HAWAII INSURERS COUNCIL Property Policy Committee Meeting September

HAWAII INSURERS COUNCIL Property Policy Committee Meeting September 11, 2015

FAA Modernization and Reform Act of 2012 Directs the FAA to develop a plan by September 30, 2015 to safely integrate drones into the US airspace system. Definition An aircraft that is operated without a possibility of direct human intervention from within or on the aircraft. By 2018, FAA estimates 7, 500 drones used everyday.

How Prevalent Are Drones The US lags behind the rest of the world in drone use. $89 B estimated will be spent on drones in the next 10 years A 2013 Oxford University study predicted up to 47% of US jobs could be automated in the next 20 years, with transportation and logistics industries being the most severely impacted.

First Military Unmanned Aircraft

Types of Unmanned Aircraft Modern day military drone Quadrotors Octocopters Model Aircraft

Drone Overview CONTROL Remote control Preprogrammed flight plan WEIGHT Less than 55 lbs including payload REGULATION Daylight hours Less than 400” above the ground Within line of sight of the operator Outside of 5 miles from ay airport COST Few hundred for backyard hobbyists up to $20, 000 plus cost of accessories for commercial operators

USAGE Military • Air strikes • Search and rescue operations Communication and Media • Network of drones can provide internet access • Supplement or replace helicopters Civil • Search and rescue operations • Survey event (fire, hostage, etc. ) • Surveillance Agriculture • Monitor crop health against weeds, insects, drought, etc. • Cloud seeding to increase precipitation Photography/Video • Movies • Weddings • News stories Delivery • Package goods • Mail Weather Data Collection • Monitor weather conditions • Flights into storms Insurance and Real Estate • Claims handling • Aerial photographs for listings

First Party Property Exposures Drone owner Coverage for drone from damage caused by theft, collision, wind, hail, hacking or other perils General public Inquire if policy will cover damage caused by drones

Liability Exposures Defect in design or manufacturing of the drone Improper or improper usage Bodily injury and property damage from colliding with the drone or dropping of cargo Privacy issues Trespass/nuisance Intentional surveillance Unintended capture of images Loss or damage caused by the illegal hacking into the flight control system and hijacking drone

ISO CGL & CLU Policies Coverage A – Bodily Injury and Property Damage Liability Excludes coverage for BI/PD arising out of the ownership, maintenance, use or entrustment to others of any aircraft owned or operated by or rented or loaned to any insured. Coverage B – Personal and Advertising Injury Liability Does not contain an exclusion explicitly addressing aircraft

FORM # FORM NAME COVERAGE A COVERAGE B CG 21 09 Exclusion – Unmanned Aircraft CG 21 10 Exclusion – Unmanned Aircraft (Coverage A only) Excluded Not Applicable CG 21 11 Exclusion – Unmanned Aircraft (Coverage B only) Not Applicable Excluded CG 24 50 Limited Coverage for Designated Unmanned Aircraft Excluded except for specifically named drone(s), type of operation(s) or project(s) and specific limit of insurance Limited Coverage for Designated Unmanned Aircraft (Coverage A only) Excluded except for specifically named drone(s), type of operation(s) or project(s) and specific limit of insurance Not Applicable Excluded except for specifically named drone(s), type of operation(s) or project(s) and specific limit of insurance CG 24 51 CG 24 52 Limited Coverage for Designated Unmanned Aircraft (Coverage B only) Excluded

Legislation HR 133 Requesting the State DOT to convene a drone policy task force and recommend a statewide policy for unmanned aircraft that protects privacy and allows the use of unmanned aircraft systems for public and private applications Status 3/16/2015 – Referred to TRN, FIN

Legislation HB 363 Specifies that the purpose of the aerospace advisory committee includes tracking drone development and use. Requires the committee to appoint a drone regulation temporary working group to study and report to the legislature on recommended legislation. Makes an appropriation. Status 1/26/2015 – Referred to JUD, FIN

Legislation HB 637 Amend the offenses of violation of privacy in the first and second degrees to specifically address the use of unmanned aerial vehicles or “drones” in the commission of these offenses. Status 1/28/2015 – Referred to TRN, JUD, FIN

Potential Impacts Faster deliveries Reduced labor cost to bring some goods to market More effective and safer search and rescue operations. Pervasive presence Illegal use Workforce reduction

Fire Sprinkler Systems Legislation to mandate fire sprinkler systems in all newly constructed one or two family homes Supporters Oppose Fire Chiefs Building Industry Association of Hawaii State Fire Council Tax Foundation of Hawaii Contractors Association of Kauai Department of Taxation General Contractors Association of Hawaii

Fire Sprinkler System HB 1242 HD 1 SB 1304 Establishes a tax credit of 25% of the actual cost, including installation, of an automatic fire sprinkler or automatic fire sprinkler system in any detached one – or two-family dwelling unit in a structure used only for residential purposes. Sunsets on June 30, 2025. 2/20/15 Passed second reading as amended in HD 1 and referred to FIN. 2/2/2015 Passed 1 st reading Referred to PSM/HSH, WAM Supporting Testimony Opposition Testimony • • • Saves lives Reduces property damage Very little maintenance Easy visual inspection Tax credit helps off set the high cost of installation • • • New houses built better Added cost Fires are preventable Public may not want sprinklers Less revenue for the state

Fire Sprinkler System SUPPORT Manuel Neves, Chair State Fire Council & Fire Chief Honolulu Fire Dept Darren Rosario, Mbr State Fire Council & Fire Chief Hawaii County Fire Dept Robert Westerman, Vice Chair State Fire Council & Fire Chief Kauai Fire Dept “…Fire survivability increases by 80%, and property damage is reduced exponentially…” “…Modern, lightweight construction materials collapse (sic) in 6 minutes versus 18 ½ minutes for traditional wood assemblies. ” “…communities without public water mains can operate residential sprinklers with an on-site storage tank and pump. Residential sprinklers require very little maintenance, including visual valve inspections, and an annual flow and pump test if present. Combined with a homeowner insurance discount, this bill would provide an incentive which may provide serious consideration. ”

Fire Sprinkler System Contractors Association of Kauai, Executive comment “The association believes this is a fair option to any proposed mandatory fire sprinkler installation…especially with costs that averaged $42, 230 for Kaua’i County home owners. ”

Fire Sprinkler System General Contractors Association of Hawaii, Member comment “…this tax credit is a start to incentivize home owners to potentially install fire sprinklers. GCA is also in support of new technologies to address fire hazards that may be available in the near future, negating the need to install fire sprinklers. ” “GCA supports incentives that would encourage homebuilders and homeowners to install fire safety measures that would reduce the likelihood of fire hazards. ”

Fire Sprinkler System OPPOSE Gladys Marrone, Chief Executive Officer for the Building Industry Association of Hawaii (BIA-Hawaii) The BIA-Hawaii … urge the continuance of optional installation of residential fire sprinklers in new single-family residences because: 1) New homes are built safer and better with … improved framing and fire blocking techniques, 2) Fire sprinklers are not cost-effective, as indicated in this bill; 3) Only …California and Maryland - and the District of Columbia, have mandated residential sprinklers in all new homes; most others have either amended the mandate out… mandating residential sprinklers.

Fire Sprinkler System Gladys Marrone (cont. ) 4) The median price of a single-family home on Oahu is about $700, 000. The added price of a sprinkler system could easily put that home out of a family's reach; 5) Fires are preventable… 6) It has been shown that fire sprinklers do not have public support. The Missouri Home Building Association …collect(ed) data from their home buyers. Out of 2, 455 buyers within a two-year period, only 3 wanted sprinklers installed in their new home…

Fire Sprinkler System Gladys Marrone (cont. ) “…providing tax credits to one segment of the construction industry, it drives away dollars from other segments. …Tax incentives cost the State money and reduces its income. Given the financial difficulties the State continues to face, we question the wisdom of reducing tax income. ”

Fire Sprinkler System Tax Foundation of Hawaii, Staff Comments “…The proposed measure would grant preferential tax treatment to a very select group of taxpayers and do so without the taxpayer’s need for tax relief. ” “If the legislature believes public assistance is needed to encourage the installation of fire sprinkler systems, then a program of low-interest, no-interest loans might be more efficient and appropriate than the proposed credit. ”

Fire Sprinkler System COMMENT Maria Zielinski, Director, Department of Taxation “Because the credit is for new construction only, any work will likely be done in conjunction with other plumbing necessary for the home. This may pose an allocation problem where the contractor/installer is doing work in addition to installing the sprinkler system such as general plumbing installation. ” “Finally, the Department notes that this credit is refundable. As a general matter, the Department prefers nonrefundable credits because refundable credits create the potential for exaggerated claims and abuse. ”

Impact to Insurance Industry Risk New home at lower risk of fire than older home. Diligence and willingness of the homeowner to incur cost to properly maintain system. Is the residence <5 road miles from a fire station? Is the residence located <1, 000’ of a fire hydrant? Claim Volume Fire claims are not common. Water damage from a plumbing leak is more likely to occur and may increase with the installation of a fire sprinkler system.

Impact to Insurance Industry Rates Fire claims have little to no affect on rates. Liability claims, water damage and weather related claims have a larger impact on rates. Reduction in premium Discounts range from 2% - 16% Fire sprinklers are lumped together with smoke alarms, dead bolts and monitored alarm systems. This may negate or make the actual discount for FSS insignificant if the company has an aggregate limit for discounts given.

Fire Sprinkler System Open discussion on topic