Insurers can act as enablers of responsible drone use, says new report

Lloyd's said drone technology has "significant potential" (21-page / 299KB PDF), particularly in the areas of environmental monitoring, photography and filming and in transportation. However, it said that there are five "fundamental risks" that insurers face at the moment if they are providing cover to drone manufacturers or operators.

The five risks are of drones being operated by "negligent or reckless pilots", of there being inconsistent regulation and poor enforcement across jurisdictions, the vulnerability of drones to cyber attacks and of them being operated in a way which infringes people's privacy, Lloyd's said.

It called on drone manufacturers to work with regulators and "early adopters" of the technology on "a global basis" to ensure drones are "used safely and responsibly".

"Insurance is expected to be a key component of the risk management framework that will need to be developed for the systems to operate safely and with due regard for third party interests," Lloyd's said.

The insurance market for drones could be helped to grow if there was a "robust regulatory framework" in place to control how drones are operated, Lloyd's said. It said "harmonised international standards and clarity on third-party liability will likely be important factors determining the effectiveness of any regulatory regime".

It said insurers' "confidence in the effectiveness of regulation" could be enhanced if central databases of approved drone operators were set up and if drones were issued with serial numbers to enable their identification in the event of an incident.

Developing the ability to track or monitor drones in flight or deploying 'geo-fencing' technology to ensure drones are only operated within defined areas "could also assist in the enforcement of regulation", Lloyd's said in its report. "Collision avoidance technology" is also "essential" to ensure that drones do not crash into other aircraft, it said.

The Lloyd's report also said that insurance products are available to protect drone operators against the risks of breaching privacy when using the technology.

"Professional indemnity insurance can cover the cost of damages awarded for breach of privacy against drone operators," it said. "Key requirements for insurance are expected to include the completion of privacy impact assessments, and compliance with applicable regulations and laws."

Whilst it would generally be drone operators that would be held liable for damage or injury caused from drone use, drone manufacturers could face legal claims in some circumstances, Lloyd's said.

"A technical malfunction or failure (or indeed malicious attack …) outside of the operator’s ability to control could generate a significant incident and lead to claims for liability against a wider range of parties," Lloyd's said. "Product liability therefore has the potential to be a significant risk exposure for drone manufacturers. Insurance solutions are available from specialist insurers, and these rely very heavily on drone manufacturers adopting robust testing, quality control and risk assessment procedures."