Commercial drone industry opens up new market for insurers

The growth of the commercial drone market is increasing demand for specialist drone insurance, according to leading City-headquartered law firm, RPC.

The drone industry sprang into life in 2015 with 1,971 new Civil Aviation Authority (CAA)-approved commercial operators (up from a single one in 2014) - creating a new growth market for insurers.

With 551 new operators licensed by mid-April, drone insurance may quickly move from being a niche product if current growth can be sustained.

RPC explains that traditional public liability insurance policies are not best equipped to deal with the specific risks associated with commercial drone usage and that many insurers are specifically excluding drones from their generalist policies.

Sectors which may require specific insurance because of their use of drones, or small unmanned aircraft systems, include:

• Media, including TV and film
• Photographers
• Property surveyors and engineers
• Energy and rail companies for power line maintenance
• Farmers for crop surveys
• Construction support companies 

RPC comments that although unmanned aircraft systems (UASs) are a significant new market, insurers are treating drone insurance carefully as the claims experience is relatively limited.  The extent of damage that could be caused by commercial UAS use is not yet fully understood. However, that uncertainty is creating demand for insurance to cover the following risks.

Physical property risks

Drone users will seek to be covered for accidental damage claims, subject to the usual fault determination proceedings. Although many commercial drones are small and light, the potential danger of an out of control drone is not yet known. A drone was recently suspected of colliding with a plane over Heathrow in what is believed to be the first case of its kind in the UK – however no physical damage was recorded. The burden of care on a drone operator is likely to be high meaning legal liability for damage is likely to follow an incident

From a liability perspective, the risk that drones will cause significant disruption and consequent third party claims without causing physical damage also means that many exposures arising from the operation of drones would fall outside the scope of traditional public liability coverage.

Personal injury

Risk associated with personal injuries caused by accidental improper use of a drone could be extensive. The CAA has strict rules for drone usage in public areas to reduce risk of injuries. If CAA rules are breached insurers may not cover resulting accidents. However, if accidental injuries occur outside CAA specified zones, insurance is vital to protect users against damages and legal costs.

Breaches of privacy

With aerial photography, filming, surveillance and data collection dominating the drone market, insurance coverage to protect users who unwittingly use imagery that contravenes privacy laws is a key policy area.

Regulatory/Criminal investigations

Misuse of drones could result in an investigation by the CAA, HSE or police. The costs of professional advice to deal with such an investigation can be covered by insurance, and insurance can also cover the costs of civil damages or fines levied.

Insurance companies which offer cover for drones range from global giants such as AIG to niche insurance specialists.

Philip Tansley, Legal Director at RPC, said: “Many industry commentators believe we have barely scratched the surface of drone usage. With the growth of that market we are going to get a better understanding of the risks and coverage issues related to drones.”

“Major issues do remain to be resolved for insurers – such as the extent of the risk that drones have to commercial aircraft and the liabilities arising from drone use. However, with traditional insurance policies now specifically looking to reduce or completely exclude drone coverage there is a clear marketing opportunity for specialist cover.”

RPC explains that an increasing number of Managing General Agents, which are appointed by insurers to write insurance for them, are beginning to offer drone insurance.