Editor's note: Vikki Stoneis senior vice president, Poms and Associates

Though the use of small, unmanned aircraft systems (UAS)—morefamiliarly known as “drones”—is in its infancy, commercialgrowth is predicted to significantly increase in the next 10 yearsas businesses such as Amazon and UPS explore using them fordeliveries and enthusiasts adopt them for commercial andrecreational purposes.

Drones will require insurance coverage, which can open the doorto new business for agents and brokers. But insuring an unmannedaircraft system means considering a multitude of insuranceliability and coverage issues, ranging from personal injury andinvasion of privacy to aerial surveillance and data collection.

The Federal AviationAdministration (FAA) estimates that by 2020, about 30,000small, unmanned aircrafts will be used for all types of businesspurposes. Worldwide, total spending for these aircraft systems isexpected to top $89 billion in the next decade, thanks to strongmilitary and commercial demand, according to a 2012 market study byTeal Group, an aerospaceindustry analyst.

The FAA has allocated $63.4 billion to modernize thecountry's air traffic control systems and expand airspace toaccommodate the commercial use of these aircrafts. Asregulatory constraints are modified to reflect the introduction ofthese new aircraft systems, commercial markets for their use willexpand rapidly. The FAA estimates that roughly 7,500 commercialdrones could be viable in five years.

This is quite a change; before the FAA approved two flyingrobotics models for commercial operations, the only way thecommercial/private sector could fly an unmanned aircraft in U.S.airspace was with an experimental airworthiness certification.

The FAA-approved drones each weigh less than 55 pounds and isabout 4.5 feet long. They have no pilot on board but are controlledby an offsite operator using a sophisticated remote-control systemand data link transmissions.

These flying systems can carry high-powered cameras, infraredsensors, facial-recognition technology and license platereaders.

Business uses are endless. Halstead Property, a real estatebusiness in Darien, Conn., has been using aerialrobotic cameras for almost four years to showcase homelistings. The business recently demonstrated on the Todayshow how its drones capture footage of homes for sale, showcasingtheir interior and exterior features. The use of the technology hasincreased Halstead's online listings views threefold, and clientsare impressed by the company's progressive marketing efforts andcutting-edge technology.

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Congress has tasked the FAA with integrating unmanned aircraftsystems into the national airspace system by late 2015. Thisdemand requires the FAA to quickly develop a comprehensive planfocused on the safety of UAS technology as well as operatorcertification. To meet these objectives, the FAA created a newUAS Integration office in March 2012 to tap the knowledge ofspecialists in aviation safety and air traffic control.

The FAA must develop effective policies and standards to addressthe increasing number of drones taking to the skies, balancingefficiency and predictability while enhancing safety; operatingglobally; creating a viable system for airspace use and protectingboth safety and the environment.

And legal issues will also arise: Can a property ownerclaim a drone is “trespassing” on his land? How will stalking,harassment and other laws regulating criminal behavior be appliedto drone use? Does airspace ownership apply to unmanned aircraftsystems? What about claims of invasion of privacy and spying?

And how will federal aviation law conflict with state law onsome of these issues? The government has already made a foray intothis quagmire with the Drone Aircraft Privacy & Transparency Act of2013, introduced to create a regulatory structure for theprivate use of drones, including privacy protection, datacollection and enforcement.

In addition to many regulatory and legal challenges, a slew ofcomplex liability and coverage issues related to insuring unmannedaircraft systems for commercial use is on the horizon too. New andserious problems are likely to arise over airspace procedures,types of accidents and inadvertent eavesdropping.

Fewer than two dozen insurers provide insurance to the aircraftindustry—up from less than a dozen a few years ago—and this numberis likely to grow once the FAA gives its OK. Although carriers aredeveloping policies to cover insurance exposures relating todrones, they don't have much data to guide them as they branchinto this new territory.

To properly insure these aircrafts, insurers will need to knowtheir function or intent, their takeoff and landing locations,whether they will be operating over populated areas, and theirflying altitude. And because these systems can collect massiveamounts of data, they can pose a threat to individual privacyand a significant challenge for insurers. In drafting policies,insurers must know how the owner of these aircraft systems will usethe data it has gathered and what steps it will take to safeguardor destroy the information it has amassed.

Two areas have the potential to raise huge red flags for theinsurance industry: personal injury andinvasion of privacy.

Unmanned aircraft systems will have much the same insurancerequirements as other aircrafts—only on a smaller scale given theirsize, flying range and price tag. Given the inherentlyconservative nature of the insurance industry, carriers mightrequire even stricter guidelines than what the FAA may mandate.Expect to see these types of coverage for drones and theirancillary business activities: liability, personal injury, invasionof privacy, property, and workers' compensation.

Read related: Flier's Market

Liability coverage typically includesprotection for personal injury, which also covers invasion ofprivacy. The scope of coverage will depend on what theaircraft is meant to do. If it's meant to gather data rather thandeliver packages, the coverage may need to be broader toprovide additional protection.

Property coverage broadly applies to theproduction, assembly and wholesaling process, which not onlyprotects the parts and the finished product in a warehouse, butalso the machinery.

In addition, although whole coverage will beessential, aircraft underwriters have not yet decided how to writethese policies. Drones are significantly smaller than standardaircraft, and at this stage, it's difficult to predict what theywill or will not do.

Workers' compensation coverageis necessary to protect the people working for and in thefacilities of UAS-related businesses.

Also, since many of the businesses that will spring up aroundthe UAS industry are likely to be entrepreneurial startups fundedby investors, insurers would be wise to offer protection againstfinancial loss due to mismanagement. Exploringdirectors and officersliability insurance is a prudent option under thecircumstances.

Brokers looking to get into the UAS industry must ask extensivequestions and “go deep” as they gather information. For example,brokers should inquire about data collection, storage and usagepolicies as well as a drone's particular purpose and other physicalspecifications. This information is essential to help theunderwriter prepare a policy that takes all risks into account andprovides the proper coverage.

Expect to see the capacity to underwrite drone policies increaseas insurers become more familiar with the territory.But insurance is about the collective, so when insurers arehit with the first few claims alleging serious injury or death,they will inevitably start to pull back, resulting in lessavailable coverage and higher prices.