Lloyd insurers predict $90b premium spending on drones

A sharp escalation in the use of drones will bring increasingly complex risks from cyber attack, reckless pilots and privacy issues, a new report from the Lloyd’s of London insurance market has warned. Spending on unmanned aerial vehicles is likely to double to more than $90bn by 2024, Lloyd’s predicted, but makers and users of the machines, as well as insurers, are relatively unprepared for the emerging consequences.

“Drone technology has significant potential, but is a particularly novel – and controversial – emerging technology. Insurance is expected to be a key component in the risk-management framework that will need to be developed for the systems to operate safely and with due regard to third-party interests,” it argues in the report “Drones take flight”.

“As the market for drones continues to expand, manufacturers can expect to face increasingly complex and high-value risk exposures. Protection of intellectual property and the management of product liability will also likely need to be considered in the scope of insurance cover.”

Amazon proposes drones-only airspace to facilitate high-speed delivery Drones have a controversial image because of their use by the military, but the technology is increasingly being expanded into a number of civil and commercial uses.

Amazon has been talking about its plans – called Prime Air – to use drones for parcel deliveries in Britain and America. The company has already proposed to aviation regulators the establishment of special commercial air corridors. Drones have already been used to deliver medicines and textbooks in remote Australian locations, while the BBC World Service has used them for filming, and Kenya uses them to detect poachers on game reserves.

But Lloyd’s has concerns that negligent or reckless pilots, poor regulation and licensing and the dangers of collision or damage to third parties all represent significant potential risks.

“Liability considerations are expected to become increasingly significant for drone operations as they expand in scope. Third-party liability could be especially prominent as the greater intensity of use and variety of tasks will likely mean that drone operations interact with a much greater range and value of third-party interests,” says the report.

The insurer notes that already there have been cases such as a restaurant customer in New York who was injured by a drone being used to take images of diners, and another case where an Australian triathlete was hit by a drone dropping out of the sky when she was only metres from the finishing line.

Lloyd’s also points out the dangers to the equipment itself, potentially from cyber-attacks. “Most civilian drones rely on unencrypted data links for command and control and navigation, meaning they are particularly vulnerable to jamming, interception and manipulation.” It warns that there are already reports circulating of a thriving community of drone hackers who have focused on privacy and the use of the machines by police as potential reasons to disrupt their use.

Lloyds said different national regulators have been establishing their own rules, making it more complex and therefore costly for insurers.