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Drones deliver new insurance risks along with packages

Posted On: Jul. 14, 2015 12:00 AM CST

A drone manufactured by Australian-based Flirtey is scheduled to deliver packages for the first time in the U.S. on July 17 — opening a new chapter for aviation insurance coverage.

The unmanned aircraft's FAA-approved journey will include delivering medical supplies to a clinic in Virginia's Appalachia area, where access by land is difficult. The event will be a group effort by NASA, Virginia Tech and Mid-Atlantic Aviation Partnership, which has a certificate of authorization from the FAA to perform the demonstration.

As drones become more prevalent in the commercial arena, insurers are eager to take advantage of the opportunities that insuring them will offer, but they are also considering the unique perils they pose.

A report from the U.K.'s Center for Protection of National Infrastructure lists one of their cyber security concerns as unfamiliarity with new technology, said Chicago-based Kevin Kalinich, global practice leader for cyber/network risk at Aon Risk Solutions.

Commercial drone insurance will have unique challenges for companies to consider from an insurer's standpoint, Mr. Kalinich said.

“What happens if there is an intangible peril, such as a hacker, where there is no bodily injury or tangible property damage but there is a huge economic loss?” Mr. Kalinich said.

Those are the big gaps that aren't necessarily intended to be covered — coverage usually focusing on the financial losses from first-party business interruptions or lost revenue — but what if third parties sue? What if an emergency medical supply is lost or arrives too late? “General liability is not intended to cover pure economic financial loss from an intangible loss,” Mr. Kalinich said.

The FAA has granted over 700 exemptions to commercial unmanned aerial vehicle operators in the U.S., according to Tom McMahon, the vice president of advocacy and public affairs for the Association for Unmanned Vehicle Systems International.

McMahon said the group was not aware of any real-world scenarios where a drone has had its software hacked.

“There are a variety of safeguards and backup systems built into many UAS platforms that provide redundancy in the unlikely event of interference with navigation signals,” he said.

Terry Miller, president of Conifer, Colorado-based aviation broker Transport Risk Management Inc., which helps place commercial drone insurance, said the company has had “fly-aways or a failure” but has not experienced a hijacking.

It does insure for it under war risks, however.

“If it's a risk that makes sense, then we'll probably insure it,” Mr. Miller said.