Drones on the Horizon

Will the skies soon be full of drones? It’s something citizens and governments alike are discussing.

“There are a lot of concerns in this burgeoning industry, and it’s a hot legal issue right now,” says Eduard Goodman, chief privacy officer at IDentity Theft 911.

Several dozen states already are weighing possible legislation to control the use and spread of drones. The Federal Aviation Administration plans to have regulations in place by 2015 for drones to begin using commercial airspace.

Issues surrounding the use of drones are still emerging but those most likely to concern insurers can be placed into one of three categories: privacy and security, personal injury and property damage.

Privacy and Security

Privacy and security worries are at the top of the list when people talk about drones. Unlike remote-controlled airplanes, which have been in use for many decades, drones are far more likely to have video and/or audio recording capabilities. Reasonable expectations of privacy probably won’t change to reflect the intrusion of drones, and much of the initial legislation is focusing on this issue.

Lawmakers are concerned whether drones can capture images of people without their permission.

For insurers, incidental, rather than purposeful, surveillance may be a more pressing issue at the outset. One sample scenario, according to Goodman, could be an agricultural company using a drone to monitor activities in its fields, but adjacent to one of those fields is a drug treatment center. “As the drone flies past and records the video feed, it may also record individuals entering and leaving that health facility,” says Goodman.

This type of unintentional privacy incursion could have impacts down the line.

“Where I would see problems from an insurer perspective is around these unforeseen, unintended uses by a well-meaning employee or civil servant that ends up getting everybody in trouble,” Goodman says.

Insurers may be able to offer specialty riders similar to cyber insurance coverage for customers with an increased chance of facing privacy or security issues. Another option may be to stipulate training requirements that ensure drone operators understand existing privacy laws. In addition, policyholders may be required to meet technical and security prerequisites for covered drones in order to help insurers avoid exposure if a device or its camera is hacked.

Personal Injury

Potential personal injury from an errant or malfunctioning drone is another concern. Amazon’s announcement that it is interested in exploring the use of drones to deliver packages spurred questions. How would such a drone be controlled? Would it be actively piloted or would it operate more autonomously, perhaps off the delivery destination’s coordinates? How would it navigate around the objects it would almost certainly encounter? Others said they were worried about the potential for harmful interactions with humans – flying along a crowded sidewalk on the way to its destination, for instance.

These are issues that must be addressed by drone operators and manufacturers, and they are also topics insurers should consider now in order to be ready to provide appropriate coverage (along with the right exclusionary language) as drones increasingly move from the theoretical to the real world.

Setting aside an Amazon-esque scenario, a matter of more immediate concern may be the proximity of humans to a drone that is being actively piloted. As businesses such as commercial farms and surveying firms develop plans to deploy drones as part of normal operations, they must take great care to ensure that workers and others are safe. What are the reasonable and effective measures these companies should enact to create an environment that doesn’t present danger to nearby individuals? Agricultural businesses often control the ground their drones cover, but the same may not always be the case for surveying teams or utilities that must cross lands managed by others. Personal injury concerns related to the operation of drones are very real and something carriers must evaluate closely to minimize the risk of exposure.

Property Damage

Property damage is another issue to consider, though insurers may find the remote-controlled airplane sector provides a useful blueprint. The changes are likely to stem from the sheer scale of use.

“Technology aside, this is something that’s falling into private hands and will be used more by companies and municipalities,” Goodman says.

Anything from trees to homes to power lines could potentially suffer damage from a drone, particularly as larger models become more widely available. Following the lead of remote-controlled airplanes, insurers may simply opt to add or amend policy language so that any device falling under the drone category is required to have the owner’s identification written or attached to the outside of the craft.

Widespread drone use may still be a bit into the future, but it is certainly coming. Those insurers able to identify potential risks early will be in the best position to provide policyholders with the coverage they need while minimizing unnecessary exposure.