1. Drone Use & Local Government: Underwriting & Risk Management Implications NLC-RISC Trustees Conference May 5, 2016 San Antonio, Texas Claire Lee Reiss Director, NLC-RISC

2. Why Should You Care? Your insureds are (or will be) using drones Drone use will increase risk exposure for pools There will be risk exposure even if your members do not operate drones Your entity (pool or a city) may use them What coverage will your members need and how will your pool manage drone risk?

3. What are Drones? Unmanned Aircraft Systems (UAS) Unmanned Aerial Vehicle (UAV) Remotely Piloted Aircraft Systems (RPAS) Model aircraft Wide variety of size and sophistication

4. Advantages Low cost Enhanced perspective Reduced likelihood of injury to personnel “Killer app” is ability to capture and convey images

5. Disadvantages Compliance with complex regulatory system Safety Privacy Different type of risks

6. Public Sector Uses Public safety Border patrol Monitoring & inspecting infrastructure Property management Aerial photography Parks and special events (Drone parks??) What other uses have you identified?

7. Commercial Use Applications to FAA Aerial photography 512 Real estate 350 Aerial survey/inspection 542 Infrastructure/utility inspection 180 Search & rescue/emergency management 90 Insurance25 Education9 The First 1,000 Commercial UAS Exemptions, Association for Unmanned Vehicle Systems International, September 2015, http://bit.ly/1gxWtFdhttp://bit.ly/1gxWtFd

8. How Drones Can Help Pools Evaluating property damages Collecting information for underwriting Routine inspections and appraisals Is your pool using drones?

9. What About the Future? Operation beyond visual line of sight/at night Operation over uninvolved people One operator flying multiple drones Computerized drone air traffic control system Drone detection systems Geo-fencing

10. THINGS THAT COULD GO WRONG A horrifying list of all the possible

11. Accidents Human Failure Inadequate pilot training & oversight Rogue operator Hijacking Technical failure Mechanical/hardware Software Inadequate maintenance Accidents on public property Nightmare scenario: Collision with a commercial airliner

12. Privacy & Civil Rights Law enforcement (and other uses) Intentional or unintentional Potential issues Privacy Search, seizure, surveillance Freedom of association Nightmare scenario: Widespread illegal surveillance

13. Property Rights Trespass Nuisance Land use regulation Nightmare scenario: A member getting into a dispute with the FAA over local restrictions

14. Information Management Applying public records laws in an evolving context Cost of responding to open records requests Ensuring data integrity Finding sufficient data storage capacity Nightmare scenario: Massive public records request in a state with a very broad open records law

15. Cyber Overlap Securing images & data during storage & transfer Theft or misuse of data, images Securing drone control system against hackers Nightmare scenario: Hacker entry into a drone’s control system and use of the drone to attack another aircraft

16. Public Property Failure to adequately control or supervise use Municipal airport liability Direct liability Contract with managers & FBOs

17. Public Officials Violation of FAA preemption of state and local regulation of navigable airspace Permitting use in conflict with state or federal law (knowing or unknowing) Restricting or interfering with legal use State and Local Regulation of Unmanned Aircraft Systems (UAS) Fact Sheet http://1.usa.gov/1PSPYHzhttp://1.usa.gov/1PSPYHz

18. Regulatory Violations Federal (FAA) State Local Non-drone specific Nightmare scenario: Trying to determine what the web of regulations really means

19. REGULATION OF DRONES Everything you need to know but wish you didn’t about

20. Regulation? Rule Number 1: There is no public entity use of a drone, or use of a drone in or around public space, that does not need to be or is not regulated in some way. Rule Number 2: The FAA makes the rules. Rule Number 3: See rule number 1. If that seems implausible, see rule number 2.* * Yes, really.

21. FAA Authority Drones are “aircraft” regulated by the FAA FAA is responsible for aircraft safety at all altitudes FAA currently prohibits drones in national airspace except under certain conditions FAA has proposed regulations that will establish requirements for routine drone operation

22. FAA – Public Aircraft - Current Government drones are subject to public aircraft requirements Certificate of Authorization (COA) Particular aircraft Particular purpose (not commercial) Particular airspace Required safety precautions Operate outside populated/restricted area Operation within VLOS

23. FAA – Recreational Use - Current FAA does not “regulate” recreational use below 400 feet and within VLOS, except when it does… Strictly hobby or recreational use Registered with the FAA if it weighs more than.55 pounds* Can’t generally weigh more than 55 pounds Don’t interfere with manned aircraft Don’t fly near airports *Yes,.55, just over ½ pound

24. FAA – Notice of Proposed Rulemaking Small - Weigh less than 55 lbs Less than 100 MPH & 500 feet Within VLOS, including a visual observer Not operated over uninvolved people Daylight and 3 miles visibility Prohibited in some classes of airspace Operator inspection of drone before flight Operator passed test, TSA vetted, & certified Be registered & have required markings

25. Privacy, Civil Rights, & Civil Liberties Presidential executive order – February 2015 Requires compliance with Privacy Act, civil rights & civil liberties State/local government grantees must adopt policies and procedures to respect these same rights Presidential Memorandum: Promoting Economic Competitiveness While Safeguarding Privacy, Civil Rights, and Civil Liberties in Domestic Use of Unmanned Aircraft Symptoms http://1.usa.gov/1Hx4lPc http://1.usa.gov/1Hx4lPc

26. FAA preemption of state and local laws FAA has signaled broad intent to preempt state and local laws Operational restrictions Mandating safety-related equipment or training State and Local Regulation of Unmanned Aircraft Systems (UAS) Fact Sheet http://1.usa.gov/1PSPYHzhttp://1.usa.gov/1PSPYHz

27. Legal Environment: State Privacy & landowner rights Civil remedies Use of drones to commit crimes Prohibited airspace/properties State oversight mechanisms Lethal/non-lethal weapons Hunting & fishing use Law enforcement use Record retention & disclosure of images Preemption of municipal & county authority Current Unmanned Aircraft State Law Landscape, National Conference of State Legislatures, 9/14/2015, http://bit.ly/1EHKJLy http://bit.ly/1EHKJLy

28. Legal Environment: Local Limit use by agencies (especially law enforcement) Use as evidence Share information with other agencies Prohibit outfitting with weapons Complete prohibition of drones Prohibit use over public property Control use through land use and zoning power Minimum elevations/trespass

29. Ownership & Operation Models Own and operate a drone Contract with 3 rd party Commercial Another public sector entity Accept services from a volunteer Special considerations for mutual aid

30. Baseline Considerations Define the risk Understand the environment, regulation, and existing controls Blanket or optional coverage Application process Occurrence or claims made Limits and sublimits Exclusions Reinsurance Loss control Claims handling

31. Pool Coverage General liability Physical damage Privacy (Law Enforcement & in general) Workers’ compensation Cyber War / terrorism Business interruption Airport liability

32. Commercial Approaches ISO endorsements Specialty markets for targeted uses

33. Reinsurance Coverage Questions reinsurers may have How pool expects to provide coverage Current & expected member use of drones Special sublimits or aggregates on coverage Underwriting procedures & expertise Plans for loss control & claims handling Contributions for coverage

34. Member Conversations Awareness Compliance Coverage Policies and Practices Neutral to drone technology (mostly) Information storage Employment consequences Regulation of drones

35. Questions? Claire Lee Reiss Director, NLC-RISC creiss@nlcmutual.com 202-626-3165