SPECIAL REPORT: Insurance in the drone industry

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The drone industry is growing, and fast. With that comes a demand and requirement for suitable insurance, a subject that can be perceived as complex and confusing to those with little experience of it.

A number of insurance companies have emerged to offer a quick, fast and efficient service for pilots wanting to obtain the right drone insurance to meet their needs.

Pilots submit their flight plans and personal details in order to obtain a quote and, more often than not, can secure cover within minutes.

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However, the increase in drone use across the country has meant the Civil Aviation Authority, the body that regulates flights in the UK, has had to ensure its regulations keep local airspace safe. It has done so by devising a more stringent plan when it comes to drone flight, laying out specifics for UAVs and their pilots rather than just amending already existing flight laws.

Unfortunately, the most common claim we come across is pilot error. This ranges from the most experienced pilot to a beginner. Sometimes it is just an accident, however at the end of the day we are human, and mistakes will occur.”

These changes, despite making airspace a safer place to be, have made it more difficult for people in the industry to legally take flight.

James Dunning, managing director at Droneguard Insurance, says: “It’s definitely a lot different now, with policy wordings being specific for UAVs rather than a slightly tweaked aviation policy wording. There’s a lot to choose from.

“When purchasing a policy, each individual and company has different requirements but some of the common mistakes we see are making sure you have the right sums insured ‘new for old’ and having the right public liability limit. The question we always ask is, in the worst case scenario what damage could potentially be caused and how much would it cost? The damage severity could be a lot higher in built-up areas compared to open areas with no architecture or people.”

Market growth has meant that drone cover is more easily obtained than in the past. Despite this, the industry believes that knowing what type of cover is necessary and laying out criteria that dovetails with exactly what the pilot plans to do is vital.

Andrew Heath, managing director at Coverdrone, explains: “Coverdrone insured its first commercial drone operator approximately ten years ago, however the policy that we sell today is worlds apart from that initial policy.

We believe that UK drone insurance is now a well-represented industry and, if you compare it to other policy types, it is at the forefront of flexibility from technology to coverage.

“In terms of advice, it may sound simple, but purchasing the ‘right’ cover is more important than choosing the cheapest option. Ultimately, the pilot is protecting their business, and they’ll want to do this in the best way possible. Further to this, deciding between short term or annual policies is a big decision. Very often, the longer term insurance contract is the most cost effective,” he says.

With increased air traffic and regulatory implementations to contend with in the future, pilots and insurers in the UK face added obstacles as the market matures.

Dara Cormican, Flock’s marketing executive, says there is pressure on insurance providers to maintain pace with the companies that they are there to serve and support.

“As the UK drone industry grows, so too does the complexity of drone operations, as well as their associated risks. It’s of vital importance that the insurance industry keeps up with the pace of growth of the drone space; commercial pilots need insurers who understand their operations, flexible requirements and rapidly developing hardware and software.”

A UK airspace which is increasingly crowded has meant the number of incidents relating to drones has also increased. According to insurers, the common theme causing these problems remains pilot error and failing technology.

Droneguard’s James Dunning concurs: “Typically, most claims are for damage or loss to the drone and occur from pilot error or loss/interference of signal. This could be in the form of accidental drops, clipping foliage or wires and theft. These sorts of incidents could cause a liability claim for injuring a person or property due to a falling drone, or even knocking telephone lines out. The biggest fear from an insurer’s view is a collision with a manned aircraft or a breach of privacy,” he comments.

Other specialist insurers agree. Andrew Heath at Coverdrone remarks: “Unfortunately, the most common claim we come across is pilot error. This ranges from the most experienced pilot to a beginner. Sometimes it is just an accident, however at the end of the day we are human, and mistakes will occur.”

He elaborates: “Other regular examples can be loss of data connection, poor battery maintenance, sudden weather conditions and theft. What is important is that the client is back operating as soon as possible and at Coverdrone we work to a 48-hour turnaround on claims.”

When it comes to actually providing a quote and issuing a pilot with cover, a number of factors come into play, as they do with any other type of insurance. Consequently, the vetting procedure needs to be robust.

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Flock’s process analyses a number of static variables alongside the drone pilot’s profile and background.

Cormican explains: “Traditionally, the price of insurance is determined by using static data sets about the drone pilot. This includes information such as their flying experience, claims history, the type of drone they are flying, and their required Public Liability limit.

“We collect this information and much more, fully automatically. We look into additional drone details, including top speed and maximum wind resistance. And we combine this with real-time data in the Flight Area, such as temperature, wind speed and NOTAMS,” she says.

As well as the insurance provider ensuring they have analysed the request fully, Andrew Heath from Coverdrone urges pilots to avoid cutting corners when applying for cover by making sure their plan is set out in full so that there are no negative implications for any party involved in the event that an accident occurs.

He explains: “When the client is deciding to insure their business, the most important thing is to ensure that they obtain the most suitable cover, prior to considering the pricing of that cover. All too often we see people compromising on essential protection to fit into a budget, and then when they need to claim, it can prove costly. A good example of this would be if a client had three drones, choosing to insure only one drone at a time. This means that if all three were stolen from a vehicle, only one drone would be insured.

“Another vital consideration is liability insurance. In the UK, a minimum level would normally be £1m and this would make the client compliant. Many clients require higher limits to fulfil contracted obligations with customers, however they can consider temporarily increasing their liability limit to keep the annual cost down. Next is the equipment — full replacement values should be chosen as policies are written on a new for old basis,” adds Heath.

It is not just private pilots that are now asking for insurance either — more and more companies are beginning to use in-house drone divisions to aid their daily work.

When the client in deciding to insure their business, the most important thing is to ensure that they obtain the most suitable cover, prior to considering the pricing of that cover. All too often we see people compromising on essential protection to fit into a budget, and then when they need to claim, it can prove costly.”

Police forces, fire brigades and local authorities up and down the country have started to implement drones into their operations and this, of course, needs to be regulated and insured to a sufficient standard.

Discussing what trends the industry should expect to see in 2019, Flock’s Dara Cormican believes it is not just in-house divisions that will really take off next year, but BVLOS and hardware too.

She says: “We’re seeing a number of evolving and exciting trends in the drone industry. Increasingly larger organisations are bringing drone teams in-house, training their own pilots at one of the UK’s many NQE training courses, and then spinning up specialist teams to undertake a whole range of missions.

“We’re also seeing an increased demand for beyond visual line of sight flights, as well as more complex, and often risky, flights around sensitive sights and infrastructure projects.

Alongside this, the rise in truly enterprise-focused software and hardware is becoming apparent, with platform, sensor and lidar prices falling generally, and intelligent software packages now handling a huge range of varied operations with relative ease.”

At present, obstacles have been put in the way of BVLOS flight and slowed its progress not only in the UK but on a global level, too. This is due to limitations when it comes to safety of BVLOS and the fact some technology and aspects of the industry, like insurance, are still unsure about the risk of backing a BVLOS flight.

Despite this, James Dunning at Droneguard is another insurance leader that believes behind visual line of sight flight is the next step in this fast progressing industry.

“There are some great ideas out there but I think the one to watch is UTM (unmanned traffic management) as this will be critical to get BVLOS working.”

He remains excited about what is to come, especially with regards to the private market and the imminent changes in that sector, adding: “It’s going to be interesting to see how the hobbyist market plays out with the new regulations coming in force in November 2019 and further tightening of regulations in the sector.”

Coverdrone is also expecting the new regulations to have a strong impact on the market. Heath describes what he thinks is to come: “In 2018, the drone industry saw the introduction of ‘short term’ flight policies. In 2019, we believe that policies will become even more flexible. However, the impact of these on the drone insurance market is still to be confirmed.

“Insurers are businesses too, and the claims versus income data is not mature enough yet to decide whether these policies are going to be sustainable. Customers should still bear in mind that annual policies are still a very cost-effective solution when flying more regularly. They also take away the hassle of having to remember to buy insurance each time you fly.”

Time will be the judge of how both sides of the industry manage to deal with the specific challenges that emerge in the years ahead. Changes in regulation and technological advancement are most certainly a good thing if they bring clarity and progress to the industry, especially given the growth projections surrounding the commercial drone sector.

The pace at which the market is moving leaves insurers under no illusions that their policies need to reflect the realities of a customer base that is among the most dynamic around.

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Alex Douglas

The author Alex Douglas

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