AGCS sees $1bn drone insurance market within a decade

Numbers of unmanned aircraft systems (UAS), also known as drones, are set to surge as they become smaller, cheaper and changes to legislation governing their use comes into force. The commercial drone industry is forecast to grow from $2bn today to around $127bn by 2020, according to AGCS. At the end of August 2016, new US Federal Aviation Authority (FAA) operational rules opened up the skies to routine commercial drone use in the country. Some 600,000 commercial drones and 1.9 million recreational drones will be in use by the end of this year, predicts the FAA. The European Aviation Safety Agency has also produced prototype regulations and the European Commission has a strategy to develop the use of drones in the region. As regulations adapt, commercial use of drones is expected to rocket. While still embryonic, the UAS market is forecast to reach 4.7 million units globally by 2020. Companies are already finding uses for drones. These include industrial inspections, aerial photography, border patrol, emergency deliveries and crop surveys. New tasks are being found all the time.hideDrones have the potential to deliver problem-solving technologies across numerous industries, AGCS said in its recent report on the subject, entitled Rise Of The Drones: Managing The Unique Risks Associated With Unmanned Aircraft Systems. "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 general aviation at AGCS. Workplace accidents could reduce, for example, if drone surveys replace the need for employees to inspect roofs. UAS could also be used to deliver blood and vaccines to remote locations in Africa, as well to fight grass fires, control pests and even deliver pizza and coffee, AGCS states in its report. Insurers are early adopters of drone technology, using UAS to assess construction and infrastructure project risk, or to survey loss damage after major catastrophes. For example, insurers used drones to assess damage to vehicles stored at the port of Tianjin, China, which were destroyed by a series of explosions. The growing popularity of UAS will bring new risks, according to the AGCS report. While drone technology can accomplish menial or dangerous tasks, it also raises safety concerns around collisions, terror attacks or cyber incidents. "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 the insurer. UAS raise two main safety concerns - mid-air collisions and the loss of control, explained AGCS. Drones could collide with aircraft that fly below 500 feet, including helicopters, agricultural aircraft and aircraft landing or taking off. Reports of UAS sightings from pilots and passengers have increased five-fold during the past year in the US. There have also been a number of near-miss incidents around the world, including in China, Dubai and the UK. Loss of control from frequency interference and other factors are major risks, states the AGCS report. A pilot losing control of an UAS during a building inspection could result in a total liability in excess of $5m, states the insurer. Even a small UAS could cause as much as $10m in damage if it hits the engine of an airplane, AGCS adds. Its report also draws attention to the emerging threat of terrorism. For example, terrorists could use UAS to target critical infrastructure such as nuclear power stations or live events. Other scenarios include hackers taking control during a flight, affecting radio signals and transmitting valuable recorded data from the aircraft to another control station. With increased numbers of drones taking to the air, demand for insurance cover is expected to rise. Insurers have been developing insurance to cover property and third-party liabilities related to UAS. AGCS believes the market for insuring drones could be worth $500m in the US, and $1bn globally, within a decade. While an attractive new market for insurers, AGCS expressed concern about the lack of consistent standards or regulations for the safe operation of UAS around the globe. Mandatory registration of UAS is not a feature of many markets. The registration of unmanned aircraft and robust education and training of operators is necessary to ensure safe UAS operations, AGCS said. "In future, identification of both UAS and operator will be essential to maintain proper liability in general. Introduction of car registration-style schemes will be needed sooner or later," said Mr Kriesmann. Risks can also be improved by using expert drone pilots. AGCS, for example, supports a pilot-to-business marketplace called FairFleet, which links pilots with businesses in need of UAS.

AGCS sees $1bn drone insurance market within a decade

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