Significant market opportunities are evolving in the drone industry, or the unmanned aerial systems, as it matures and attracts the interest of major MNCs.
Global technology firms Google and Amazon have already invested several billions in the sector. Google, in particular, is evaluating their use as delivery platforms. And, drone industry leader DJI has secured major funding from the VC community.
Challenges facing the Drone sector
Larry Downes, a project director at the Georgetown Center for Business and Public Policy, noted in a Harvard Business Review feature that: “In many industries, drones are poised to generate…Big Bang Disruptions, with the FAA itself estimating $100 billion in new business growth.”
Downes added,”Drones could revolutionise everything from natural resource protection, agriculture, emergency services, aerial photography, filmmaking, and delivery.”
And the investment numbers synchronise with this thesis. CB Insights noted in May 2015 that where 2014 had seen drone startups raise $107 million, by the end of 1H 2015, $172 million had already been raised.
The emerging sector faces a major stumbling block in the form of drone insurance. Risk & Insurance reported that the US Federal Aviation Administration (FAA) has determined small UAS as the most “…dynamic growth sector within the aviation industry.”
This dynamism may be constrained and the growth of the UAS sector for commercial operations could be threatened by several concerns. Drones fall out of the sky for a number of reasons. What applies to military drones also applies to commercial drones, and the four main reasons, according to The Washington Post, are:
- A limited ability to detect and avoid trouble.
- Pilot error(s)
- Persistent mechanical defects
- Unreliable communication links
In 2014, Dyke Weatherington, director of unmanned warfare for the Pentagon, told The Washington Post:“Flying is inherently a dangerous activity. You don’t have to look very far, unfortunately, to see examples of that.”
Aviation accidents are improbable but have extremely high costs, human and otherwise. Drones, as such, do not have the same safety record as in civil aviation, although they are poised to revolutionise civil aviation across the globe and across different industry verticals in a short span of time.
No single solution, or set of global standards, exists in response to the safety concerns of underwriters yet. When considering personal and commercial drone usage is only going to increase, strict liability standards are essential. While the domestic use of drones is currently uninsured in the US, the increasing use of drones will necessitate responsible ownership, especially in their commercial deployment.
Terry Miller, the president of Unmanned Risk Management, which claims to be the largest underwriter of aviation insurance worldwide, explained to Dronelife in an interaction: “UAV insurance is a natural extension of manned aircraft insurance that goes back decades. By and large, we have the same policy for drones as we do helicopters that, for example, do power line inspection. It’s just tweaked a little for drones.”
According to Dronelife, Miller’s firm has insured drones in all 50 US states and internationally, with the notable achievement of insuring the seven film operators that received a Section 333 exemption from US authorities to use the drone on Hollywood movie sets.
Also Read: Insurance challenges in the Drone Age
Money, Challenges & Market Size
The FAA has allocated $63.4 billion for the modernisation of the US air traffic control systems, in addition to the expansion of airspace to accommodate the commercial use of UAS. Total spending for the UAS sector is estimated to reach $89.1 billion over the next 10 years.
The Teal Group’s 2012 market study forecast total global spending for the UAS to reach $89.1 billion over the 2012-2022 period, including strong military and commercial demand. However, complex liability and coverage issues pose a significant inhibitor to the industry’s growth. This is related to how insuring commercial use might hamper the further growth of unmanned aerial systems as an industry.
New problems can arise from phenomena like airspace procedures, types of accidents, and invasion of privacy. In fact, according to Risk & Insurance, the largest concerns of the insurance industry relating to drones is personal injury and invasion of privacy.
Business Insurance reported that despite an extensive history of UAS being deployed by universities and technical colleges, the main concern remained privacy, rather than safety.
Business Insurance reported that at a conference, Robert Leong, a VP of San Francisco-based Alliant Insurance Services, noted: “There’s a litany of uses for drones. Besides having them flying into a building or people, we are very concerned about the privacy issue. ”
Leong added, “Drones can collect data that is sensitive or personally identifiable. Intentional acts are not covered in insurance policies; when the operator actually intends to collect sensitive data, those are cases insurance will not cover. ”
Google is a strong advocate of seeking orderly conduct in the increasingly crowded skies. Meanwhile, firms like Airware are creating end-to-end platforms enabling enterprise deployment of drones. This is already an indicator of the market opportunities being seen in the drone space while AIG is now offering drone insurance. Drones are already impacting how insurance firms are conducting assessment of insurance claims.
Drones are going to greatly impact cities globally, with Singapore a prime candidate for the mass deployment of drones, given recent tests of drones for mail delivery and earlier deployments for use in the F&B sector.
With Singapore and other Asian nations following the lead of the US and Europe in relation to drone regulations, there is a clear need within the industry for an integrated, end-to-end (i.e. full-stack) solution encompassing both networked, open source hardware and a cloud-based solution. Such a solution would offer both scalability and low entry barriers for both customers and industry players.
Disclosure: The author of this piece is the co-founder of Drone Box, a Singapore-based startup venture aiming to solve the insurance and safety solutions surrounding drone fleet management. An abridged version of the article is available on LinkedIn.