Drone insurance is the next segment to be disrupted

Drone in sky. Credit: Flickr/Pete

Technology and innovation are fundamentally changing the game for many industry verticals – the insurance sector is no exception. The disruption in this sector is facilitated in three developing areas; distribution, data analytics, and dynamic products.

Highlighted in a speech by Jacqueline Loh, the deputy managing director of the Monetary Authority of Singapore (MAS), major disruption is is happening in the field of drone services – specifically the insurance segment.

Across the insurance industry as a whole, the conventional agent-broker paradigm is being challenged by the digital consumer, an increasingly crucial audience. They operate with rapid transactional ability and judge products based on peer review, especially in Asia, an increasingly crucial market considering the sheer size of the various economic footprint  of its subregions and component population.

For instance, the Asian Insurance Review reported that despite product homogeneity, the online insurance market in China saw premiums increased by 195 per cent to $13.8 billion in 2014, representing 4.2 per cent of total industry premiums.

Meanwhile, India’s online insurance market is estimated to reach a market capitalisation of $2.4 billion by 2020, which is more than 20 times the current market capitalisation of this sector, according to the Boston Consulting Group (BCG).

Data analytics is also enabling improvements in the ability to assess and price risks, with motor insurance as a case-in-point. Prior to the advent of telematics and automotive navigation, insurers had relied on historical accidents and claims data to establish premiums and policy conditions. However, telematics technology has enabled insurers to use real-time data for differentiating between drivers’ behaviours and better price risks.

The introduction of drones and other related unmanned aerial systems (UAS), which are highly mobile products subject to their own risk scenarios, changing the risks landscapes and operating terrain that insurers must negotiate. This is especially relevant, as drones transform the contours of business operations via their introduction.

Also Read: Drone industry growth threatened by cybersecurity & privacy concerns: Lloyd’s

Drone investments

Drone funding has continued to increase, as venture capital investments in UAS-related ventures increases. This increasing traction is seen in the increase in funding invested in drone startups, with the drone industry receiving $108 million in VC funding in 2014, according to a CB Insights report. This amounts to a 104 per cent year-over-year increase.

In fact, 2015 may be a “defining year for unmanned systems” according to the Consumer Electronics Association (CEA), which estimates the global market for consumer drones to reach $130 million in 2015 revenues. This is a 50 per cent increase compared to 2014.

Commenting on this development, Gary Shapiro, president and CEO of CEA, stated:  “[…] the category is ideally positioned for steady growth.”

This is borne out by VC funding for drone startups from January to May 2015, which exceeded  a combined investments for the 2012 to 2014 period, reaching $172 million in equity financing.

CB Insights, in their Future of Frontier Tech report, noted that 42 per cent of all funded drone startups since 2012 were focused on software/services, including “Uber for drones” startups like Dronebase and industrial-focused drone data firms like Skywatch.

Drone hardware startups received 40 per cent of the share, garnering the most investment capital. The two most well-funded drone hardware companies, incidentally, are open source hardware 3D Robotics and consumer drone firm DJI, which have raised $99 million and $105 million to date respectively.

Meanwhile, CB Insights observed that drone startups focused on infrastructure, made up just 18 per cent of funded companies since 2012.

Multiple ventures in the drone space have established partnerships or developed experiments to extend the range of use cases for drones, ranging from military use to precision agriculture and industrial monitoring.

However, a combination of slow regulation of drones in the US and other major markets, as well as an array of infrastructure issues remain to be addressed.

Also Read: Singapore Post tests drone mail service

Drone insurance

At its core, there is a critical need to directly address the digital consumer’s problem. And anyone who uses drones and other corresponding UAS platforms – whether for individual, professional or commercial purposes – is a digital consumer that requires a solution which can combine the management of risk with monetary coverage.

SkyFund and the Commercial Drone Fund have made several investments into ventures operating in the drone services sector, indicating a growing awareness of the other segments within the UAS industry vertical that offer market opportunities.

The rise of the drone industry and the opportunities therein are reflected in how the Internet of Things (IoT) is performing. They are already enabling insurers to improve their offerings and services to clients.

The rise of IoT and the proliferation of healthcare startup ventures utilising its technologies as a basis are linked to the rise of disruption in health insurance, where startup insurers are creating new tools involving fitness tracking, clinical records management and telemedicine tools. The initial public offering (IPO) of FItBit represents a validation of this space and the prospects for it.

As the drone sector grows, an entire ecosystem combining the hardware, software, and library of insurance policies will be required. A centralised database with longitudinal information, that is visible in the aggregate to the public and in granular detail to the regulators and the underwriters will be required. This will be necessary to in order to address the challenge raised by drones, and with rogue drones, in particular posing a significant safety risk.

While firms such as AIG are beginning to offer drone-specific insurance policies, a lack of historical data and useful regulations serves to inhibit the development of the industry as a whole.

Ideally, what is required is a full-stack solution integrating open source hardware, data analytics, SaaS and an integrated insurance marketplace that can address the needs of regulators, underwriters and fleet managers, given the centrality of drone insurance to the further development of the ecosystem as a whole.

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Disclosure: The author is a co-founder of a drone startup called Drone Box.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.