The potential risks which accompany the anticipated increase in UAS usage highlight the need for operators to carry insurance coverage to help protect themselves and the general public.
Insurance can protect both operators and the general public from the risk of a mid-air collision as well as damage or injury to persons, property, or other aircraft. Unmanned aircraft owners and operators have an exposure for the aircraft hull and liability. Manufacturers of unmanned aircraft have a products liability exposure. Businesses that sell, service, and train operators of UAS have a general liability exposure.
However, UAS can be challenging to insure. An underwriter must look at unmanned aviation risks differently compared with manned aviation as there are significant differences that impact on the insured valuation and loss adjustment. In manned aircraft the majority of the value is in the engines and airframe. Conversely, the most expensive parts of any UAS are the electronic components and sensor payloads. At the higher end of the equipment spectrum are advanced cameras and sensors costing up to $500,000.
The primary concerns for insurers are the lack of international, regional and local regulations for the safe operation of UAS, and the risks posed from sharing the same airspace as military and civil aviation operations. In many locations, there are few or no pilot training and maintenance standards. UAS have not been largely integrated into local or global aviation networks or standards.
Another challenge is access to detailed data surrounding crash statistics, pilot experience or repair costs for UAS. Compared with manned aviation this information is not as widely available, as the UAS sector is still in its infancy. This will improve as insurers continue to assess and underwrite the risks.
However, a variety of UAS insurance products are available: physical damage (hull) for the vehicle, cameras, sensors, control stations, etc.; liability; aviation commercial general liability (CGL); aviation products liability; and non-owned aviation liability.
“Whether you run a coffee shop or truck delivery business you need insurance to continue running your business. Drones are no different,” says James Van Meter, an Aviation Practice Leader at AGCS.
“Generally we see $1m as the most popular limit purchased, although we do see higher limits needed to meet contractual requirements of large corporate clients.”
While it is too early to say definitively, assuming FAA growth projections for the commercial UAS industry in the US, there is potential for the drone insurance market in the US to be worth in excess of $150m at the end of 2016, growing to $500m+ by end of 2020. Globally, its value could approach $1bn by 2020.[ii]
The importance of UAS risk mitigation education
As private ownership grows so will expectations for safety education. AGCS partners with two of the top US aviation universities – Embry-Riddle Aeronautical University and the University of North Dakota in the US. Both institutions are focused on training professional UAS operators with an emphasis on risk mitigation strategies and public safety awareness. AGCS is also a founding member of the UAS Insurance Association [UASIA] which will assist the industry in establishing and maintaining safety and risk management best practice and procedure. The entry point for novice operators can be so low that even small things like safety checklists and reminders to avoid airports and other areas where they might encounter low-flying aircraft are important. Training has a crucial role to play in reducing the risk of an incident occurring. To date, insurers have already seen loss activity related to novice control of UAS due to lack of appropriate training.
“In addition to regulation, education will continue to be the key to ensuring safe UAS operations,” says Van Meter.
“Users have multiple options of manually operating UAS,” adds Thomas Kriesmann, Senior Underwriter General Aviation, AGCS. “Training should cover radio and battery technology, flight time calculation, meteorology, security checks for aircraft navigation systems, audible and visible signals, emergency instructions, and air traffic law and clearance issues.
“For corporations, additional training should include on-board camera image uses, flight communications and planning, flight rules over buildings and forests, advanced meteorology, system maintenance, and other technological issues.”
“Effective training helps to ensure the conduct of safe and responsible UAS operations, while education and research provides opportunities to explore and better understand how this technology can be used to achieve efficiency gains and profitability,” adds Brent Terwilliger, Embry-Riddle Aeronautical University. “The industry’s success is directly tied to our next generation of engineers, pilots, maintainers, and entrepreneurs ability to apply what they learn in the classroom to solve challenges affecting the field.”
In many locations around the world no registration of the UAS is necessary, causing a problem for insurers and claimants. “However, in future, identification of both UAS and operator will be essential for maintaining proper liability in general. Sooner or later we will have something similar to car registration and/or cell phone registration,” concludes Kriesmann.
[i] Risk Product Liability Trends, Triggers and Insurance In Commercial Aerial Robots – David Beyer, Donna Dulo, Gale Townsley and Stephen Wu
[ii] Allianz Global Corporate & Specialty: Assumes 600,000 commercial UAS in use at end of 2016 and 2.7 million in use by end of 2020. Based on average premium and conservative take-up rate.
UAS Safety Checklist
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