Drones set to be multi-billion dollar business – with insurable risks
Unmanned aircraft systems (UAS) have the potential to become a multi-billion dollar business delivering problem-solving technologies across numerous industries, however, their use also brings safety concerns such as risk of collision, a terrorist attack or cyber incident, according to a report from Allianz Global Corporate & Specialty.
The report, ‘Rise of the Drone: Managing the Unique Risk Associated with Unmanned Aircraft Systems’, suggests that in order to ensure safe UAS operations, systematic registration of unmanned aircraft along with robust education and training of operators is necessary.
“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,” said James Van Meter, an aviation practice leader at AGCS.
Growth prospects are surging as drones are becoming smaller cheaper and easier to use; 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.
Additionally, 1.9 million UAS are expected to be in recreation use, and by 2020 the UAS market is forecast to reach 4.7 million units with the market for commercial application of UAS technology estimated to soar from $2 billion to $127 billion.
According to AGCS, drones have the potential to cause work-related accidents such as employees falling of a roof on building inspects and workers’ compensation losses to decrease.
Other emerging uses include delivering blood and vaccines to remote locations in Africa, fighting grass fires, pest control and also delivering food.
“UAS in commercial use will increase greatly in the next decade because they are effective at carrying out menial or dangerous tasks,” explained Thomas Kriesmann, senior underwriter of general aviation at AGCS.
However, new risk and potential for misuse of UAS technology arises as the surge in their demand continues, with mid-air collisions and loss of control as the two priority safety concerns, AGCS said.
Mid-air collisions could potentially happen if the pilot cannot see and avoid manned aircraft, and loss of control can result from a system failure or if the UAS flies beyond signal range.
AGCS suggests that even a small drone could cause as much as $10 million in damage alone from hitting an engine of an airplane.
Furthermore, and emerging peril is the potential terrorist threat from UAS targeting critical infrastructure such as (nuclear) power stations or live events.
There is also a further degree of cyber risk as hackers could take control of a drone, causing a crash or hacking the radio signal and transmitting valuable recorded data from the aircraft from another control station (‘spoofing’).
Drone insurance is expected to be a fast-growing area of the insurance industry with different types of coverage available, dependent on the risk.
“Whether you run a coffee shop or a truck delivery business you need insurance to run your business. Drones are no different,” Van Meter explains. “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 materialize there is potential for the drone insurance market to be worth over $500 million by the end of 2020 in the US, according to AGCS. Its global value could approach $1 billion.
