Drone insurance market to reach US$1bn in a decade

Drones have the potential to deliver a wide range of problem-solving technologies, with uses ranging from industrial inspections, aerial photography and border patrol to emergency deliveries and crop surveys.

But drones also raise a number of new safety concerns, ranging from collisions and crashes to cyber attacks and terrorism. According to a new report from aviation insurer Allianz Global Corporate & Specialty (AGCS), systematic registration of unmanned aircraft and robust education and training of operators is necessary to ensure the safe operation of drones.

As drones are becoming smaller, cheaper and easier to use – and regulatory change, particularly in the US, lowers barriers to entry – growth prospects are surging. The US Federal Aviation Administration (FAA) forecasts that by the end of 2016 in the US over 600,000 UAS will be deployed for commercial use alone – three times the number of registered manned aircraft. In addition, 1.9 million UAS are expected to be in recreational use. Globally, the UAS market is forecast to reach 4.7 million units, or higher, by 2020 with the market for commercial application of UAS technology estimated to soar from US$2bn to US$127bn.

Assuming growth projections for the commercial industry materialise there is potential for the drone insurance market to be worth US$500m+ by the end of 2020 in the US. Globally, its value could approach US$1bn.

“UAS in commercial use will increase greatly in the next decade because they are effective at carrying out menial or dangerous tasks,” explains senior underwriter, general aviation, at AGCS, Thomas Kriesmann.

Work accidents such as employees falling off the roof on building inspections and workers compensation losses are expected to decrease as a result. UAS also have the potential to both solve problems and save costs in future across a number of other industries, throughout the developing world and in disaster relief situations. Emerging uses include delivering blood and vaccines to remote locations in Africa, fighting grass fires, pest control and even delivering food and drink.

Insurers are also increasingly using UAS to make risk assessment of construction or infrastructure projects easier and safer. Claims handling can also be made quicker and more effective by using drones to survey loss damage after major catastrophes. For example, when parts of Tianjin, China, were rendered inaccessible after major explosions last year, high resolution images taken by UAS after the blasts where compared with previous photographs to determine how many vehicles had been destroyed.

The new report from Allianz also points out the potential for misuse of UAS technology, raising two priority safety concerns: mid-air collisions and the loss of control. Reports of UAS sightings from pilots, citizens and law enforcement have increased five-fold over the past year in the US; while there have been a number of near-miss incidents around the world including in China, Dubai, and the UK. Loss of control can result from a system failure or if the UAS flies beyond signal range. AGCS sees a major risk in loss of control from frequency interferences and other factors. A pilot losing control of a UAS during a building inspection could result in a total liability easily in excess of US$5 million, if the UAS crashed into a truck or shop, for example. Even a small UAS could cause as much as US$10 million in damage alone when hitting an engine of an airplane.

An emerging peril is the potential terrorist threat from UAS targeting critical infrastructure such as (nuclear) power stations or live events. Other scenarios include hackers taking control during a flight, causing a crash, or hacking the radio signal and transmitting valuable recorded data from the aircraft from another control station ('spoofing'). There are also many public concerns over UAS around privacy issues.

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