The commercial use of drones is expected to grow rapidly as companies like Amazon and UPS look to use drones to support their activities. Drones can potentially change business models for a number of industries, including insurance. Here, A.M. Best AVP Henry Witmer discusses the use of drones, related liability exposures and the underwriting challenges insurers face.

According to Mr. Witmer, “Liability exposure is going to far outweigh any kind of physical damage exposure to drones.” The areas that could generate the majority of the risk include:

  • The general operation of a drone can involve risks to commercial and general aviation, and to bodily injury wherever large groups of congregate
  • Data security issues coming from actually using the drones
  • Other risks include: property damage, product liability claims, and liability claims.

Less than two dozen companies are writing coverage for drones, but Mr. Witmer expects that to increase. There is very little history or data on drones, therefore becomes more a risk management issue than an actuarial issue. Risk Managers need to identify the potential risk and costs from a liability standpoint.

Mr. Witmer says insurance companies are also looking to use drones to manage claims and do some of the work done by adjusters. The data could be transmitted electronically to an adjuster in another location, so claims can be processed quickly.

Mr. Witmer identified several issues that need to be addressed before the use of drones becomes “fully effective.” He says “You’ll need a qualified, certified operator of the drone, You’ll also need FAA clearance and permission from property owners….drone operator will (also) need to make sure that the drone is in line of sight and that they have full use of the drone. “

There are strong long term benefits to using drones, Mr. Witmer says, “although the approach will have to be in a very careful systematic manner.”

We’d like to thank A.M. Best for their contribution to our program.  If you’d like to see more of the First Monday Series, visit the A.M. Best website.

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