As the skies fill with drones, so will insurance products to cover their potential risks.
Once used nearly exclusively by the military, drones are now employed in a variety of commercial tasks, including insurance inspections. In fact, several major insurers used drones in the aftermath of Hurricane Harvey to survey and photograph property damage in an effort to help policyholder settle their claims faster.
As commercial applications for unmanned aircraft systems (UAS) grow, more of these small, remote-controlled objects will roam the skies. Allianz predicts that the number of drones will reach 4.7 million by 2020, while the market for UAS commercial technology will soar from $2 billion to $127 billion.
As with any evolving technology, however, drones present potential risks that the insurance industry is still assessing. “As the commercial insurance market for drones evolves, businesses and government entities planning to use drones or to expand their deployment should assess their risks and evaluate available insurance coverage,” Jeffrey McCann, VP of digital strategy at Shaw Sabey & Associates, a member of The Vertical Insurance Group, told Assurex Global.
In an article on PropertyCasualty360.com, President of Overwatch Risk Solutions Grant Goldsmith explained that the major risk posed by drones is the possibility of an operator losing control of the aircraft through a lost-link failure. If that happens, a drone may crash into a person or property, causing extensive injury or damage. As a result, Goldsmith said that insurers would be reluctant to insure drones that operate in crowded urban areas.
Additionally, a drone flying overhead could lead to a car crash if it distracts a driver. Drones carrying cargo could also cause harm if a package falls and wounds a bystander. Perhaps the most dangerous risk posed by drones, however, is the possibility of a catastrophic accident involving a large aircraft. Allianz reports that airports in the U.K. identified seven near misses between aircraft and drones between May 2014 and March 2015.
Since drones are typically equipped with cameras that can spy into homes and photograph unsuspecting individuals, some consumers have voiced concerns regarding privacy. Cameras mounted on drones could also patrol offices, warehouses, and industrial sites to steal proprietary information and other intellectual property rights. In addition, hackers could infiltrate a drone’s complex tech systems and steal its data or overtake the machine for malicious purposes.
By 2020, Allianz estimates that the market for drone insurance will hit $500 million in the U.S. and $1 billion worldwide. Allianz details adds that those needing drone insurance fall into three general classes: owners and operators (liability coverage for harm to people or property), manufacturers (product liability), and businesses that sell, service, and train operators of UAS (general liability).
Owners can also purchase insurance to cover a drone breakdown. Brightstone/Risk Strategies currently offers insurance that covers injuries or destruction caused by the UAS as well as any damages to the drone, with premiums starting at $1,000. Assurex Global stresses that businesses applying for a drone insurance policy must provide operational plans and procedures, government approvals, flight logs, and certification of proper training for all operators.
As Sean P. Mahoney and Geoffrey F. Sasso of White and Williams, LLP told PropertyCasualty360.com, however, general liability insurance may leave drone users lacking in complete coverage. “Companies that already hold aviation liability insurance policies might have coverage for drone-related bodily injury or property damage claims, but it's highly unlikely that such policies provide coverage for invasion of privacy, data theft, or ‘hacking’ claims,” they said. Mahoney and Sasso further noted that current coverages for drone liability have yet to be fully tested in the courts, but soon will be as lawsuits stemming from drone-related accidents increase.
Like the drone industry itself, the market for drones in insurance is just taking off, leaving underwriters with little data on accidents, repair costs, or pilot history at this time. As drones provide more data to underwriters, however, insurers will soon be better able to use them to underwrite and price risks and offer new products.