Insurance challenges in the Drone Age

Drone Show and Tell. Credit: Flickr/John Mills

With the advent of the Drone Age, a critical element that is rising in importance is the risk, insurance and compliance aspect of the drone industry. By its nature, this risk extends to the unmanned aerospace systems (UAS) and unmanned underwater vehicle (UUV) industries.

The solution to this resolving the problems of risk and compliance environment will inevitably drive the emergence of solutions by drone manufacturers, in addition to third-party service providers that can address these problems, faced by the enterprises in these sectors.

Currently, the market opportunity presented by drones, specifically the UAS market, is an emerging sector of the aerospace industry. According to 2011 Lucintel brief, the growing demand in this sector can be leveraged to high profitability in the near future, with about 70 per cent of global growth and market share in the US.

2010 saw UAV expenditures reached more than $3 billion. It constituted a growth of more than 12 per cent in 2010, with half of the expenditures invested in research and development.

Currently, the major centres for UAV manufacturing and development are in the US and Israel. An increasing awareness of the mission capabilities and use cases of drones are driving innovations and new applications for drones in the market.

Also Read: Logistics: ASEAN’s Next Big Thing?

Drone sector problems

The growing UAS sector and the nascent UUV sector face common obstacles in the form of regulatory and insurance regimes that lack access to longitudinal data.

Aside from regulators, the risk assessors, the insurance adjusters and the drone fleet managers are being unable to form a historical perspective due to a lack of data. There are no unified safety standards for the industry, as of yet, nor are there global standards for certifying commercial drone pilots.

Insurance is able to cover property and liability risks related to the UAS itself, as well as any payloads. However, the industry as a whole lacks the historical and current data to make informed, robust policies and intelligent decisions.

Data such as annual utilisation, number of accidents, flight paths, fuel consumption, telemetry and repair costs are not readily available to insurers and regulators. Another problem is the lack of international, regional and local regulations for safe drone operations.

The increasing use of drones for commercial and industrial purposes means that UAV risks include radio frequency interference, rogue pilots, collisions with other aircrafts and UAVs, invasion of privacy, aerial surveillance and data collection.

In addition to this, the increasing use of drones has also become a major emerging threat to the future of airplane safety, according to Allianz Global Corporate & Specialty (AGCS). The use of drones for different applications exposes operators to new risk scenarios, including third-party injuries and liabilities, as well as the possibility of drones being hijacked.

Also Read: Is Singapore’s government adapting Israeli innovation policy?

A technical solution

Technology barriers present both a roadblock and business opportunity for the sector. Drone data infrastructure technologies such as flight data recorders and fleet management systems are being commercialised, with development by private investors.

By contrast, drone hardware is increasingly commoditised, with a competitive upstream market with many competing suppliers. Commercial development and deployment of drones has exceeded the capabilities of regulators, with more applications and use cases emerging everyday.

Addressing the challenges of providing data to address the issues of regulatory compliance, insurance and safety has spurred the emergence of third party service providers, like US-based startup ventures DroneDeploy, FlyTrex and SkyWards – competitors of Singapore-based Drone Box.

The conceptual specifics of Drone Box’s solution – Drox – employs an open source flight data recorder with integrated sensors and an autopilot mode (currently in development), in addition to a secured fleet management system that can enable flight path planning, drone tracking and telemetry data from the drone.

A benefit of an add-on product like Drox is the fact that it enables regulators and insurers to have access to a second data set, in cases where insurance fraud is suspected. It also enable users an alternative means to retake control of their drone, or otherwise have a means to divert it in the event of it being hijacked.

The landscape of global drone commerce will be shaped by drone deployments in industries like agriculture, real estate, construction, mining and utilities, in addition to their use in urban search and rescue (USR) and the possibility of their use in surveillance and security by private and governmental agencies – all of which will require security.

All of this will spur the growth of fleet management systems and other data platforms that can enable tracking, management and analysis of drone traffic. This will first operate in the aerial space and eventually transition into the maritime space.

With most of the growth in the drone sector shifting away from the military market to commercial purposes, and a compound annual growth rate (CAGR) of 19 per cent between 2015 and 2020, the business opportunities this represents are tremendous.

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Disclaimer: The author is a co-founder in a startup venture operating in the UAV sector 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.