Australia: Game of drones – what does the rise of the drone mean for insurers?

Last Updated: 20 September 2017
Article by Jodie Odell

Unmanned aerial vehicles (UAVs), remotely piloted aircraft (RPAs) or drones – however you choose to refer to them, are big business. They're being used increasingly in the commercial world – from mining and agriculture, to tourism, sports and entertainment. But that's not all.

Your ten year old niece or nephew probably has one which they operate with gusto, while family members glance nervously skywards. Going to a wedding? Chances are a drone will be overhead filming, so the happy couple can spend the first few weeks of married life editing the footage into a jaunty video. And then there are the unbridled aviation enthusiasts for whom a drone is simply the latest must have in their aeronautical armoury.

So, we know that drones are out there but with so many different types of use and user, how are they regulated? What are the liability risks? And how can insurers meet these?

The regulation

Australia has been at the forefront of drone regulation worldwide. In 2002, we became the first country to regulate the use of drones. And in September 2016, new regulations came into effect so that certain drones can be operated without licences. This allows businesses to use drones in their everyday operations on their own property, without costly and time consuming certifications.

People and organisations wanting to fly recreational or commercial drones with a maximum take-off weight of less than 2kg no longer need to apply for a certificate and licence from the Civil Aviation Safety Authority (CASA). This avoids about $1400 in regulatory fees, as well as the need to develop manuals and other documentation. There are, however, restrictions such as only flying during the day and in line of sight, and no flying over populous areas such as beaches, parks and sporting ovals. So, take your niece or nephew to an empty airfield and not the local park.

A drone with a gross weight of at least 2kg but less than 25kg can also be operated without a remote pilot licence or an RPA operator's certificate, where no remuneration is received for its use. Again, there are caveats. A medium drone (at least 25kg but not over 150kg) may be operated in the same circumstances although the operator must hold a remote pilot's licence.

A risky business

While less red tape creates an exciting opportunity for businesses to exploit drone technology and explore its uses, some are not aware of the strict legal and regulatory implications if something goes awry. The risk remains considerable, even for small drones, and the heavier the drone the greater the potential liability.

More obvious risks include flying into power lines, or crashing and damaging property or people. However, flying drones can raise issues in many areas of law including cyber-security, crime, product liability, employee safety, trespass and privacy. We are just starting to appreciate the implications of some of these. For example:

  • the connection between the pilot on the ground and the drone in the air relies on hardware and software which are vulnerable to cyber-threats. Flight controls can be hacked to hijack or infect a drone remotely. This could cause devastating consequences in terms of damage to drones, people and property as well as business interruption for the drone operator;
  • the intersection of privacy law and drone operations is new and not fully tested. Privacy laws generally prohibit the collection and use of personal information without a person's consent. If a drone will capture images with a camera, then circumstances may arise where a third party will claim a breach of privacy on the basis that unlawful surveillance is being conducted; and
  • flying a drone over another person's property without permission may constitute a trespass.

Each of these risks, and more, needs to be managed by any business looking to use drones.

Insure my drone

As is typical with new, fast moving technologies, with myriad risks also comes opportunity. For insurers, this not only includes the use of drones in their own businesses to drive efficiencies (for example, using drones to provide early surveillance footage after a natural disaster to expedite claims management), but also diversification of their portfolios to provide products designed to help businesses manage drone related risks.

In addition to insurers expanding existing public liability policies to include drone use in normal business activities, specific third party liability and drone hull policies are now available. While this has arguably met the immediate and most obvious risks associated with private, and relatively modest, commercial drone operation, the use of commercial drones will almost certainly continue its upward trajectory.

The demand for more and increasingly sophisticated and varied insurance products will surely follow. As they gain a greater understanding of the many potential liabilities facing drone operators, insurers will be well positioned to make the most of this developing technology.

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