Unmanned Aircraft Systems (UAS)

THE FUTURE OF DRONES

2

A New American Pastime?

3

Our Discussion Today

Some UAS Statistics

What is an Unmanned Aircraft System

Current Regulatory Scheme in United States

Commercial Uses – Applications in Key Industries

Insurance and Underwriting Issues

The Future/ Conclusions

Questions?

Some UAS Statistics

5

The Buzz Overhead

6

Commercial Uses By Industry (Section 333 Exemptions)

Industry Number Percent of Total

Exemptions

Photo/ Film 477 47.7%

Real Estate 289 28.9%

Utilities/ Energy/ Infrastructure 234 23.4%

Agriculture 202 20.2%

Construction 171 17.1%

Emergency Service 77 7.7%

Education 59 5.9%

Manufacturer 40 4.0%

Government Contracting 30 3.0%

Insurance 30 3.0%

Conservation 27 2.7%

Scientific Studies 18 1.8%

Other 15 1.5%

TOTAL 1,000

Data from Center for the Study of Drones at Bard College. As of 7/31/2015

What is an Unmanned Aircraft System? Terms and Definitions

8

Unmanned Aircraft Systems (UAS)

An unmanned aircraft system (UAS) = unmanned *aircraft

that can fly autonomously and does not have a pilot

onboard.

(*including the operating systems, controls)

In this context - small UAS (under 55 pounds)

9

An aircraft by many names…

A few commonly used alternatives to the term DRONE…

– UA – Unmanned Aircraft– UAV – Unmanned/Unpiloted Aerial Vehicle– UAS – Unmanned Aircraft System – Next Slide– RPV – Remotely Piloted Vehicle– RPA – Remotely Piloted Aircraft– OPA – Optionally Piloted Aircraft– ROV – Remotely Operated Vehicle– RPAS – Remotely Piloted Aircraft System

For the purposes of the aviation insurance product these are all essentially the same thing.

10

The Components of anUnmanned Aircraft System

The UA or UAV is only one part of the operation/risk.

The “System” includes some/all of the following:– Unmanned Aircraft

• The air vehicle itself

– Payload• The business end of the system

• The systems that collect or transmit data

– Mission Support Equipment • Equipment needed to transport, maintain, launch, and recover the UA

– The People• The pilot/operator, visual observer, payload operator, etc.

– Data Link• The communications between the ground and UA

– The Space• Airspace, Air Traffic Control, Weather, and Regulations applicable to a

given flight

– Command and Control• Internal/External

11

12

DJI - UAS Specs

Phantom 2V+ (no longer in production)

Inspire 1 Weight (Battery Included) 6.47057 lbs Max Ascent Speed 5 m/s Max Descent Speed 4 m/s Max Speed 22 m/s (ATTI mode, no wind) Max Flight Altitude 4500 m (14,763.8 ft) Max Wind Speed Resistance 10 m/s Max Flight Time Approx. 18 minutes

Current Regulatory Scheme

14

Classifying the Flight

FAA classifies use of UAS in the national airspace as:

A. Public (Non-Military)B. Civil (Commercial)C. Hobbyist (Model Aircraft)

15

Federal Framework (in general)

500ft, airplanes (rural)

400ft UAS (current)

83ft, private landowner

Graphic (modified), curtesy of The Wall Street Journal

restricted

16

Public Use

Examples of Government agencies and organizations: State, County, or City governments, Fire Departments, Police Departments, Public Universities.

For public aircraft operations, the FAA issues a Certificate of Waiver or Authorization (COA) that permits public agencies and organizations to operate a particular aircraft, for a particular purpose, in a particular area. The COA allows an operator to use a defined block of airspace and includes special safety provisions unique to the proposed operation. COAs usually are issued for a specific period – up to two years in many cases.

17

Civil Use (aka Commercial)

Any operation that does not meet the statutory criteria for a public aircraft operation is considered a civil aircraft operation and must be conducted in accordance with all FAA regulations applicable to the operation.

There are presently two methods of gaining FAA authorization to fly civil (non-governmental):

– Section 333 Exemption – Special Airworthiness Certificate

18

Civil Use

• Section 333 Exemption – a grant of exemption in accordance with Section 333 AND a civil Certificate of Waiver or Authorization (COA); this process may be used to perform commercial operations in low-risk, controlled environments.

• “Blanket” COAs have been issued since March, 2015

• “Plan of Activities” must be filed within 3 days of flight

19

Civil Use

• Special Airworthiness Certificate (SAC) : applicants must be able to describe how their system is designed, constructed, and manufactured, including engineering processes, software development and control, configuration management, and quality assurance procedures used, along with how and where they intend to fly. (this seems to be done more with certain kinds of aircraft-like experimental or test).

• The Exemption process is very involved, but the FAA has gradually relaxed the application/approval process.

20

The “Fine Line” Between Civil and Hobbyist Classifications

Do I need a Section 333 grant of exemption if I'm not charging for my services?

A. Unless you are flying only for hobby or recreational purposes, you will need FAA authorization via a Section 333 grant of exemption to fly your unmanned aircraft system (UAS) for your business. This applies even if you are only flying to supplement or aide your business and not charging fees for doing so.

This according to the FAA.

21

Hobbyist -or- Civil Use (Commercial)?

22

Federal Framework

• FAA’s Notice of Proposed Rulemaking (announced February 15, 2015): a framework of regulations that would allow routine use of certain small UAS (under 55 pounds) conducting non-recreational operations (aka – Commercial Use of Drones).

• The new rules would not apply to model aircraft. Model aircraft operators must continue to comply with existing rules.

• Comment period has ended. 4,585 comments were received. (an example of one is included in your packet)

23

Civil Use

This is very general illustration. Criteria is summarized in your handout entitled “Overview of Small UAS Notice of Proposed Rulemaking”

24

The “Amazon Proposal” for sUAS use

Some Commercial Applications

26

Agriculture

Increased Production, Yields

Maximize Resources

Cost Efficient

Increased Data Points

Advantages Precision Chemical & Water Application

Land Monitoring/Surveying

Crop Imaging

Vegetation Mapping

Livestock Monitoring

Usage

27

Construction & Infrastructure

Cost Efficient

Accessibility

Decreased Risks to Staff, Equipment

Accurate Data Points

Infrared technology

Advantages Pipeline Monitoring

Bridge and Infrastructure Inspections

Smoke Stack Inspections

Power line inspections

Usage

28

Weather Monitoring

Advantages

Cost Efficient

Less Human Exposure

Reduced Risk

Usage

Collect Data from Dangerous and Remote Areas

Improve Forecast Accuracy

New Data Information about Storm Changes

Surveying and Mapping

29

Media and Entertainment Filming

Expands Creative Filmmaking

Time and Cost Efficient

Increased Safety

Advantages Improved Action Filming

Lower Overhead Shots

Increased quality of Videos/Images

Usage

30

Public Safety and Law Enforcement

Accelerated Response Time

Improve Situational Awareness

Diminish Human Error

Cost Efficient

Advantages

Search-and-Rescue Missions

Crime Investigation

Surveillance

Bomb Squad, Hostage Response

Shoreline, Coastal Surveillance

Traffic Management

Usage

31

Research and GIS

Time and Cost Efficient

Worker Safety

Clearer Images

Improved Accuracy

Mitigates Weather Delays

Advantages

Data Collection

3D Mapping

Remote Sensing

Flood Maps

Wildlife Conservation / Science

Usage

32

Insurance and/or Claims

Reduce Fraudulent Claims (eg. Agriculture, WC)

Time and Cost Efficient

Lessen Human Error

Improve Customer Experience

Safety – Accessibility to Damaged Areas

Advantages

Usage Collect Images of Losses

Infrared technology detects leaks

Gather Information on a Location before Insuring or prior to onsite inspection

Other Risk Engineering or Modeling

Insurance Issues

34

Managing the Risks

35

A Few “Insurance” Issues

UAS = Aircraft (Federal Aviation Administration vs. Raphael Pirker, decided

11/18/2014)

“Aircraft” Exclusion in CGL

Scheduled UAS & Equipment

Scheduled Operators (training and knowledge are critical)

Physical loss to hull, payload, parts, etc.

Third Party Liability– Typical Exclusions: Terrorism, War or Hostile Acts; Unlawful Use,

Nuclear, Asbestos, Pollution, Privacy

Coverage Sublimits

Terrorism is a “buyback” and needs specific consideration

36

Underwriting Considerations

Almost all aviation underwriting stems from four basic points of risk analysis.– Operator experience– Make and model information– Purpose of Use– Location of Operations

Values and limits required– Aircraft– Payload– Ground Equipment

Operational procedures/risk mitigation items

Training

UAS underwriting is based on traditional aircraft underwriting foundation

37

Risk Examples: Commercial & Private Uses

Collision with power lines

Collision with large aircraft

Collision with motor vehicles

Disruption with other safety or rescue operations

Spectator or Bystander injuries (eg. at events, public spaces)

Other property damage

Terrorism or hostile acts (malicious, unauthorized use)

Privacy (Data Storage, Data Retention)

The Futurefrom deceptive to disruptive

39

On the Radar – What’s Next

Continued Technology Advances, Decreased Costs

Growth in Precision Agriculture, Emergency Management Services

Drone Deliveries

Increased State regulatory intervention: Privacy v. Security Debate

Monitoring and creation of “Best Practices” for service and maintenance records

Questions?

41

Additional Resources

www.faa.gov/uas - Federal Aviation Administration, UAS section

http://knowbeforeyoufly.org/ - “Know Before You Fly” - AUVSI, AMA & Small UAV Coalition in conjunction with the FAA

http://www.auvsi.org/home - Association for Unmanned Vehicle Systems International

http://www.ncsl.org/research/transportation/current-unmanned-aircraft-state-law-landscape.aspx - National Conference of State Legislatures, Current Unmanned Aircraft State Law Landscape

http://www.aig.com/unmanned-aircraft_3171_659651.html

42

Disclaimer

Certain statements provided herein are based solely on the opinions of AIG and are being provided for general information purposes only.  Any opinions provided on economic trends should not be relied upon for investment decisions and are solely the opinion of AIG.

The purpose of this presentation is to provide information, rather than advice or opinion. None of the statements or information are provided for the purpose of legal advice or opinion and should not be considered legal advice or opinion. You should contact your attorney to obtain advice with respect to any particular issue, question, or situation. It is accurate to the best of the presenter's knowledge as of the date of the presentation.

Certain information may be based on information received from sources  AIG considers reliable; AIG does not represent that such information is accurate or complete.  Certain statements contained herein may constitute “projections,” “forecasts” and other “forward-looking statements” which do not reflect actual results and are based primarily upon applying retroactively a hypothetical set of assumptions to certain historical financial information.  Any opinions, projections, forecasts and forward-looking statements presented herein are valid only as of the date of this document and are subject to change.  AIG is not soliciting or recommending any action based on any information in this document.