New risks from drone technology

Drone technology has come a long way and new applications like autonomous underwater drones are being piloted. Novel applications generate novel risks. For example, deployment on the battlefield in new ways could lead to unexpected side-effects such as increased risks to the airspace, critical infrastructure and disruptions to trade. Privacy matters also remain high on the agenda.

In 2013, a forecast by the US Federal Aviation Administration (FAA) estimated “[... ] that we can expect 7 500 small un-manned aircraft in our national airspace in the next five years [...]".¹ The actual number for registrations turned out to be 1.76 million recreational and 361 000 commercial operators by 2023.² Drone technology continues to develop rapidly. Beyond established use-cases, novel applications such as drones for cloud-seeding, weather monitoring, and underwater autonomous drones for defence applications are being piloted.^3,4,5 Further adoption could create insurance opportunities, with strong expectations in the Chinese market in particular.⁶

Property and casualty: The strategic importance of consumer-grade drones could have unexpected implications, especially in the light of growing economic and geopolitical rivalries. Should drones and critical components thereof be put under sanction regimes or trade restrictions, compliance issues would arise for producers and insurance providers. Rising prices would drive up replacement and repair costs, possibly impacting equipment cover and home insurance.

Drone technology is heavily reliant on software. For example, DJI (the world's largest producer of consumer drones based in China) recently turned off controls known as geofences that actively prevent drones from flying in restricted airspace like airports and military bases.⁷ The change demonstrates how impactful such software updates can be, potentially making the airspace less secure by the click of a button. This could have grave consequences, not least as a single aircraft accident can result in insurance claims of hundreds of millions of dollars.

Drones have come a long way and have a dynamic future ahead. Some initially identified insurance relevant issues have remained. Beyond regulatory hurdles, and occasional crashes,⁸ privacy matters remain contentious, with several lawsuits pending and others forming, possibly triggering claims in liability insurance.⁹

Specialty: The ongoing war in Ukraine has demonstrated the strategic importance of drones and has been a catalyser for technological innovation.^10,11 For example, deployment of cheap drones for reconnaissance and attacks has led to widespread use of jamming.¹² This, in turn, has led to the development of cheap consumer grade un-jammable guidance systems using fibre optic cables. There is a risk that this novel technology may spread beyond the battlefield into the realm of terrorism or drug trafficking.¹³ On similar lines, underwater drones, which have been deployed more recently¹⁴ are difficult to track and can operate undetected for extended periods. They are hence well-suited for asymmetric and hybrid warfare, and can target critical infrastructure like undersea cables and pipelines. Such usage could lead to supply chain and business interruptions, and trigger associated insurance claims including credit and surety, and (contingent) business interruption covers.

Insurance operations: With respect to insurance operations, drones facilitate inspection of properties and infrastructure, yielding high-resolution aerial imagery and 3D mapping that can inform more accurate risk assessment. After natural disasters, drones can be deployed to assess damage quickly and safely, even in areas that are difficult to access. This accelerates the claims process payouts to policyholders and lowers insurers' operational costs.