Whether used commercially for industrial inspections, aerial photography, border patrol, emergency deliveries and crop surveys or recreationally by millions, drones or Unmanned Aircraft Systems (UAS) have the potential to become a multi-billion dollar business and deliver problem-solving technologies across numerous industries. However, more drones in the skies could also raise a number of new safety concerns, ranging from collisions and crashes to cyber-attacks and terrorism. To ensure safe UAS operations, it is necessary to train and educate operators of drones as well as having a systematic registration.

“There have already been enough incidents and near-misses to date involving UAS to generate concern that the likelihood of collisions and other loss events will grow as numbers multiply,” says James Van Meter, an Aviation Practice Leader at Allianz Global Corporate & Specialty (AGCS).

What are drones made for?

Drones or UAS are made for menial or dangerous tasks such as preventing work accidents like employees falling off the roof on building inspections. 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 pizza and coffee.

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“UAS in commercial use will increase greatly in the next decade because they are effective at carrying out menial or dangerous tasks,” said Thomas Kriegsmann, Senior Underwriter General Aviation, AGCS.

Insurers are also increasingly utilising UAS to make the 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.

The risks that comes with drones

There are several risks that come with drones which include collision and loss of control. A mid-air collision could happen if the pilot cannot see and avoid manned aircraft in time, especially those that normally fly below 500 feet, such as helicopters, agricultural aircraft and aircraft landing or taking-off. 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 $5 million, if the UAS crashed into a truck or shop, for example. Even a small UAS could cause as much as $10 million in damage alone when hitting an engine of an airplane.

According to Delphine Maidou, CEO of Allianz Global Corporate & Specialty Africa, an emerging peril is the potential terrorist threat from UAS targeting critical infrastructures 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.

In order to save the public from the risk of a mid-air collision, as well as physical or property damage or injury to others, manufacturers, owners and operators of UAS, as well as businesses that sell and service UAS needs to look into working with an insurance company. So–called drone insurance is a fast-growing area of the insurance industry and different coverages are available, depending on the type of use.

“Whether you run a coffee shop or a truck delivery business you need insurance to run your business. Drones are no different,” said Van Meter.

According to AGCS, commercial operators of UAS will require at least $1 million of insurance coverage to protect against risk exposures. Assuming growth projections for the commercial industry materialise there is potential for the drone insurance market to be worth over $500 million by the end of 2020 in the US. Globally, its value could approach $1 billion.

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