The Federal Aviation Administration (FAA) shined a long-awaited light on the process of insuring drones when it released its Small Unmanned Aircraft Rule (Part 107) last August—a roadmap of regulations for small commercial drone use.

Part 107 “was absolutely a game changer,” says James Van Meter, aviation practice leader at Allianz. “It’s opened the floodgates on the industry. We’re seeing huge growth.”

That may be an understatement. Since the FAA released its registration requirement for recreational drones in December 2015, it’s received more than 670,000 drone registrations—numbers that may only reflect a slice of a much larger picture, because each operator can register up to 10 drones under one name.

Van Meter cites an increase in licensed commercial drone operators from just 2,500 a year ago to an astounding 23,000 at press time, and the FAA expects 4.8 million drones to be sold in the U.S. this year alone—2.5 million of which will be intended for commercial use.

The numbers are “staggering,” Van Meter says, especially when you compare them to the active general aviation fleet, which consists of just 204,000 aircraft.

Timeline Trouble

Why did it take so long for the FAA to begin regulating drones? Considering 70% of the world’s aircraft population is in the U.S., Doug Johnson, president of JSL Aviation Insurance, thinks the FAA’s slow going is evidence of a “clash” between two distinct cultures.

“The FAA feels like they have to protect the airspace, which they do. And the folks that were born of the internet generation feel that everything should be fair and open and free, like they’re being terribly put upon and restricted,” Johnson says. “You can see why both sides feel the way they do, but you can also see why things are the way they are.”

That’s especially true in aviation insurance, which has always been a “backwards-looking industry,” Johnson points out. “In other words, loss projections are basically useless in aviation—the law of large numbers doesn’t work, because there aren’t enough numbers.”

When drones came on the scene, they flipped the script. “The FAA was used to dealing with an airplane population of around 200,000, and all of a sudden in a year or two they have a drone population of 2 million? That’s a whole bunch of drones flitting around, and they’re all different shapes and sizes,” Johnson says.

In the meantime, the insurance industry was flying blind. “There was a lot of murkiness as to what were we supposed to be doing, what were we not supposed to be doing and when were we stepping over the line?” Johnson says. “A lot of the insurance companies, to their credit, were kind of looking the other way and providing insurance even when the rules weren’t really clear—or when there weren’t really any rules.”

“When it was in its early stages and the regulation was either not there or loose or easily misinterpreted, and obviously continuously developing and changing, that made it very difficult,” agrees Travis French, aviation practice leader at Arlington/Roe. “We didn’t have a standard we could base our underwriting on, like we’ve always done for pilot licensing and ratings and experience. We didn’t really have a way to quantify that and measure it against a legal standard, or a minimum set of requirements.”

What Now?

From an insurance standpoint, Part 107 was “necessary,” French says—and it’s streamlining the process for underwriters.

Now that the FAA has established what it means to operate small commercial drones legally, “we can base our underwriting on that set of rules as a minimum,” French explains. “We know these operators have met these minimums, we know they’re at least that qualified, and then we can take it from there on the underwriting approach. We know what questions to ask. Everybody’s on the same page.”

There’s more to come, of course—“they’re trying to figure out how to loosen the restrictions just a little bit, not have all these overrides you have to apply for,” points out Jim Pinegar, vice president of insurance services at the Aircraft Owners and Pilots Association.

And Van Meter says the next “battleground issue” for the FAA is visual line of sight. Part 107 outlines processes for two waiver procedures: one to waive the restriction on nighttime operations, and one to waive the restriction on operating a drone beyond visual line of sight.

“Before Amazon’s going to be able to deliver a package via drone, it’s going to have to have beyond visual line of sight authority. Before power companies can overfly hundreds of miles of power lines, they’ve got to have that beyond visual line of sight authority,” Van Meter points out. “That’s the next big thing the industry is working on—developing the safety systems for how unmanned aircraft can communicate with aircraft control and manned aircraft so that they can safely conduct those type of operations.”

And regulations for commercial drones that weigh more than 55 pounds are a whole other can of worms. But ultimately, it’s all guidance that will only help insurers, French predicts: “I’m sure it will continue to get easier to the point where this is old hat, where we’ve seen enough and done enough that are identical, that we know pretty much what it’s going to be when it comes in the door.”

Keep an eye on IA’s Markets Pulse e-newsletter next week to learn about what kind of insurance solutions you should be offering your drone-using clients.

Jacquelyn Connelly is IA senior editor.