Drone use in commercial insurance: Potential liability risks for insurers
Drones are providing insurers with capabilities that were never before thought possible — as well as a number of potential risks.
According to the Federal Aviation Administration, 2.85 million small drones could fill the sky by 2022, and 450,000 of them will be used for commercial purposes.
With a multitude of market opportunities, drones are providing insurers with capabilities that were never before thought possible — but in addition to the benefits, drones are also presenting insurers with a number of potential risks and exposures. The Claims and Litigation Management Alliance has identified privacy, property, and bodily injury as key issues for insurers, along with growing concerns over technology risks.
Privacy issues
A drone’s airborne abilities have created a variety of privacy concerns for insurers. In fact, a survey conducted by Munich Reinsurance America reported that the potential for invasion of privacy when using drones remains the top issue for most risk managers, with 61% of survey participants citing invasion of privacy as their largest drone-use concern.
Because drones can fly at lower altitudes than manned aircraft, common-law nuisance claims against drone operators regarding privacy laws are becoming more common. According to a report by Deloitte, courts have upheld trespass claims involving drones that have operated below navigable airspace and interfered with a property owner’s privacy. As such, regulators may begin to require insurers to obtain prior approval from insureds before conducting risk assessments using drones, or when retrieving a drone from personal property. From a risk management perspective, insurers should always be cognizant of situations in which personal privacy issues may exist and present potential liability risks.
Bodily injury and property damage
Low-flying drones and unintentional crash landings can, and have, caused bodily injury incidents. Multiple risks associated with property damage are another concern, with accidental crashes involving drones colliding with planes, automobiles, and private property. Today, growing concerns over first-person view or radio piloting (in which drones can be flown far beyond visual range and at very high altitudes) have raised significant safety concerns regarding collision risks.
Technology risks
According to Deloitte, technology risks associated with drones are increasing and include the following issues:
- Spoofing attacks: Because drones are controlled by radio or Wi-Fi signals, this makes them vulnerable to hijacking attempts in which another control station hacks a drone’s radio signal and provides incorrect GPS coordinates, leading to potential liability issues.
- Loss of control: A system failure or a drone flying beyond the signal range or into an area where communication is interrupted due to frequency interferences can lead to malfunctions and operational issues that could put people and property at risk.
- Data security: Drones are tasked with collecting and storing valuable data. When airborne, data can be lost when a drone transmits information to the control station, or during a cyberattack on the company gathering and storing the data – leaving sensitive information vulnerable.
While the FAA and various state and local authorities currently control U.S. skies, rules for commercial drone operation and piloting continue to evolve. Insurance companies are individually responsible for understanding the risks associated with drone technology, along with the federal, state, and local laws that govern them.
Lori Hunter (lhunter@wwfi.com) is an executive vice president and Auvied Homaizad (ahomaizad@wwfi.com ) is an associate broker with Worldwide Facilities, a national wholesale insurance broker, managing general agent and program underwriter specializing in a variety of risks, including aviation-related risk, offering both liability and physical damage (hull) coverage for drones/unmanned aircraft and accompanying equipment.
This article first appeared on Worldwide Facilities’ website and is republished here with the authors’ consent.
Related: