Initially popular with hobbyists and the military, drones or unmanned aerial vehicles (UAVs) as they are also known, are now finding serious commercial uses. They are now regularly deployed to monitor crops in agriculture, film sporting events and movies, to carry out site inspections in construction, and to survey ships, offshore oil rigs, pipelines and wind turbines. There are now even drones that can plant trees for forestry and others that can protect swimmers from sharks in Australia. 

Commercial drone usage is expected to drive growth in the market for UAVs. More than 100,000 UAVs were sold for commercial use in 2016 alone, while the market size is forecast to exceed USD17bn by 2024. 

Risk mitigation

UAVs are a great way for companies to reduce risk. UAVs can carry out work that is hazardous to humans – such as surveying confined spaces, like the hold of a cargo ship or tanker – and with less human intervention, they can potentially reduce incidence of human error.

UAVs can also be combined with other technology, such as artificial intelligence and sophisticated sensors. This should allow for more regular and detailed inspections - for example, drones could eventually conduct detailed analysis of pipeline integrity – which would allow for early intervention and loss prevention, as well as generating more useful data for risk management and insurance purposes.

As UAV usage matures, there could be some meaningful improvements in risk profile for certain risks, which ultimately could be reflected in lower premiums. For example, UAVs could significantly reduce the chances or severity of pollution incidents, monitor safety or identify defects on a building site, or spot ice hazards for shipping in polar waters.

Flip-side

While there are clear benefits, drones can be seen as a double edged sword. On balance, UAVs should generally improve the quality of risk with improved availability of data and reduced human error. Yet, UAVs also bring risks and liabilities, ranging from third party damage to breaches of privacy, as well as emerging concerns around terrorism and cyber. 

One of the biggest risks for UAV usage is a collision causing property damage or bodily injury. Drones used to film events have crashed into athletes, while flying multiple drones over crowds is of particular concern. A collision between a UAV and a commercial aircraft is an obvious yet genuine fear for authorities and the aviation industry, while drones are also capable of causing significant business interruption. In 2015 a drone caused a blackout in California after striking a power line. 

At present, most UAVs are relatively small and light weight, but as commercial drone usage increases, larger, heavier and more technically complex UAVs are expected to come into play. This will have implications for third party liability and insurance as larger UAVs will be higher value and could potentially cause greater damage.

Spy in the sky

While regulations vary widely – by country, region and even by city - commercial drone operators are subject to some pretty tough rules and restrictions in most countries. Typically they require a licence and may be required to purchase third party liability insurance. 

In particular, UAVs are subject to rules on where they can fly – such as height, proximity to buildings or public places, and around restricted areas like airports. This year the UK introduced a 1km no-fly zone around airports, punishable by a five year prison sentence and/or an unlimited fine - there were 93 drone incursions reported in 2017, up from 71 the year before. 

There are also considerations around privacy and cyber liability. UAVs can (intentionally or accidently) result in a breach of an individual’s privacy when filming in public areas or close to residential property. In addition to criminal offenses such as voyeurism, UAV users could also be open to lawsuits for breach of privacy or for causing private nuisance.

Commercial drone users should also consider other potential third party liabilities, such as breach of copyright or intellectual property rights. In particular, negligence on the part of the drone operator or a glitch in software could have costly implications if the results of a survey are later found to be flawed. 

Vicarious liability

Some companies are developing their own drone capabilities, but in most cases organisations contract specialist drone operators. Even where a contractor is involved, the client company or property owner will have vicarious liability. In certain instances, liability could fall back onto the property owner that has permitted UAVs to operate. 

Companies using or contracting UAVs, or permitting them to fly over their property, need to understand where they are liable, and the degree to which this is mitigated by existing insurance arrangements and contracts with third parties. In particular, it is key to understand the rules and procedures for drone usage and be able to demonstrate to the authorities and third parties that all prudent steps have been taken.

General liability policies may offer a degree of cover for UAV related exposures, although gaps or exclusions may exist, while a UAV contractor’s insurance may not be adequate to cover a very large claim, such as business interruption or losses arising from corrupted data or mistakes made by a contractor. However, extensions and specialist cover is widely available in the insurance market to plug gaps and increase limits.

Bigger trend

UAVs are just the tip of the iceberg in a world of growing automation. Remotely operated and autonomous shipping and road vehicles are already being tested, while remote monitoring is a growing trend in the energy, manufacturing and industrial sectors. All these technologies will change risk, with important implications for liability and insurance.