Drones: an emerging market for insurers

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drone flying in the sky

The drones or unmanned aerial vehicles (UAVs) sector has seen a phenomenal growth over the recent years thanks to the rapid development of the technology.

Once reserved to the military industry complex, drones are now hitting the public shelves because of the economy of scale, amongst other things, which makes owning a drone more affordable.

Hobbyists were the first group to fully embrace the new technology. For them, drones seemed like harmless toys to capture cool video footage from high above. The French went even further and are organising Stars Wars-style drone racing in the forests as the video below shows

Not only the general public is interested in these devices but, also, businesses see a great way of improving efficiency, at the same time reducing costs, using drones. For example last year, Amazon, the world’s largest online retailer, unveiled plans to use drones to deliver small packages. Other companies like Domino’s pizza, DHL are also testing the new technology.

The latest of them is the Finnish postal service which launched their first commercial drone ‘parcelcopter’ delivery service. The service is used for delivering goods bought online between Helsinki and an island destination three miles away.

In addition to the above, drones are used in many other applications such as rescue missions, research, video production and photography, security and surveillance. In all of these applications, a number of new and little understood risks and issues are brought about that all the parties, involved in the new technology, are currently trying to understand and adapt to.

Marsh, a leading Aviation and Aerospace insurance broker, recently published a report in which it has identified a number of issues impeding the technology advancements. The report also outlines how the insurance industry is helping to increase the adoption of drones’ usage.

Fundamentally, the main issues revolve around three elements namely Regulation, Safety and Security.

Drone Regulation

Regulation is certainly a serious hindering attribute to the widespread usage of drones. Currently, governments around the world are playing catch-up or simply banning their usages until they establish a strong regulatory framework for drones’ operations. Though, the insurance industry is taking a proactive stance and writing their own rules to fill the void left by regulators as noted in a post published by Bloomberg titled “Insurers step up for drone pilots unwilling to wait on FAA rules”

Drone Safety

Safety is the most critical component of drones’ operations. Unfortunately accidents can happen and if the right precautions are not put in place this could have detrimental impacts in the development of the technology. Mandatory training and licensing schemes would alleviate the safety risks. In addition, the promotion of the ‘sense and avoid’ technology incorporated in the drones should be encouraged and possibly made compulsory.

Drone Security

Drones’ vulnerabilities to cyber-attacks pose a great deal of challenges which could become an important consideration to the insurance industry. In addition, improper use of captured video during filming with a drone could expose a production to privacy allegations and related consequences. Therefore management of this risk will require privacy impact assessments and compliance.

Much like in the mid-1990s when there was a technological wave with the Internet boom, today we are experiencing something similar with the UAVs.

The insurance industry is well placed to benefit of the technology in terms of usage and new markets. However, the industry will have to work together with all parties involved to ensure that, tomorrow, the technology is a success.

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