T. Patrick Byrnes and Matthew J. Kalas | Locke Lord | April 2018
Insurers searching for new sources of premium have increasingly looked to drones. But one question has dominated the conversation: who will benefit: the aviation market or traditional general liability insurers? Recent reports suggest the answer to that question may be “both.”
During a recent webinar hosted by Insurance Journal, a panel of experts estimated that coverage for drones will grow exponentially, potentially causing the largest growth in aviation insurance in 50 years. This would be a welcome development for aviation insurers, who have experienced a sustained period of soft markets and shrinking premiums. Meanwhile, in January of this year, the International Underwriting Association (IUA) issued a report titled “Unmanned Aerial Vehicles (UAVs) – Opportunities and Challenges for General Liability Insurers” and concluded that traditional aviation policies will not address all elements of this emerging risk. The IUA opined that general liability underwriters will have a key role to play in providing cover for drone risks, particularly with respect to areas that generally fall outside the traditional aviation realm, such as privacy, cybersecurity and nuisance / trespass. Nonetheless, traditional aviation insurers would appear to have the corresponding opportunity to innovate with their own products.
While the outlook for insurers is positive, recent events serve as a reminder that participating in this emerging area is not without risk. To date the vast majority of the claims experienced, at least in the aviation market, involve hull claims, either as a result of fly-aways, operator error, or otherwise. But that may soon be changing. In February of this year alone, there were two separate reports of incidents involving helicopters and drones. In one incident, it was alleged that an air-tour helicopter in Hawaii clipped a drone while flying over Kauai. In the second, a student pilot and instructor in South Carolina suffered a crash landing when a small drone allegedly appeared directly in front of them. According to published reports, the tail of the helicopter struck a tree while the student pilot and instructor were taking evasive action to avoid the drone, causing significant damage to the helicopter. Thankfully, there were no injuries. And, on February 1, 2018, the sUASNews website posted alarming video footage appearing to be from a drone that flew within a few feet of an airliner over Las Vegas.
These incidents warn of the significant risks that drones can pose to traditional commercial aviation. Putting to the side for the moment these headline-grabbing incidents, the potential also remains for substantial property damage and business interruption claims from commercial drone uses, particularly in the event of a mishap while conducting inspections of sensitive equipment and infrastructure. Finally, the specter of privacy and nuisance / trespass claims persists, which may be the most difficult risks for insurers to address in these early days of drone cover. Thus, it is clear that both general liability and aviation insurers writing drone risks can expect to be involved in claims that will involve new and challenging issues.
In sum, while it appears there will be plenty of market share for both aviation insurers and general liability insurers looking to write drone coverage, there is also plenty of risk as well. As larger and more complex claims come forward, which they almost certainly will, there will undoubtedly be a learning curve for all involved as insurers continue to examine and consider their approach to writing risks associated with this new technology. While insurers work through that learning curve, it will be critical to apply best practices to handling drone claims as well as to seek out and rely on service providers with expertise in this emerging area.