Allianz Global Corporate & Specialty (AGCS) estimates that the U.S. drone insurance market could reach more than $500 million by the end of 2020. Globally, its value could approach $1 billion.

AGCS recently released the report, “Rise of the Drones: Managing the Unique Risks Associated with Unmanned Aircraft Systems,” which examines the key issues and trends related to the growth in use of drones and potential risk exposures related to their deployment in the private, public and commercial realms.

As recreational and commercial drone use explodes, the following 10 risk exposures are of most concern:

1. Mid-air collisions

A mid-air collision could happen if a drone pilot can't see and avoid manned aircraft, other drones or objects.

The manned aircraft that are most at risk from drones are those that fly below 500 feet, such as helicopters, agricultural aircraft and aircraft landing or departing from airports.

Commercial aircraft are at the greatest risk of a drone incident during takeoff and landing. Also, aircraft could be forced to make a precautionary or emergency landing, resulting in flight delay or cancellation, incurring significant economic loss.

A collision involving a small drone striking the engine of an airliner could cause $5 million to $10 million in physical damage alone, according to AGCS. Damage from foreign objects, such as bird strikes, is already an issue for the aviation sector, as it is the fifth largest generator of insurance claims.

Reports of drone sightings from pilots, citizens and law enforcement have increased five-fold over the past year in the United States.

2. Loss of control

Losing control of a drone can result from a system failure or if the unit flies beyond the signal range or into an area where communication is interrupted.

AGCS sees a major risk in the loss of control because of frequency interferences as there have already been numerous such incidents.

3. Malicious acts

An emerging peril is the potential threat from drones being used to target critical infrastructure. There have been a number of incidents of drone overflights at power and nuclear stations. Law enforcement also is concerned that drones could be used to attack sports stadiums or other events where large crowds gather.

After more than a dozen overflights of reactors in 2014, French authorities announced the expenditure of $1.1 million to “detect, identify and neutralize small aerial drones.”

4. Spoofing or cyber attacks

“Spoofing” refers to attempts to take control of a drone by hacking the radio signal and sending commands to the aircraft from another control station. Drones, which are controlled by radio or Wi-Fi signals, may be hacked. Valuable recorded data can be lost during the flight when the drone is transmitting information to the control station. Data can also be obtained by cyber attack when it has been stored by the company gathering the data.

5. Privacy, trespass and nuisance

The Federal Aviation Administration has indicated that it will provide drone owners with privacy guidelines. The National Telecommunications and Information Administration in May released best practices to safely integrate large numbers of drones into the national airspace while guaranteeing personal privacy of people on the ground.

6. Lack of regulations

The primary concerns for insurers are the lack of international, regional and local regulations for the safe operation of drones, and the risks posed from sharing the same airspace as military and civil aviation operations. In many locations, there are few or no drone maintenance standards.

7. Pilot/operator skills

Hobbyists account for the majority of drone owners, yet remain largely unregulated in many countries, raising safety concerns, as many can be untrained and inexperienced. In many locations, there are few or no pilot training standards.

8. Rapid growth and numbers

The FAA forecasts that by the end of 2016 in the United States, more than 600,000 drones will be deployed for commercial use alone — three times the number of registered manned aircraft. In addition, 1.9 million drones are expected to be in use for recreational purposes. Globally, the drone market volume is forecast to reach at least 4.7 million units by 2020, with the market for commercial application of drone technology estimated to soar from $2 billion to $127 billion.

9. 'Drone for service' vendors

A consequence of more companies discovering the potential benefits of drones is the emergence of third-party “drone for service” vendors, who rent systems to commercial operators who may find it more convenient and cost effective.

Allianz names Fairfleet, an on-demand aerial inspections marketer, as an example. The company has created the first-ever online pilot-to-business marketplace via cloud technology, which links qualified pilots with customers in the construction, media and insurance industries.

10. Liability

Multimillion dollar claims against businesses, operators and manufacturers are likely to occur after regulations are finalized. Unmanned aircraft owners and operators have an exposure for the Aircraft Hull and Liability. Manufacturers of unmanned aircraft have a Products Liability exposure. Businesses that sell, service and train operators of drones have a General Liability exposure, Allianz says.