Post Magazine article: Drones: Up, up and away by Veronica Cowan
Our COO James Gadbury was recently interview by Post Online magazine, which provides insurance, broker and risk management insight. Article below:
"The rise in drone use shows no sign of slowing down, both on a personal and commercial level. Insurers can utilise the technology to improve efficiency and tap into a new area of insurance.
As Germanwings’ French Alps disaster showed, human factors are blighting aviation’s safety record, prompting experts to fly the flag for pilotless planes, while passengers still want the comfort blanket of pilots monitoring automated cockpit systems.
Unmanned passenger aircraft might be some decades away, but drones are flying high – sometimes straying too close to piloted aircraft. A ‘near miss’ between a passenger plane and a drone near Heathrow last year put this risk onto the radar, and aviation investigators revealed more incidents last month, including a paraglider pilot put in peril from a quadcopter drone. In March, the House of Lord’s European Union Committee report on the civilian use of drones flagged up the need for a tracking and tracing system for these aircraft.
The rapid rise in the commercial use of drones – also known as unmanned aircraft systems, unmanned aerial vehicles and remotely piloted aircraft systems – prompted Allianz Global’s Aviation Study for 2014 to list these as an emerging risk.
According to a report by IT firm Cognizant –Drones: The Insurance Industry’s Next Game Changer? – drone use could increase insurance efficiency by up to 50% following major incidents. Nicholas Hyatt, forensic specialist and associate principal at Thornton Tomasetti, says drones are becoming the “go-to solution” for risk assessment of major catastrophic claims, “particularly in more remote and inaccessible parts of the world, such as Nepal, where they can quickly and cost-effectively assess damage to buildings and infrastructure.”
As drone technology develops, Hyatt predicts their use will expand into day-to-day, with routine monitoring inspections of the health of a building to become the norm. This would improve the quality of the information used in risk assessment, underwriting, and loss control.
Despite the obvious potential, as at 30 April few of the 597 active permissions from the Civil Aviation Authority to fly drones commercially were insurance-related. However, Richard Taylor, a spokesman for the Civil Aviation Authority observes: “Insurance companies may be using the services of specialist operators who already have permission [to use drones], rather than go to the trouble of obtaining their own. It may simply be easier for insurance companies to buy-in the expertise on an ad hoc basis.”
He could be right, as David Hitchen, McLarens’ aviation associate director, explains: “We don’t have our own drones as they need a degree of expertise to use, and we will call on experts.” McLarens commissioned a military drone to map the site of a large commercial aircraft crash in North Africa, because the terrain was difficult to access. Drones can also be used to inspect air frames. “The tail of a big aircraft can be very high so we have been trialling camera technology on drones,” he adds. His company also handles claims for commercial UAVs which might have crashed or been damaged. The small ones are usually a write-off.
Struggling to get cover
But insurance is not a key consideration for all drone users – evidence to the House of Lords Committee suggests some commercial customers are ‘winging it’ without liability insurance, while other operators and ancillary businesses struggle to get cover.
High premiums and difficulty obtaining third party liability insurance have been raised as stumbling blocks for smaller commercial businesses, who say the UK SME market is restricted to a few providers – which stifles competition. One difficulty for SMEs is assessing the range of experience of drone operators. Philip Heath, a director of John Heath Insurance, told the committee his company’s premiums were calculated according to whether the pilot had CAA permission to fly and had completed pilot training, the value of their equipment, total flying hours and level of liability required.
Resource Group – a CAA-certified training organisation – suggest insurers should have “a price scaler, where premiums are reduced subject to [a] number of demonstrated safety processes, similar to a ‘no claims’ bonus.” But it’s tricky for insurers to rate risks without actuarial and technical data, which is noticeable by its absence with commercial UAVs.
This prompted the EU Committee to recommend any future legislation should require national aviation authorities to share statistics about incidents with regulators, insurers and operators in other member states. It predicts premiums will decrease with greater demand, and recommends trade associations and national aviation authorities should raise awareness of – and enforce – commercial RPAS pilots’ obligations under EU Regulation 785/2004 to purchase insurance.
The need for specialist consideration
Insurers have been covering risks around design and manufacturing of drones for some time, but do the same insurers tend to cover drones in operation? James Gadbury, chief operating officer of specialist provider UAV Protect, explains: “It would be the same carriers for product liability as the ‘all risks’ if placed in the aviation market, as these coverages should be.
“However, there are also a lot of insurers that are covering the third party exposure only, under commercial general liability policies, by writing this back in, but this could cause issues in the event of a claim,” he warns.
Colin Bradbury, commercial product director with RSA, agrees that drones need specialist consideration when it comes to selecting cover: “From a commercial perspective, insurance depends on the size of the drone, as they are technically aerial devices and therefore an aviation risk. We will amend public liability cover to include coverage for smaller ones, but an insured will need to it discuss [this] with us, as a standard public liability policy will exclude the cover.”
UAV Protect’s policy is drone-specific, but worringly, some insurers are tweaking aviation policies by deleting sections drone owners don’t need or want. As Gadbury explains: “A lot of insurers aren’t even bothering with the tweaking and are just using manned aviation policies, often with a write-back or endorsement that UAVs are covered under the policy."
It is difficult to judge whether drones offer a high-flying opportunity for insurers or if the market is stalling. “There are now about 500 operators with permission to fly in the UK so there is demand, but the vast majority of these are people with DJIs [a Chinese company at the forefront of the civilian drone industry] and lower value pieces of equipment,” explains Gadbury.
The impression gained is that insurers seem reluctant to get involved in such minimum premium business, and Christopher Proudlove, senior vice-president and team leader of complex risks at Global Aerospace, comments: “The premium volume is certainly a challenge. Some insurers are adopting a wait-and-see approach while others, like Global Aerospace, are very active and have developed specific products and services for [them].”
Those operating commercially need third party liability insurance, so demand goes
hand-in-hand with the number of approved operators, notes Gadbury, who adds: “In countries such as Australia the number of certificates [issued to] commercial operators has increased dramatically in the last year or so. In the US, once the small UAS rule is passed by the Federal Aviation Authority, the market will open up substantially there too.”
The main division is between commercial and leisure drones, although the latter includes hobbyists with knowledge of aviation as well as off-the-shelf purchasers who fly drones in their back gardens or parks. However, the committee thought introducing mandatory third-party liability insurance for leisure users would be disproportionate to the hazard posed, although the distinction between the purely domestic and commercial isn’t always clear. It also recommended a change to the way the minimum insurance limit is arrived at, as well as noting the need for clarification of the fact that the legal requirement to purchase such insurance depends on whether the RPAS is being used for hobbyist or commercial use.
Specialists in all areas
Insurers are not really interested in leisure drones, according to Victoria Stone, senior vice-president at US-based broker Poms & Associates, who comments: “We are not insuring hobbyists. Some, I understand, are securing coverage while others are not.”
Meanwhile, David Bacon, manager at Lloyds broker Crispin Speers and Partners, observes that insurers would be interested in police fleets and drones used by professionals, such as in the film industry. Proudlove agrees that the commercial market is still the main attraction for insurers, although he comments: “Eventually there will be specialists in all areas. Clearly the area where large carriers and brokers can offer the most value will be in the commercial space.”
Safety is high on the list of issues drone manufacturers need to address, because commercial growth is dependent on supportive insurance solutions. If demand exceeds capacity, could this put drone development into free-fall? “The market is where the computer was in the 80s or the internet was in the 90s,” Gadbury comments, “but this market will move forward very quickly. There are enough insurers offering coverage currently, but once the market matures everyone will offer cover and there will be lots of capacity – it’s a potentially massive area of growth for a very stagnant aviation market.”
According to Proudlove, insurers are adapting fast, but still don’t understand the ability of the many small UAS drones. “As the market develops, insurers will have to work hard to keep up with industry developments,” he warns.
Such developments include trying to integrate artificial intelligence into drones. The aim of progressive integration from 2016 must be accompanied by adequate public debate on measures which address societal concerns, the EU Committee mandated.
As Hitchen explains: “It is a mixed airspace and CAA rules affect it. Before UAS can be integrated into it, software needs to be developed further to develop a ‘sense and avoid’ function [the ability to avoid mid-air collisions], and manufacturers have to prove to the regulators that their systems are robust and safe.”
As to whether the insurance industry is keeping its powder dry until the drone technology clouds clear, Gadbury comments: “There are a number of technological advances that could improve the risk for insurers, such as geofencing [drones programmed not to enter protected airspace] and ‘detect and avoid’. Insurers can help manufacturers by speaking to them and letting them know what they would like to see built into the software. Insurers can act as quasi-regulators in this way.”
Landing on the high street
Drones have also landed on the high street, and soaring sales suggest this is more than just a flight of fancy. If aviation and dedicated drone insurers are a bit up in the air about whether to insure such leisure use, what happens if they damage property, or injure or kill someone?
Only three out of 10 leading household insurers were willing to air their views to Post. RSA spokesperson Nicola Hussey reports that from a personal lines perspective, drones are treated as aircraft and specifically excluded from the liability section of household policies. “Therefore, there would be no cover under a household policy for liability in respect of damage, injury or death to/of others if this was caused by a drone which the policyholder owned.”
Also excluded is liability arising from any employment, trade, profession or business of the insured, so if the drone was being operated in a business capacity by the policyholder, there would be no cover under the policy.
Aviva classes a UAV as a “pedestrian-controlled toy or model aircraft” which is covered under the liability section of its standard home contents policies. Jonathan Cracknell, Aviva’s household underwriter, explains: “Accidental damage to third-party property or injury to another person caused by recreational use of a drone – not those used for business or professional purposes – would be covered. However, it must be operated in accordance with the manufacturer’s guidelines and in adherence to the law. It certainly shouldn’t be flown anywhere near airports.”
Rory Grant, Endsleigh’s home account manager says that presently, home insurance policies from Zurich and Endsleigh are likely to include public liability cover for the use of non-commercial drones, adding: “It’s an interesting area and unlike for more hobbyist things like remote control planes and helicopters, drones seem to be capturing the public imagination more widely. We’re not yet seeing drones crowding our airspace, but as their popularity increases we’ll keep an eye on how and where they are used, in case the risk they present becomes more identifiable and distinct.”
CREDIT: Post Online; Veronica Cowan