Expert Risk Articles

UAVs - risk and liability challenges

Unmanned aerial vehicles (UAVs) or drones used to be associated with military raids or unmanned spacecraft. Today, compact versions are increasingly operating in everyday life and the UAV industry is fast becoming a multi-billion dollar business. However, the rise of such innovative technology also brings a number of risk and liability challenges.

The stories of so-called drones or UAVs crashing or causing near disastrous scenarios are enough to make any risk manager cringe:

A drone crashes in front of German Chancellor Angela Merkel during a political rally. On the other side of the world, a small drone crash-lands in the grounds of the White House.

A drone crashes into a skyscraper sending glass falling to the street below. No one is injured, but it could have been very different. Elsewhere, a drone misses an Airbus A320 as it takes off – narrowly avoiding a catastrophic accident.

A drone crashes outside a correctional facility. Operators used it to smuggle cell phones, cigarettes, and drugs into the prison.

Threat scenarios

Such horror stories of UAVs operating in public airspace are real and becoming more common but even worse scenarios could happen. Third-party hackers could overtake a flight, for example. UAV loss of control due to frequency interference could occur, and already has done so, potentially resulting in fatalities. Almost any kind of small aircraft, helicopter or crop duster could be susceptible to accidental collision with a UAV.

Particularly worrisome is the potential terrorist threat of UAVs targeting power stations or nuclear reactors. In 2014, after more than a dozen overflights of reactors, French authorities announced the expenditure of €1m ($1.1m) “to detect, identify and neutralize small aerial drones”.1

Despite mishaps and misgivings of UAV technology, their commercial use in industries such as public safety, law enforcement, agriculture, construction, environmental/climate research, entertainment, cargo delivery, and even insurance risk assessment is increasing. UAVs are here to stay, along with their risks and rewards. According to aerospace and defense market analysis firm, The Teal Group, the commercial and consumer UAV market is anticipated to more than triple in the next decade, with spending totalling $93bn. The key to their deployment on a widespread basis, however, is a structured regulatory system.

The question of regulation

Although UAVs have been used for years, it is only now that they are coming into their own in a commercial sense. “UAVs will evolve in years to come,” says Thomas Kriesmann, AGCS Senior Underwriter General Aviation. “Perhaps, we might even see their uses further expand boundaries to include such things as flying cars as the technology develops.”

Compared with manned aviation, the worldwide regulation of UAVs is in its infancy, as evidenced by the numerous organizations and professional associations lobbying governments for harmonization. Once available, companies will bear the brunt of the most stringent regulations.

Governments see the need for adequate regulatory control. In some jurisdictions, such as Canada and the European Union, complex and comprehensive laws are already in place and certification is a prerequisite for commercial use. Clear distinctions are made between UAVs for business use and “model aircraft” for recreational use.

Other countries, such as the US and UK, are reviewing broader regulations to supplant simpler guidelines currently in force. The US will finalize comprehensive regulations sometime in 2016, while the UK considers how to proceed without severely affecting jobs or limiting commercial growth.

Elsewhere, in locations such as Brazil, Mexico, New Zealand, Switzerland, and Japan restrictions are limited, at best. In most cases, the designation between commercial and recreational UAV use is the key starting point in deciding whether to regulate and enforcing regulations once they’re set.

Common standards

No matter the jurisdiction, however, commonalities exist. Because investing in UAV technology is relatively inexpensive – models are available for a few hundred euros or dollars and are easy to operate – most standards begin with a few simple rules:

• Operators must maintain a visual line of sight (VLOS) fix on the vehicle at all times
• UAVs must be under a certain size (usually <55 pounds/25 kilograms)
• UAVs must not be operated in close proximity to airports or sporting venues.

For widespread commercial use of the technology to become the norm, however, clearly defined rules and penalties must be in place. Companies often work in tandem with governments to work out best practices.

Recently, for example, the online retailer Amazon proposed creating a separate airspace lane for commercial drone delivery service from between 200 and 400 feet elevation, with the air traffic in the corridor monitored by an automated computer system. Along with similar companies like Google and Verizon Communications, Amazon will work with the National Aeronautics and Space Administration (NASA) to devise and test that system.2

Commercial UAV applications

UAVs especially work well in places where it is not safe for humans – for example at a demolished site after a storm, around wind turbines, in collapsed mine tunnels, or at sites where mudslides or wildfires have laid waste.

“UAVs in commercial use will increase greatly in the next decade because they’re effective at carrying out tasks under certain conditions, especially in unsafe and dangerous environments,” says Josef Schweighart, AGCS Head of Aviation Central and Eastern Europe.

While some larger corporations own their own UAVs and regularly deploy them, the majority of commercial operators – especially those without a frequent need for them – find it cheaper and easier to “rent out” UAVs from third party “drones for-service” companies.3 In the first instance, the company would be the “owner” of the UAV; in the second, they would be the “non-owner”.

Key risks and insurance concerns

As UAVs become cheaper to purchase, smaller in size and easier to operate, insurance considerations come into play. While there haven’t been many accidents so far, there have been enough to generate concern among underwriters that the likelihood of collisions will only grow. Once regulations are somewhat standardized, the general use of UAVs will increase, which will likely results in more incidents.

The potential risks are obvious, namely collision or third-party damage or injury and the resulting liability. Most countries require operators to hold adequate levels of insurance in order to meet liabilities in the event of an accident. Commercial flights usually are covered for hull physical loss and product liability.

According to a report by insurance broker Marsh:Dawning of the Drones: The Evolving Risk of Unmanned Aerial Systems, the largest growth area for insurance in the UAV area is expected to be for commercial VLOS operations for unmanned cargo that require up to $1m physical loss sums insured.

“AGCS has a long history of insuring unmanned aircraft operations and unmanned aircraft manufacturers”, says James Van Meter, Unmanned Aircraft Systems (UAS) Product Line Head, AGCS. “We are presently insuring a number of UAS risks: manufacturers, distributors, universities, test sites, corporate operators, government contractors and service providers.

“A key element to the growth of the UAS industry is to have strong insurance partners like AGCS who are dedicated to supporting the industry,” Van Meter continues. “AGCS will continue to design custom solutions for our clients as the
regulations and technology evolve.”

While government agencies continue to wrestle with the regulatory implications of UAVs, insurers are concerned with breach of privacy issues and privacy protection, data collection and enforcement, harassment, spying, and other potentially criminal activities. Currently, most opt to exclude those exposures. Adjusting, investigating and settling losses nonetheless could be very difficult. Another concern is the lack of data with regard to operation and loss in the UAV arena.

The importance of UAV education

In the US, by Federal Aviation Administration (FAA) mandate, all military, commercial or private-owner operations in civil airspace must meet minimum levels of safety requirements. Education is a key component and 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. Both institutions are focused on training professional UAV operators with an emphasis on risk mitigation strategies and public safety awareness. The entry point for the novice operator is so low that even small things like safety check lists and reminders to avoid airports, agricultural areas and other settings where they might encounter low-flying aircraft are useful.

“Users have multiple options of manually operating UAVs,” says Kriesmann. “Training should cover radio technology, 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 technology issues.”

Just like in manned aviation, UAV operators should focus on safety as their top priority and obtain the necessary training and experience to competently pilot the UAV they are operating.

“Current regulations do not contain any formal training requirements for UAV operators,” says Van Meter. “The final rules will create a new pilot certificate for UAV operators and will contain training requirements and a written test,” he concludes.

1 Newsweek:
2 Risk and Insurance:
3 Fortune: