In the last year, the federal government has responded to theemerging commercial industry of unmannedaviation by issuing new regulations.

Commercial drones

A drone isoperated for commercial purposes whenever the operator is beingpaid to utilize the drone or it is used in furtherance of abusiness. The Federal AviationAdministration (FAA) sought to address the widespread use ofthis technology by creating a path for commercial drone operatorsto obtain certification under a process known as the Small UnmannedAircraft System (UAS) rule or (Part 107).

Related: Registration of drones used for business has gonefrom a trickle to a flood

On Aug. 29, 2016, the FAA implemented Part 107. The rule createda regulatory framework for the civil and commercial operations ofsmall UAS, weighing 55 pounds or less. Generally, Part 107 requiresoperators to fly under 400 feet, within visual line of sight andonly during daylight hours. Under this process, drone pilots areissued a Remote Pilot Certification and each drone is registeredwith the FAA.

One of the requirements of Part 107 is that the drone pilotcompletes an online knowledge course and passes an exam. Part 107also created a process for operators to obtain exemptions to itsrules if the operator can prove mitigating factors to support theexemption. To date, more than 900 of these exemptions have beengranted, with the vast majority permitting night time operations ofdrones.

Hobbyist drone operators

The FAA has a separate set of regulations for hobbyist droneoperators. On May 19, it was decided by the U.S. Court of Appealsthat hobbyist operators are not required to beregistered. This decision, however, does not affect commercialdrone operators.

Prior to Part 107, commercial drone operation was only legalthrough a tedious process known as Certificate of Waiver orAuthorization (COA) 333 Exemptions. Since the introduction of Part107, more than 30,000 Part 107 certifications have been issued.Operators in Florida have obtained the second most certificationsin the United States, just behind California.

Also before 107, many businesses were operating drones withoutlegal authority. This is because the process to obtain a COA waslengthy and difficult. Many drone operators sold their servicessuch as aerial photography and surveying to other businesses inconflict with federal law. Similarly, insurance companies would notinsure the liability of a drone and its pilot unless the dronecould prove it was operating legally.

Commercial aviation insurance for property damage & BI

With the issuance of Part 107, the FAA made the process tolegally operate a commercial drone much simpler. As a result, droneoperators can now obtain commercial aviation insurance that coversproperty damage and bodily injury arising from the operation of adrone.

The insurance also covers damage to the actual drone, itspayloads and remote control systems. A new insurance provider basedin South Florida, UVIInsurance, LLC, has launched the first web portal forcommercial drone operators to access and instantly purchase thistype of comprehensive insurance.

Other insurers have also entered the marketplace to covercommercial drone uses. The first batch of insurers to cover the UASwas traditional aviation insurance companies that underwrote therisk similar to the way a manned aircraft is insured. One new UASinsurer has been offering liability insurance coverage through anas-needed on-demand app.

Handsets & detachable payloads

Newer entrants created coverages specific to the UAS such as theinclusion of handsets and detachable payloads. In many cases, thepayloads on a drone such as cameras and infrared sensing devicesare significantly more expensive than the actual drone. At leastone insurer has started to offer liability insurance as anendorsement or add-on to a professional liability policy.

Related: Game of drones: Liability and insurance coverageissues coming

Most general liability insurance policies carried by a businesscontain an exclusion for aviation activities. A business ownerinvolved with operating a drone should be aware that they areengaged in an activity regulated by the FAA. To properly managetheir risk, they should carry an aviation liability policy.

Liability & risk of loss

Similarly, many property insurance policies will cover a droneas part of a company's business property. However, once that dronebecomes airborne it likely will no longer be covered by atraditional property policy. Therefore, it is important thatbusiness owners insure both the liability that could arise from adrone operation and the risk of loss to the drone as a corporateasset.

As an emerging industry, most commercial drone operators aresmall businesses with revenues under $1 million. The annual premiumcost to insure a drone operator and the actual drone can total lessthan $1,000. As drone usage becomes more mainstream, corporationsand governments will rely on the insurance industry to provide risktransfer methods to shield themselves from unknown dangers.

Insurance designed for the UAS is a good example of how theinsurance industry has provided a comprehensive solution to supportan emerging industry.

Related: Understanding and minimizing dronerisks

Gary Reshefsky is a principal with CenturyPrograms, the wholesale and program business division of CenturyAdvisory Services, Inc., an independent insurance firm offeringrisk management and insurance services with offices in Coral Gablesand Boca Raton. He may be reached at: [email protected].Opinions expressed are the author's own.