As applications for unmanned aerial vehicles (UAV), also known as drones or unmanned aerial systems (UAS) increase, so do concerns about privacy and safety. As a result, managing and insuring against risk will be crucial to success for UAV manufacturers and operators and this presents an exciting new growth prospect for insurance companies. The Teal Group, an aerospace and defence analyst, estimates that the drone industry production will soar from the current worldwide UAV production of $4 billion annually to $14 billion, totalling $93 billion in the next ten years.
According to data announced in Parliament last year, Singapore has seen about 20 drone-related incidents since 2014. Although no confirmed injury or damage to property has been reported so far, there has been a growing commercial interest in drone liability insurance. The demand is largely from start-ups and technology firms looking to emulate the developments of international companies.
While the numbers are currently small, insurers like Aon suggest that current levels of drone liability coverage could be inadequate, as drone use and drone technology have “developed at a faster pace than both the law and insurance”.
As with most emerging industries and technology, regulation and related services – such as insurance – for drone operators are just catching up. In fact, a Bill regulating the safety and security aspects of drones in Singapore was only passed in Parliament last May. Drone companies, such as Garuda Robotics, have stated that, when seeking to secure third-party liability coverage for its activities, options were scarce and they had to approach an overseas underwriter. Furthermore, although there is currently no official requirement for drone operators in Singapore to be insured, this may soon change with overseas jurisdictions increasingly requiring insurance policies for larger models, similar to compulsory motor vehicle insurance.
Challenges for Insurers
Currently, standard, non-aviation insurance policies in Singapore – like property or public liability insurance – exclude liability cover for drone-related incidents because drones are considered an aviation risk. UAV owners must specifically request a policy and conditions for coverage are negotiated on a case-by-case basis.
There should also be a consideration of companies using drones equipped for data collection that may inadvertently capture trade secrets or other private information that could pose significant privacy risks and cause consequent insurance liabilities.
More than 25 uses of drones are currently being tested by public sector agencies in Singapore according to the Ministry of Transport. However, before extending third-party liability coverage to drone companies, insurers should consider a number of factors, such as:
- the area of use;
- what the drones are used for; and
- how experienced the drone operators are.The proliferation of small commercial drones also presents another challenge from an insurance perspective; the lack of available industry data. While commercial airline and general aviation accidents are hard to predict using even the most sophisticated modelling tools, insurers at least have a good sense of the premium they need to charge to cover the likely loss of activity in any given year.
Against the backdrop of a 2015 survey by Munich Re, which found that corporate risk managers believed the use of drones could become common practice for almost 40 per cent of businesses within the next five years, this should continue to be a fast-evolving sector of the insurance industry in Singapore and around the world which poses some very unique challenges.
However, with commercial UAVs, there is little data upon which to make similar predictions. Most models of UAVs have not existed long enough for insurers to acquire an understanding of the particular features that could influence the likelihood of an accident or system failure.
Other conditions that could be factored in include the type of drone used, its value, the presence of safety features and the existence of any prior claims.