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Published 30 September 2021
Drones or UAVs (Unmanned Aerial Vehicles), which were once used exclusively by the military when it was deemed too dangerous to send a manned aircraft, are fast becoming a feature of our modern day world.
Advances in drone technology have led to their many positive uses: during the height of the COV-19 pandemic, we saw drones being used for lab sample pick-ups and for the delivery of essential medical supplies (including blood and organs) to rural areas, as well as for aerial spraying to disinfect potentially contaminated public areas.
More generally, we now see drones featuring in a wide array of activities from monitoring crops and construction sites, to fighting fires, search and rescues, deterring poachers and war reporting and film making.
In our work at DAC Beachcroft, we have also seen drones being used widely, from investigating dam failures in Brazil, to surveying the damage caused by oil spills in the dense and inaccessible Peruvian jungle. In one of our cases, a drone was used to assist a judge in court proceedings in Colombia when visiting the scene of a fatal accident.
Drones tend to have a greater range of movement than manned aircraft, which allows them to access harder to reach/dangerous areas. This, combined with the use of GPS (Global Positioning System), means they can now be used to take high-quality aerial photographs and video footage with great precision.
Just this month, the winners of the “Drone Photo Awards 2021” were announced, following submissions of some incredible images by photographers in over 102 countries worldwide, demonstrating just how widely and commonly drones are now being used.
However, as they become more widely available, and at relatively low cost, the incidents of drones being used for less positive purposes are also becoming more regular and more widespread.Misuse of drones
In the UK, we are seeing reports of drones being used by thieves to scope out rural properties for goods to target, for smuggling drugs, phones and other contraband into prisons, and for surveillance, drug trafficking and terrorism operations.
In Mexico (widely considered to be the “drone capital” of South America, having opened the region’s first drone pilot academy in 2015), the Defence Ministry is now having to find ways to combat the misuse of drones, in particular by drug cartels. In November 2024, it plans to introduce an “anti-drone system” (being developed at a cost of USD$9.6 million), which aims to monitor and disable drones being used for organised crime. This follows increasing reports of infamous drug cartels using drones to drop explosives and shrapnel on rivals, and the police, as well as more broadly in their drug trafficking operations.
The UK has also found itself having to introduce measures to tackle the misuse of drones:
Drone-Aircraft collisions remain a real threat to aircraft crews and passenger: in its 2021 paper, the Royal Aeronautical Society reported on the recent aircraft windshield and wing 'drone strike' tests conducted by the National Research Council in Canada. The Council found that the impact of drones on an aircraft can be devastating, to include impaired vision through shattered windshields and glass fragments being released into the cockpit or passenger cabin.
It is hoped that, together, the above three measures will operate to reduce instances of dangerous and irresponsible flying, or flying for illegal purposes.
The drone insurance market
From an insurance perspective, drone technology is being put to excellent use in both risk assessment and claims handling, in particular by surveying properties, building sites and their surrounding landscapes, especially in hard to reach areas.
In addition, the drone insurance market is growing and is expected to reach $1.41 billion in 2025 (up from $1.06 billion in 2020). Public liability insurance is mandatory for commercial drones operators in the UK and Europe and dedicated drone policies are now widely available on the market, including “Pay-as-you-fly” policies. Demand for first-party and third-party drone insurance is anticipated to increase, as is demand for both commercial and personal policies. However questions do still arise as to how liability policies might respond to incidents involving drones, where the risks are broad: claims arising from drone misuse could include damage to third-party property, personal injury, privacy infringements, trespass, nuisance and regulatory and criminal investigations.
In 2017, Lloyd’s reported that in its developing experience of the drone insurance market, it was seeing first-party claims (loss or damage to the drones) occur more frequently (85%) than third-party liability claims (15%). At that time, Lloyd’s also considered drone insurance to be volatile: when reviewing the values of the claims, it found that the average claim amount was six times higher than the median, i.e. indicating that the majority of claims were modest, with a few very large claims pulling up the average dramatically.
The Gatwick Airport incident in December 2018 would have been a stark demonstration to underwriters of how far-reaching the effects of drone misuse can be, and therefore the potential for substantial claims. Fortunately, for the airlines, the CAA promptly announced that it considered the related flight delays and cancellations to arise from “extraordinary circumstances” such that no financial compensation was due to passengers under Regulation EU261. However, this did not stop one passenger from taking his claim against his credit card company (which provided holiday insurance) and insurers for his associated lost holiday costs, when cover was refused. At trial (Rae v AXA Travel Insurance Ltd  9 WLUK 522), the judge found in favour of the insurers, agreeing that the specific incidents attracting cover under the policy did not include criminal activity and therefore claimed losses arising from the drone attack were not covered.
There is still little in the way of claims data on which drone risks can be assessed, and with the regulatory framework around the use of drones subject to change and developments (for example the December 2020 easing of restrictions (by way the Air Navigation (Amendment) Order 2020) on lighter sub-250g UAVs and the removal of the requirement for CAA permission to fly commercial drones), underwriters continue to be presented with new challenges.
For now, underwriting in the global market requires a common-sense approach, with the risks being controlled by a flexible and evolving approach to the setting of indemnity and deductible limits. The focus on conditions (for example, the requirement to comply with CAA’s regulations and guidelines (including registration of drones and completion of the DEMARES Theory Test)) and exclusions (for example, by weight or for drone incidents over land where permission by landowners has not been granted) will continue to remain important as the drone industry, and the claims landscape, adapts and develops.
 Source: https://www.businesswire.com/news/home/20210806005177/en/Drone-Insurance-Global-Market-Report-2021---ResearchAndMarkets.com
 First Party claims typically relate to drones lost by owners due to flight malfunctions including battery loss, poor signal, technology failure or pilot error. In 2019, the CAA CAA reported that over a quarter (26%) of drone owners had lost a drone and set up a service, Drones Reunited, to help owners reconnect with their lost devices.
 For aviation insurers, the potential for accidents involving a drone-aircraft impact, whether on take-off, landing or on the ground, became clear, as well as the impact of such incidents on the travelling public and airlines if flight operations are suspended. The airlines were faced with Regulation EU261 claims, which do not fall to aviation cover under standard terms.
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