Picture this, you’ve just finished your shift as a trauma nurse and are driving back home on Sydney’s Harbour Bridge with spectacular views on either side and suddenly, out of nowhere an object comes flying toward your window ricocheting off your car and smashing into several pieces.

To your surprise the large object turns out to be a drone even though large parts of the harbour are a no-go zone for them due to helicopters and seaplanes operating in the area.

This is what happened to Scott Hillsley who got the shock of his life driving after his shift ended at the Royal North Shore Hospital.

It’s not the first time this has happened, in fact it is the second reported incident in the past nine months where a drone has struck a car on the Harbour Bridge.

“With an increase in the number of drones in operation, there is also an increase in the potential for third party liability claims,” says Aaron Stephenson, Director, AV Cover.

With drones being increasingly used for commercial purposes as well as for leisure, it is fast becoming a multimillion dollar industry. A report by Business Insider Intelligence, “Drones enter race for next content frontier”, estimated that globally, consumer drone shipments will reach 29 million by 2021. It projected revenues from drone sales to top US$12 billion in 2021, up from just over US$8 billion in 2015.

“Safer technology and better regulation will open up new applications for drones in the commercial sector, including drone delivery programs like Amazon’s Prime Air and Google’s Project Wing initiatives,” states Business Insider.

Stephenson says, “Most drone operators operate a land based business such as photography, video production etc, so there are opportunities for brokers to assist with their other requirements. We also see more drones being utilised by construction companies, property developers and the like which means more prospects for brokers.”

Not your average insurance

Drone insurance is not what one would consider a ‘traditional’ insurance product, says Dylan Jones, Senior Broker, Aviation Insurance Brokers Australia.

He notes, “The evolution of affordable drone technology has been rapid, with aviation underwriters forced to adapt existing hull and liability policy wordings to cover this emerging industry’s need. There is no legal requirement for drone operators to maintain insurance cover, however, often contracts will force the issue for operators with government or commercial agreements.”

The industry name for drones, is UAV – Unmanned Aerial Vehicle – and in Australia, the Civil Aviation Safety Authority (CASA) more recently has changed the name it uses to refer to drones as RPA – Remotely Piloted Aircraft.

“Drone insurance can cover public liability for the operation of the machine, and hull (the actual machine itself – while in use or transit). Licensed operators require this cover,” Aaron Donaldson, Managing Director, Allsure, says.

Jones adds, “Drone insurance initially was underwritten by specialist aviation underwriters and this is still largely the case. There are, however, more and more options becoming available with some general insurers dipping their toe in the water with offerings. We expect such endeavours to be short-lived as the market learns of the complexities involving drones and the potential for significant hull and third-party losses with a relatively shallow premium pool.”

Stephenson says, “Drone insurance is relatively niche, most covers are transacted with aviation insurers using aviation wordings. Some non-aviation insurers also offer cover under their public liability policy with a drone extension, this is limited to certain licence categories.”

This is where it can become quite tricky for non-aviation brokers, he believes.

Flight risks

With drone use becoming more common, it is about time that brokers start to seriously look at this sector and the risks.

Dean Lomax from Lomax Media, who uses drones extensively in creating commercial video content says, “The main risks come from those that fly their machines too close to people or property but there is also a growing number of operators who are not aware of the no-fly zones in Australia, such as those close to airports and helicopter landing zones.”

Lomax thinks there is an increasing risk of collision between those flying their machine and another airspace user.

Jones specifies that in terms of hull losses the most significant risks relate to loss of the drone and its payload. For example: sometimes through unforeseen perils such as bird strikes, or the drone simply failing to follow controller direction resulting in it never being found after leaving line of sight.

With an increase in the number of drones in operation, there is also an increase in the potential for third party liability claims.

He says, “Frequency interference has also become a concern whereby the drone becomes unresponsive to the controller. Manufacturers have moved to build in redundancies to force drones to predetermined actions where the signal between controller and the drone is lost, however, losses are still occurring.”

Further he states that third-party liability is the more significant risk and often overlooked by both recreational and commercial operators.

Also, if and where the Damage by Aircraft Act applies, operators would be deemed strictly liable for third party losses and such liability is unlimited.

Naturally this should be a concern not only for operators but insurers alike given the potential damage and consequential losses which could be caused by a drone.

He continues that one of the more interesting developments which is yet to be addressed through an insurance offering is that of privacy breaches.

The recreational use of drones has grown exponentially in the last couple of years. Donaldson believes that this poses a greater risk to the public and air travellers, due to larger numbers of toy-type craft being used.

Electric powered drones are using high-powered lithium polymer batteries, and these pose a fire/explosion risk if handled, stored or charged incorrectly.

Niche specialisation, or open to general insurance brokers?

Is insurance for remote piloted aircrafts something that only an aviation specialised broker can handle or can a general insurance broker also place commercial drone risks?

Donaldson thinks, “With a little understanding of the terms, there is no reason any broker couldn’t handle drone insurance.”

On the other hand, Jones believes drone insurance, much like aviation insurance is a very specialised field.

He says, “It’s not only necessary to be aware of the legislative landscape which effects an operator’s liability but understanding how such legislation interacts with the policies you place for your clients. It is essential to protect your client as ultimately failing to identify and address insurable risks will likely end up with the broker on the wrong side of a Professional Indemnity (PI) claim.”

As a client who needs insurance, Lomax states, “I believe that with the current situation of application of the rules from CASA, a drone insurance specialist would be a definite advantage, but there would be nothing stopping general brokers from being able to offer a product by gaining a knowledge of the rules that the industry flies under.”

Finally, brokers should remember that there are many drone operators who are underinsured due to lack of knowledge and their numbers are rapidly growing. It is imperative that insurance intermediaries know what clients are doing as a part of their business that could potentially increase their risk exposure.