Eye in the Sky

The drones are coming! The drones are coming!

Okay, but will anyone know how to insure them once they get wherever they are going?

Everyone needs to take a breather – although not a long one – so that when different industries are ready to send unmanned aerial vehicles (UAVs) skyward, they have fully considered both the known and potential risks that come with these fast-evolving, airborne marvels.

Of course, that time is fast approaching. The interest in UAVs seems to be matched only by their promise to create or add to markets.

A recent white paper from Zurich Insurance cites an estimate out of Europe that the global industry for commercial and civil unmanned aircraft systems (UASs) will be worth US$777.7 million in global spending in 2015.

And Lloyd’s, calling the drones sector an important component of the global aviation industry, recently reported expenditure on acquisition could double to US$91 billion by 2024.

Based on in-person interviews with 100 risk managers, Munich Re noted in May the use of drones could become common practice for almost 40% of polled businesses in fewer than five years.

No wonder. Just consider how drones can be used: from risk management to inspecting dangerous sites, surveying disaster scenes, delivering supplies, monitoring physical equipment and infrastructure, identifying emergency response priorities and, even, checking out more mundane, but still important, things like a damaged roof.

Sectors where civil and commercial use of drones is under way, Lloyd’s points out, include agriculture, public services, logistics, wildlife protection, media, research, infrastructure and utilities.

And there is no reason to believe current applications will not expand. “As drones have become smaller, cheaper, more intelligent and more accessible, they now offer unprecedented opportunities as a risk mitigation tool,” notes the Zurich paper.

All those applications have businesses, including those in insurance, encouraged about how UAVs can be employed. But new technology comes with new risks. Until the regulatory regime catches up, providing some measure of what can and cannot be done, risks will remain unknown.

“Clear and harmonized regulation would enable start-up operations to plan with certainty, public perception to improve, and entrepreneurs and businesses to expand,” notes a report from Marsh.

As for Lloyd’s, it states that effective airspace control and collision avoidance technology will be key requirements for the insurance of drones operating in busy airspace. That has prompted some insurers to demand greater risk mitigation measures from drone operators, it adds.

Unfortunately, as the Zurich white paper indicates, some companies – being new to the aviation scene – may not have a clear understanding of associated risks. Operating outside of their core competencies, this initial lack of competency may, in fact, be the overarching risk with drones and those looking to capitalize on their use.

Standard drone insurance programs can cover third-party liability, physical loss and damage to the system components during operation or transit, Lloyd’s reports, although policies can be tailored to suit individual exposures and may also include directors’ and officers’ liability, professional indemnity, employers’ liability, product liability, cargo liability, terrorism, war and hijacking.

Marsh cautions that “insurers are actively underwriting policies to secure an early foothold in the sector, despite many regulators struggling to expedite comprehensive regulations that permit drone use.”

While the majority of manned aircraft operators around the world must hold adequate levels of insurance to meet their liabilities in the event of an accident, the situation for “UAS operators is not as clear,” Marsh adds.

All the enthusiasm around drones must not overshadow the fact that using drones demands training, staffing and operational procedures.

News risks can and will be created – and these should be on the radars of everyone from users to brokers, insurers and regulators.