drone space today. Aviation was really in its infancy. A lot of people heard about flying, they heard about airships, but they didn't really know what it meant. They didn't know what this new technology, how it was going to change people's lives. They certainly could never imagine over 100 years later that you'd be able to get on an airplane and fly coast-to-coast or fly around the world nonstop. I think drones, there's a lot of parallels there with drones, because this is a new technology. It's exciting. A lot of people know, they've heard about it or they've seen it, they don't know that much about it. They don't know what it's capable of, and probably all of us 100 years from now can't imagine how the technology is going to continue to evolve and drones are going to play a bigger and bigger part of daily life and potentially transportation of passengers. As you can see through our history, we've got a strong history and strong background in handling mass air disasters. 1937, we have in here that all of us did make the claims payments for the Hindenburg. We know aviation from back in the day up until today. Today we show our dedication both to aviation and to the drone space by being the global sponsor for the Drone Racing League. If you haven't seen drone racing, it's really the most exciting new sport out there. We're going to show a quick video for those of you who haven't seen it so you can get a feel for what drone racing is. Drone racing is an exciting new sport. You can see the Drone Racing League on ESPN. I believe they're airing season two now, or they're getting ready to. It's a sport though that brings a lot of young kids, that introduces them to aviation. We think it has a positive impact, not just on drones, but on aviation in general. It sparks an interest. It gets kids involved with both aviation and the technology side of it. We'll see if we can get that to play here. I actually had the opportunity to go see one of the drone races being filmed down in New Orleans last year. It is a very exciting high-speed event, as you can see here. It's a lot of fun. So it is very challenging as these pilots, you know, obviously they're not sitting in the aircraft. They're not even seeing the aircraft in this demonstration, you know, they're just wearing the first-person view goggles and racing through these obstacles and through the tunnels, seeing what the unmanned aircraft sees. Of course, there are a lot of crashes just like in NASCAR motorsports racing, a lot of people watch the sport just for the crashes. I will mention we do not insure the physical damage on those aircraft. So, introduction to UAS, let's talk a little bit about the history of it. As with most advancements in aviation, the start for these aircraft really started with military use. The first known use was in the mid-1800s, when European militaries were using hot air balloons or lighter-than-air ships loaded with explosives, and they were sending those towards the enemy. Today, we fast-forward to where we are, and aircraft the size of 737s are operated from the United States, operated anywhere in the world. They can fly for 40-plus hours at a time, and high-altitude aircraft that are extremely capable. On the left there, you see a picture of the drone that's been successfully launched and recovered on an aircraft carrier, and that's generally considered really the most complicated and difficult operation in aviation, landing and taking off from an aircraft carrier. And the technology is there, it's proven, and they've continued to repeat safe operations on and off of an aircraft carrier deck. So, that shows you just how far the technology has come from hot air balloons laden with explosives to unmanned aircraft that can land and take off from an aircraft carrier. Of course, that's not what we're really focused on talking about today. We're focused on what we're likely to see in the PNC insurance world or the civilian world, which is really what you see here on slide nine. The picture here is a DJI Phantom 3. It's one of the most sold unmanned aircraft out there. There have been millions of them sold worldwide. There are a lot of names for this technology, UAS, UAV, RPA, drone. They're all acronyms with various meanings, but at the end of the day, they all refer to an aircraft that does not carry a human pilot on board. In the civilian world, we consider small UAS, an aircraft that weighs from 0.55 pounds up to 55 pounds maximum, and that's also how the FAA defines small unmanned aircraft. Typically, you're going to see about 20-minute duration on these aircraft. Most of them are electric, battery-powered, and some of the aircraft that are being commercially used today start below $1,000. We see aircraft used for various purposes commercially that start anywhere from $500 and go up. You know, these really aren't basic hobby aircraft. They have advanced technology in them. When I was a kid, I got into aviation by flying model airplanes, and you would spend weeks or months sometimes building model airplanes. You would take it out on the first flight and crash it, and you'd come home with a box of parts and hopefully rebuild it again and try to fly it another day. These aircraft, though, they have GPS built into them. They have gyro stabilization. They have, you know, moving map technology where your cell phone or tablet is linked with the aircraft, and you can see the camera. You can see what it's filming. You can take pictures, initiate the video. You can see the overlay on a Google map image to see exactly where the aircraft is, what it's over. It's flight path, it's altitude. So you know, that's one thing, you know, you look at this technology, the barrier to entry is extremely low because of the price point, but then you see the technology that's built into it makes it extremely easy to fly. Most people can get pretty proficient with these aircraft in a short amount of time. So the types that we see, I mean, really the quadcopter really rules the day today in the commercial world. We ensure more quadcopters than any other variant of unmanned aircraft, but certainly there are fixed-wing aircraft that are used for typically longer missions or a larger land surveying. There are rudder-wing aircraft that oftentimes are gas-powered, especially if they're being used for close-set film production, movie production, and they have to lift a heavier gimbal or gyro and camera setup. But really, the majority that we see are electric-powered and, you know, somewhat limited by, you know, the quality of the battery and, you know, that affects the range. And like I mentioned, you know, they all have, you know, this advanced tech built into them, the GPS guidance, return-to-home features. Some of them have automated flight planning, and a lot of even the consumer versions have what's called geofencing built in, where because it has GPS in it, because it's linked to your phone, when you start the unit up, it knows exactly where you are. So after incidents like what happened with the White House lawn and drones flying where they shouldn't be flying due to restricted airspace or sensitive government locations, a lot of the manufacturers have geofencing built in so that when you turn the drone on, it knows where you are. And if it detects that you're in a restricted area, like, say, in front of a White House, it won't let you start the motors. You know, we have seen some hackers find ways around the geofencing, but it's one level of protection that manufacturers are putting into the drones to make sure that, you know, try to help make sure that people are flying them responsibly and not flying where they're not supposed to be. The majority of these are controlled by RC-type controllers, but some of the more advanced units have just pure tablet controls or controlled by laptops. The cameras and sensors, at the end of the day, you know, the commercial drone operator, they're really just using the drone as a platform to get their camera or sensor above what it is they need to film, be it a home that they're home inspecting or doing a roof inspection on, being a field that a farmer is trying to analyze the crops on, or, you know, a news outlet that's trying to shoot a story. The camera is just a – or, sorry, the aircraft is just a platform to get the camera or the sensor airborne where they need it. Oftentimes, that is the most expensive piece of the drone system, depending on what it is. So the top uses for unmanned aircraft today, we kind of joke, it's the dull, the dirty, the dangerous, and eventually, delivery. There's a low barrier entry here, ease of use to the technology, and you can see the guys here that are on the tower. This technology is really the most valuable when it can potentially save lives or reduce the harm that humans are exposed to. These guys that are up on the tower, if they're just doing an inspection and they can be on the ground with their feet planted, use a drone to get the image, do the inspections they need, it has a huge impact on safety. It can have a potential huge impact on, you know, workers' compensation, on-the-job injuries. We see that's really one of the main uses, you know, that's coming up. You know, roof inspections, tower, cell phone tower inspections, infrastructure inspections, anywhere where it can limit human exposure to dangerous situations. A couple of broad use categories that we see, you know, in the marine setting, specifically, you know, inspections of vessels and structures, that's really the top use. Commercial data collection, which is really just a broad, really broad catch-all for using the drone to gather, you know, information or data. We see some ships in the commercial fishing industry using drones for fish spotting instead of having a helicopter, which traditionally, that's what they've used, land and take off from the deck of a ship out at sea, and they've replaced, we've seen a lot of those helicopters replaced by drones. No human pilot involved, much less risk to the ship that the aircraft's launching from, you know, obviously a lot safer for the crew members on board the ship. We're also seeing drones used in the marine space, ship-to-ship transfers of medicines and parts. This is a use that's still being developed, but we have seen it successfully tested a number of times. The FAA defines, you know, has put out some guidance for sort of the low-end and the high-end, where they see the commercial UAS market going, and they define the low-end as $3,000 and below. Their estimates are that 90% of the market, the end-use commercial market, will be met by those drones that are $3,000 and below. And then they say, you know, the high-end is $30,000 and above, and that's about 10% of the demand for commercial drones is going to be met by those aircrafts. In real life, I mean, we see the actual use is pretty close. A lot of the drones we're insuring today are, you know, I'd probably say $5,000 and below. You know, the technology has gotten better and better over the years, where for $3,000, $4,000, you can really buy a very capable drone, a decent camera and sensor, but we are insuring, certainly, our share of high-end drones, where the platform, the aircraft itself is maybe worth $40,000 or $50,000, and occasionally we'll see fitted with $100,000 sensor or $150,000 LiDAR, you know, higher-end multispectral-type sensors. The top markets that we've seen today, and, you know, again, this is from an FAA document that was put out in 2016, you know, number one is industrial inspection. That's the top use. Bridges, roofs, cell phone towers. The second they list here is real estate and aerial photography. If anyone's bought a house recently or looked at Realtor, you can definitely notice the trend of real estate agents using drones to show properties, show houses. I've seen some videos of, you know, very high-end estates where, you know, it's very elaborate professional footage. You know, the gates open up at the front of the estate, and the drone flies in and basically gives you an entire tour of the property and house. Really amazing footage. Definitely a game-changer in that industry. I think that, you know, people are probably already asking themselves if they're looking to buy a house, and they go on Realtor, well, where's the drone footage? How come I can't see an aerial, you know, aerial picture of the property, the driveway, those kind of things? It's really become the norm and expected in that industry. Agriculture, crop surveying and analysis. That was really one of the first areas that the drone industry, you know, hyper-focused on, and they thought that was, you know, going to be the biggest use for drones. We've seen it become a popular, you know, use category, but it certainly has not taken off the way early adopters and earlier proponents in the industry thought it would. Insurance. I know we've got some folks on from travelers, maybe some of the folks from the drone team or folks that are working on that aspect, but the insurance use for drones has definitely skyrocketed. It's probably higher than 15% at this point. We've definitely seen that as a huge growth area for the industry. Homeowners, insurance companies, commercial property insurers, you know, the insurance industry is using drones for, you know, underwriting. They're using them for, especially for claims management, claims adjusting, you know, surveying after large storms come in. Last year after the storm season, we saw the use of drones by insurance companies really skyrocket. They were, really proved their value after last year's storms. Being able to dispatch a drone into a neighborhood or an area and get a, you know, real-time footage of the damage that's been done. Being able to recognize where a company needs to deploy their adjusters, you know, with top priority, I think has really made a big difference and an impact in the service that insurance companies are able to provide. And then the fifth use is they showed government 2%. We've definitely seen that number way exceed 2%. The government use of drones, local law enforcement, fire departments, municipalities, we've seen that use, that's probably the biggest use category that we've seen this year to date. There have been a number of recently very highly publicized search and rescue missions that local law enforcement agencies were able to use. Again, low-end drones, $5,000 and below, used drones successfully to locate people that were missing, to locate suspects. I think that area is definitely going to continue to grow exponentially. If you think about the cost of a helicopter, a local police department, you know, potentially could spend millions of dollars to buy a helicopter, you know, all the equipment that needs to go into a law enforcement helicopter, train pilots. That's a big expense. You know, the big cities, Los Angeles, Dallas, New York, obviously they can afford the half-flight departments and big air operations. But, you know, small and municipal police departments, they just don't have the budget to buy helicopters. But if they can go out and buy, you know, $2,000 drones, they can accomplish the mission that they need. And they can give them the eye in the sky, can give them, you know, real-world observation of a situation before they have to send a deputy in or a person. It's a huge game changer. I really think that, you know, at some point in the near future, we're going to see drones in the trunk of every patrol car. We're going to see a drone on every fire vehicle. It just, it makes too much sense for the safety of, you know, our law enforcement and fire professionals to be able to launch, you know, this technology and use it as a valuable tool, both to save their lives, protect their safety, but to protect the general public as well. So a little bit of overview. I mean, why are so many people focused on drones? Why do we talk about it so much? You know, how come there's so much interest from aviation insurers, regular non-aviation insurers? The forecast and the projections that have been put out by the FAA and other industry groups have really hyped the market and the subject matter. You can see the FAA forecast, you know, this again came out in 2016. You know, they estimated that by 2020, 7 million drones are going to be sold. That's annual sales in this space. You can see 4.3 million in hobby aircraft, 2.7 million in commercial use aircraft. I mean, those are staggering numbers. Honestly, I don't see those numbers, you know, being quite accurate based on, you know, the number of accounts that we see, the number of accounts we're insuring, just how big the market's getting. But even if the FAA is, you know, even if these forecasts are 50% right, it's a staggering number of aircraft entering the skies, a staggering number of aircraft being used, and a huge number of new insurance buyers that are going to need coverage for, at the very least, going to need liability coverage when operating these aircraft. You can see, you know, compare those numbers to the U.S. general aviation fleet. You know, as of 2017, there were 204,000 manned general aviation aircraft. So general aviation, that doesn't count airlines. That's just, you know, non-airline aircraft in the United States. So if you're talking about 204,000 manned general aviation airplanes versus, you know, 2.7 million commercial drone flying, all of a sudden, the skies just got a lot more crowded. The general aviation deliveries in 2015, you know, barely 1,581. So again, these numbers are just staggering from a number of units perspective. As of February 2018, the last data that I could find when they published the number of 107 license holders, there were 75,000. So that was in February. That's five months have gone by. You know, that number's probably getting closer to 100,000, you know, licensed commercial drone operators. You compare that to the manned pilot population in the U.S., 590,000. Again, that's a really significant number of commercial drone pilots in a very short time. The tremendous growth potential, though, you know, obviously, is due to the low cost. And now that the licensing requirements are much easier, we're going to go into those in detail in a few minutes. You can see what's fueling this growth. So other than just talking about this technology and what it can do, I thought I'd show you a couple videos that just highlight where the technology is and what it's capable of. People are coming up with uses for drones all the time. Some of them are, you know, very good uses that serve humanity, that, you know, protect workers, that protect public safety individuals. And others are just kind of fun. So we're going to look at one that's kind of fun, and we're going to look at a couple others that are out happening today. Hopefully, we'll be redirected in a second with our YouTube player here, James. Okay. While we're waiting for that, I mean, I will share a little bit about some of the unique accounts that we've seen in the drone space. We've reviewed submissions, and some of them we've written. One was a drone being used to deliver hors d'oeuvres and cocktails at an event. Somebody had rigged a drone with a cocktail table underneath it, and they were using the drone to fly hors d'oeuvres and cocktails over people. That one we declined. Should we start it? Yeah. Yeah, let's go ahead and start it if it's ready. So this is one of the more fun uses for drones that people are coming up with ideas for. Definitely a fun use for the technology, saves someone a long walk over the ice. And here's your UPS one. Thanks. And drone delivery, obviously, is talked about a lot. There are a lot of big companies investing millions of dollars into getting this technology both approved by the FAA and figuring out some of the issues that surround delivering packages with drones. This is a video that UPS put out last year to show what they've been doing and one concept they're working on. So the potential for UPS to save what they call that last mile of delivery in rural places like what you see here, the amount of fuel savings they can realize across their fleet of vehicles, it's a huge, staggering number, it's millions and millions of dollars a year. But also obviously it could reduce emissions put out by vehicles, makes the driver's job, makes them much more efficient if they can be delivering two packages at a time versus just one. The potential there for the technology to really be valuable is huge. The United States is really kind of behind in this area. We actually, Allianz is insuring operations outside of the United States. They're conducting drone deliveries every day. We have one insured in Africa that delivers blood and vaccines to remote areas. And last year they flew around 10,000 flights and they credit those flights with saving around 300 lives. So the technology for drone delivery absolutely exists. It is being done around the world now successfully. A lot of the issues that we're focused on in the United States have been worked out overseas. I think that sometime in the next couple years, in the short term, the FAA and the industry we're going to overcome some of the beyond visual line of sight problems. We're going to overcome the delivery aspect of it and some of the safety issues. And we're not far off from certain parts of the country being able to order things on their phone and get a drone delivery. I don't think that will happen probably in lower Manhattan or New York City. But there certainly are a lot of places in the country that this is feasible and doesn't pose a widespread safety risk to thousands of people on the street. I put a little clip in here on a recent article in Atlanta that just showed people do use drones, unfortunately, for things that are not legal and not ethical and not appropriate. This is one where a woman claims that she was peeped on by a drone. Certainly that's a concern for a lot of people. We'll talk a little bit about privacy here in a couple slides. But the potential for misuse of this technology definitely exists. I'm going to talk just briefly on the regulations and the regulatory environment. I'm not going to go super into super detail about Part 107 and some of the exemption process that's out there. But I think it's important to mention this is aviation. The FAA views these as aircraft. They're regulated by the FAA. There's been two or three years ago, there was a debate of whether or not these are aircraft, whether or not the FAA is the proper authority to regulate them. I like to point out to people, look, the FAA's top mission is safety of our airspace and safety of the general public. You look at the safety record in the United States, just on the airline side, it's really phenomenal. The last major air disaster in the United States happened, Colgan Airlines in Buffalo, New York. That was in 2009. We're working on almost 10 years without a major air disaster in the United States. Up until two months ago, there hadn't been a fatality in the United States since Colgan in 2009. The recent Southwest occurrence with the fatality, that's the first fatal that we've experienced in the United States since then. The FAA is clearly doing a good job as far as keeping the general public safe. Their only focus is safety. They want to avoid things like the worst case scenario of an unmanned aircraft hitting a manned aircraft and causing injuries or fatalities. We're going to watch just a part of a quick video here that highlights what that risk is and why the FAA is concerned, why the FAA has taken slow and steady steps to letting this technology be used, letting the commercial use of unmanned aircraft really proliferate where it is today. From an underwriting perspective, the commercial operators, the Part 107 operators, are not really our biggest concern when we think about a manned versus unmanned aircraft. We really feel that the biggest risk is from the hobbyist side. People that don't know the rules, they're not licensed, they don't know airspace, they don't know where and when they should be flying these aircraft. Let's see if we can get this video to play and sort of highlight that risk. Let's give it one more try here, but it seems like my video pod is not ... There we go. Okay, let's try it. So, the aircraft that are most vulnerable to collisions with drones are helicopters and agricultural aircraft, or light general aviation aircraft that are landing or taking off. In this video, you see a DJI Phantom with two-and-a-half-pound drones strike the tail rotor of a helicopter. And you can see the damaging effects that this can have. Obviously, this is a highly dramatized, worst-case scenario. But it's not hard to imagine that this outcome could happen. And in fact, there have been, fortunately, some collisions with manned aircraft. We'll talk about those here in just a second. So the regulatory overview, basically, the FAA breaks it down into three categories. Hobby and recreation use, which model aircraft rules apply to that. That sort of, you know, you have a UAV, a small UAV, or an aircraft that you build for hobby. You're flying the aircraft just for enjoyment, purely for hobby use. There's no economic gain. There's no economic benefit being sought by operating the aircraft. The second category, of course, commercial benefit or business use. That's when FAR Part 107 comes into play. If you're operating an aircraft for commercial benefit, the FAA views that as a commercial operation, and you fall under the rules of Part 107. There are also, there's the 333 exemption, which was used widely before Part 107 got enacted in August of 2017. And another barrier around the 107 requirement is if you're operating an aircraft with an airworthiness certificate. And then the third category is government or public entity. And they have pretty much the same requirements, needing to have a Part 107 certificate, a 333 exemption, or an airworthiness certificate. Really what we see in the majority of drone risks nowadays is that because the regulations have been in place for long enough, most of the commercial drone operators, they know the rules now. There's no argument about whether or not this is an aircraft and whether or not they need to be licensed. So the licensing process is, actually, the bar is very low now. If you're not a manned pilot, basically you just have to pass a written exam, and you can be a licensed commercial drone operator. For me, as a manned pilot, I pretty much took an online test that qualified me for the Part 107 certificate, had an instructor sign me off, and I got my Part 107 license. So Part 107 applies to unmanned aircraft 55 pounds and under. It imposes a 500 foot above ground level altitude speed restriction and a speed restriction of 87 knots. The other big thing is that it requires visual line of sight with the drone. So that's sort of the next hot topic, hot button issue that's going to be debated between the FAA and the drone industry and operators of drones. If you're an energy company, a pipeline company, a railroad company, you want to use drones beyond visual line of sight. That's when you're really going to get the opportunity to look at the effectiveness of the technology. Being able to survey large areas of land, being able to survey 10, 20 miles of track or power line at a time, presently Part 107 does not allow for beyond visual line of sight. There is a waiver process in place, and there are, I believe, about four companies that have received authority to operate beyond visual line of sight. Most of those authorities, the approvals for those beyond visual line of sight flights are done under the guise of research and development, proving the technology. There's a lot of safety built into the approval of those companies to do that. Daytime only is also a restriction subject to a waiver by the FAA. So you can get a waiver for nighttime operations. Important to note, there are no airworthiness certificates for these aircraft. A drone company can basically come up with a design for a drone, build it, and put it on the shelves in a short period of time. Whereas Cessna, Piper, Cirrus, if they want to design a new aircraft, it costs millions of dollars to get an aircraft through the certification process. These aircraft can be built anywhere in the world and basically put on the shelf and best buy. And someone can buy one and be operating it commercially. There's no formal maintenance guide, no maintenance standards. So is the insurance industry insuring these aircraft, insuring these operations? We're putting a lot of faith in the drone owner and operator that they're going to be maintaining these airplanes properly. They're going to be inspecting them at a regular interval. And they're going to make sure that before every flight, that aircraft is safe to fly. Another thing that's really interesting is there's no insurance requirements for unmanned aircraft. A lot of people don't know there are no insurance requirements for manned aviation unless you're flying commercially. So I could go out today and buy a Gulfstream and pay cash for it if I don't have a lien holder. The government does not require me to carry insurance on that aircraft. So drones, unmanned aircraft, are the same way. There's no requirement for a commercial operator to carry insurance. So of course, why is insurance necessary? Why would a drone operator want to carry insurance? Because as we all know, in insurance, accidents happen, occurrences happen. No matter how safe you are, no matter how good the technology is, there is the possibility for damaging someone's property, injuring somebody. In this case, these are two incidents that happened in the last year where a drone collided with manned aircraft. Fortunately, in both of these incidents, there was little to no damage to the aircraft. And there were no injuries. It was found through investigation that both of these incidents involved a hobbyist flying a drone where they shouldn't be flying it, either flying it too high or flying in an airspace they shouldn't have been in. So that's the case where the geofencing put in by a manufacturer potentially failed. Fortunately, there was no serious injury or damage. But it's not unforeseeable to think that that could have turned out differently. This is Enrique Iglesias. He was using a drone as part of his live show, using a DJI Inspire, which is a very common aircraft. And he was reaching up and holding the drone and moving it around. And he got his hand caught up in the propeller. So you can see these aircraft, even though they're small, they're not toys. They're definitely capable of doing damage, of injuring people. These are a couple other incidents that we've seen. One is a triathlete. That was in Australia. She got hit by a drone that was filming the athletic event. On the right, you see Marcel Hirscher. He's a world-class Olympian skier. If we can get the video to play here, we'll see a video of an incident that where the drone was filming the skiing event and fell out of the sky and almost came very close to hitting him. That was an incident that happened because the drone operator chose to continue. They made a conscious decision to continue operating the aircraft, even though they knew the batteries were low and were running out, because they didn't want to miss the shot. So again, the technology was good. There was no problem with the aircraft itself. It was the human element, where the human operator chose to keep that aircraft flying. Let's see. I heard it, but I didn't see it. It is playing here. OK, I just can't see it on my screen. All right, did it complete? It did. OK. All right, so managing the risks. How do we advise our clients? How do we advise people who are using the drones, are insured? How do they protect against this risk? How do they operate drones safely? This is an area that we really think we encourage a lot of our insureds in the industry to adopt what we call the aviator mindset. There are really two mindsets in this area. There's the technology mindset, where the technologists believe that they can program the drone, or they can build a software system that eliminates completely the need for pilot, eliminates the need for human interaction, that the technology can be made so good that you don't even need a pilot. You don't need a human overseeing it. And then there's the aviator mindset that says, hey, the technology is great. It's very capable, but you still need a skilled pilot to operate this equipment safely, operate the aircraft safely, be there to take over if something does go wrong. That's the mindset that we really feel that the industry needs to adopt. That's the mindset that we like to see in our insureds, people who are using checklists, using standardized practices, doing pre-flight and post-flight checks, treating this as if it were a manned aviation operation, not relying on the technology. The aircraft I fly, it's a Cirrus SR-22. It's one of the most technologically advanced aircraft in the general aviation fleet. It's got full autopilots and is more capable of flying the aircraft probably than I am when it works. The problem is technology can fail, and it doesn't always work. And you need a pilot that can take over when needed, that can guide the system properly and know how to look for problems. We see the no-drone zone signs popping up all over the place. Maybe you've seen them if you've gone to a major sporting event. Allianz insures a lot of big events and festivals and concerts. And one of the issues that we've certainly seen on that side is the festival event organizer, now they have to deal with people bringing drones in their backpacks, people pulling drones out of the trunk of their car. The drones today that you can buy are very small and can be literally launched and landed anywhere. So if you're the NFL, if you're a baseball stadium, how do you keep people from bringing drones in and flying it over a musical act or flying it over a baseball player's head? It's definitely an area of concern and a risk management area that a lot of people are focused on. Just in general, these are sort of the basic risk management considerations we like to highlight for insurers. Each part of the triangle is important. Having good contracts, strong operational policies, FAA following the regulations and the rules for the industry, and then of course insurance. Insurance is there as the backstop in case the other three parts of the triangle fail. And sort of three simple steps, safe and responsible operations, contractual transfer of risk, and then insurance to transfer foreseen and unforeseen risks. It's a bit of a confusing marketplace out there, even today. Buyers aren't really sure where to go. A lot of brokers don't know where to go. Is it aviation? Is it Inland Marine? There are also now apps out there where you can buy drone insurance by the hour. Allianz has an app like that in Europe. In the UK, it's called Flock. It's all based on your cell phone and your location. In the United States, there's an app called Verify that you can buy drone insurance by the hour. There are regular P&C insurance companies that are using ISO write-back forms, and they feel that that's the best way to insure their clients and insure against this risk. I put on here on the slide allianzdrone.com. That's access to our program. It's an online portal. It's accessible 24-7, and you can get an indication for a drone risk right away. We really feel, of course, being in aviation, and the fact that these are aircraft, and they're regulated by the FAA, and you need a pilot's license to fly one commercially, these are aviation risks. And the best place to insure them is with an aviation market. Allianz is not the only aviation market riding these. Many of our competitors in aviation have developed drone-specific policy forms and procedures. For Allianz, speaking from us, we have a custom-built policy form that we designed just for this class of business. It's a comprehensive policy that covers the aircraft hull, the liability, the cameras, the sensors, provides premises liability coverage, medical payments, privacy coverage, sale of the aircraft, a little bit of product liability in there. So we've tried to look at the typical drone operator that we see in the drone operation and develop a comprehensive policy form that meets the majority of their requirements. So I like to kind of do this little analysis of, is it aviation or is it Inland Marine, and try to identify some of the differences. From the aviation side, I would say, hey, these are defined as aircraft. They're regulated by the FAA. It belongs to aviation. Maybe one of my colleagues in Inland Marine might say, hey, this is equipment that's stored in a box. It's highly mobile. It sits in a closet or a storage facility. It doesn't sit in an airport in a hangar. Obviously, it's a pilot certificate that's required. It flies in the air. And they'd say, well, it's consumer electronics. It's cameras. It's laptops. Honestly, it's a little bit of both. I think it's a fair argument to say some of this equipment is appropriately covered in the Inland Marine world. But I think where you draw the line, from my perspective, is definitely, once the aircraft, the motors turn on, and it becomes a flying object, I would say, absolutely, most Inland Marine operators probably don't want that exposure of the aircraft flying, the equipment flying around. The legal precedent and the laws that will apply to bodily injury and property damage done by drones certainly is going to fall in the aviation space. And courts are going to apply the rules of the law of the air to any drone incident. Strict liability applies for a lot of ground damage that could happen. Also, if there is a manned versus unmanned aircraft, and when it happens, I think it would be naive to think that aviation plaintiffs' attorneys, who are used to litigating major fatal cases and high-stakes litigation, they're absolutely going to be focused on the first manned versus unmanned aircraft. They're going to get their name associated with it. They're going to want to set new law. So I think that first accident, when it does happen, it's going to be very high-stakes litigation. In the aviation world, we're used to that. I'm not sure that non-aviation underwriters are really prepared to take that on. Aviation coverage is, again, our policy form, custom design, hull liability, warrantee, privacy, sale of aircraft. We have UAV retrieval expense reimbursement. And we also insure a lot of products manufacturers, training schools, universities that have drone programs. So we are involved in every aspect, insuring every aspect of the drone industry. Some of the underwriting challenges, I know we're running short on time here, and I want to leave some time for questions. This is a small class of business. In the big picture, aviation itself is an extremely small class of business. This isn't personal auto, homeowners. We're talking about, again, the aircraft numbers we looked at. There are 204,000 manned aircraft flying in the US on the general aviation side. On the commercial drone side, the number, let's say every 107 certificate holder has two drones, you're talking about 150,000 insurable units. A lot of this class of business we see is what we call high volume, low premium. A $2,000 drone carrying a million dollar limit, there's not a lot of premium in those risks. We really see most of those going for probably $1,000 or less. So that is an underwriting challenge. It's a small class. There isn't $100 million or $1 billion of premium in it. A lot of times, we are seeing uneducated buyers and advisors, and they don't know much about the risks. They don't know much about the insurance marketplace. So we spend a lot of time educating both the insured and the brokers, especially when they have a claim. And at this point, we've paid hundreds of physical damage claims. We've been involved in a couple of liability claims. We find that that's definitely where the insurance buyer in this category. We spend a lot of time educating them on the claims process, educating them on how the insurance policy functions. The lost pick is still developing. Even though we've paid out hundreds of claims, we write thousands of drones, this is still a new area. And we're still learning as we go. It's not unlike other areas of insurance. We have special applications for it. We're looking at the equipment making models, the qualifications of the operator, loss history, where they're operating the equipment. Sort of the standard underwriting thing is trying to develop the exposure presented by that specific account. Including thoughts, again, aviation versus in the Marine, it's a little bit of both. I think you have to, when you're presented with a risk, and you have a client or a broker bringing you this risk, you have to determine where is the client going to be best served? Where are they going to get the best coverage? And if they have claims, how are the claims best to be handled, by a company who writes thousands of drones and has handled these claims before, or by a standard non-aviation market that an adjuster may not even know what a drone is, how do you adjust a loss on it? Law enforcement and FAA, we're going to continue to see them police the rules and violate people who are not following the rules and affecting safety in a negative way. We are going to continue to see drones used in a lot of different applications. Like I mentioned in the beginning, I don't think any of us can really guess where in 50 years or 100 years, where this technology is going to lead aviation and the general public. You should be on the lookout for drone exposure on almost every account. We've seen dozens and dozens of different industries using drones in different ways. Accounts that you would never guess have drones, have drones. And we cross-sell an awful lot of accounts on drone exposure. And if you haven't seen it, you will see it. You just need to start asking the questions of your clients. And I know I'm a little bit over time, but I'd like to open it up to any questions that come in. Excellent, excellent. Thank you, James. So James is absolutely happy to take questions. And to remind you to ask a question, simply type your question into the text box and click the balloon icon next to it, or you can hit the Enter key on your keyboard, and we both have the question. We have our first question. What is the typical value of a claim in the drone world? So the typical claim that we see is for physical damage, damage to the drone itself and the camera or sensor. Fortunately, a lot of them are pretty low. I mean, I'd probably say the average across the claims we've seen is probably $5,000. But we have had claims where a very expensive airframe was crashed with an expensive camera or LiDAR on it. And I think our most expensive claim to date has been around $100,000. Sometimes the equipment can be repaired, and sometimes it's just a total loss, depending on what it crashes into, where it crashes, and the type of equipment involved. Unfortunately, we haven't seen a lot of liability claims, but we have had a couple. And those settle out differently depending on the injuries that were sustained. Well, I think you covered everything in your presentation, James. It was fabulous. The videos definitely brought a lot to life, too, and all of the content. That seems to be all the questions. So we do want to thank the attendees for your tuning in today. And everyone will receive an email with a link to an electronic survey. I think James also has additional resources here, as well as his contact information. Please respond to the survey and share your feedback. We always welcome your comments. And this ends today's webinar. Enjoy the rest of the day. Thank you.

Drones

Underwriting

Unique Risks

Eileen Monreale

James Van Meter

Allianz Global Corporate and Specialty

Unmanned Aircraft Systems

FAA Regulations

Drone Insurance

Aviation Industry