The use of drones in various sectors, including insurance, has much potential. Drone technology is widely used in military applications, but is now available in agriculture (crop monitoring, precision fertilizing), public services (border control, assisting emergency services), logistics (parcel and medical supply delivery), wildlife protection (prevention of poaching or mining), media (news production, film and entertainment) and research (data gathering and analysis).
Commercial and personal lines insurers that cover property risks are no strangers to drone technology, as these firms were have been early adopters in the fields of claims and risk assessments.
The Association for Unmanned Vehicle Systems International predicts that by 2025, drones will create 100,000 new jobs and generate $82 billion in economic activity. However, in order for the industry to be fully prepared for widespread drone use, it's imperative to realize that safety, security and surveillance issues pose incredible risks to users of this technology, according to Lloyd's Emerging Risk Report, "Drones Take Flight."
Below and on the following pages, read about five risks that the drone industry faces:
1. Negligent or reckless pilots
People aren't perfect. As with any new technology operated by a human, safe operational procedures are a critical factor driving the rate of safety incidents. Mandatory operating licensing will enhance insurers' ability to assess risk. "The development of training and licensing schemes will be important to provide assurance of the capability of operators," Lloyd's writes in its report.
The Federal Aviation Authority estimates that more than 7,000 aircraft are airborne within U.S. airspace at any given time. "Near miss" events already have begun to appear. Therefore, the potential for collision between aircraft will likely be a key risk aggregation issue for carriers. Lloyd's predicts that collision avoidance technology will be a requirement for future insurance policies.
Nevertheless, technical malfunctions or failure (or malicious attacks – continue reading) outside of the operator's control could cause an incident and generate liability claims. Therefore, product liability insurance has the potential to be a significant exposure for drone manufacturers.
(Photo/Shutterstock)
2. Patchy regulatory regimes
Regulation is developing, but is inconsistent between international jurisdictions, Lloyd's says in its report. "A regulatory system that relied heavily on responsible behavior and/or the threat of sanctions could generate significant uncertainty for insurers." Effective collaboration and a consistent multinational approach will help enable the development of standard insurance wordings and cover for drone operations.
Third-party liability clarity is needed. Last year in New York, a restaurant patron was injured by a drone taking pictures of diners. This exposure can grow in size and damages, if, for example, a drone were to collide with a commercial passenger aircraft, causing it to crash.
(Photo/Shutterstock)
3. Poor enforcement
The drone industry has grown so rapidly that regulators are unable to provide strong oversight. "Tracking/monitoring technology could also help operators avoid breaking laws in the first place, such as by supporting the development of 'geo-fencing' technology to ensure drones do not stray into controlled airspace," Lloyd's writes in its report.
(Photo/Shutterstock)
4. Vulnerability to cyber attack
Drones are vulnerable to a range of cyber attacks. Drones for non-military use rely on unencrypted data links for command, control and navigation. Realizing this, hackers have jammed, intercepted and manipulated the drones' controls.
Cyber attack has not yet emerged as a major factor for insurers' assessment of drone risks, Lloyd's writes, but cyber security will factor heavily in commercial drone operations, and will play a heavy role in underwriters' risk assessment.
(Photo/Shutterstock)
5. Privacy infringement
According to Lloyd's, privacy is the most cited public concern regarding drones. "Professional indemnity insurance can cover the cost of legal fees and damages awarded for breach of privacy against drone operators," Lloyd's writes in its report. In order to obtain this type of policy for a drone with surveillance capabilities, an insured should complete a privacy impact assessment and comply with applicable regulations and laws. Lloyd's points to the Data Protection Act in the U.K. as one such law that governs the processing of personal data.
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