Drone industry growth threatened by cyber, human error and privacy concerns: Lloyd’s report

Cyberattacks, negligent or reckless pilots and privacy breaches are fundamental threats to the drone industry, warns a new report published on Thursday by Lloyd’s, the specialist insurance and reinsurance market.

The drones sector is a dynamic and important component of the global aviation industry, with global expenditure on acquisition expected to double to US$91 billion by 2024, Lloyd’s said in a statement. However, concerns surrounding safety, security and surveillance need to be considered by manufacturers and users of this technology, said the report, entitled Drones Take Flight.

The study highlights five fundamental risks that it says could harm the sector’s future growth:

• negligent or reckless pilots – lead insurers may require a higher risk retention unless/until the operators can demonstrate responsible and safe behaviour;

• patchy regulatory regimes – harmonized international standards and clarity on third-party liability will likely be important factors determining the effectiveness of any regulatory regime;

• poor enforcement – tracking/monitoring technology could also help operators avoid breaking laws in the first place, such as by supporting the development of ‘geo-fencing’ technology to ensure drones to not stray into controlled airspace;

• vulnerability to cyberattack – drones could be vulnerable to cyberattack, with some reports suggesting a “thriving community of ‘drone hackers’ is already established,” the report said; and

• privacy infringement – professional indemnity insurance can cover the cost of damages awarded for breach of privacy against drone operators.

Of these, privacy infringement is cited as the biggest, most significant concern as well as the carelessness of drone operators and the vulnerability of the drones themselves to cyberattacks, the statement said.

 Another key concern highlighted in the report is the regulatory environment, which is developing but is not yet harmonized across international jurisdictions. In addition, because of the rapid and uneven growth of the drones industry, it is proving difficult for regulators to provide strong rigorous oversight without technological support to track and monitor use, Lloyd’s said.

 Effective airspace control and collision avoidance technology, the report contends, will be key requirements for the insurance of drones operating in busy airspace. As a result, insurers are likely to seek greater risk mitigation measures from drone operators. These could include training and accreditation, strengthening cyber security and the completion of privacy impact assessments.

 “The Federal Aviation Authority estimates that over 7,000 aircraft are airborne within U.S. airspace at any given time,” the report added, “and the safe integration of drones with other aircraft operations will emphasize the importance of drones having a robust ‘sense and avoid’ capability. This technology is in development, but is not yet mature enough to meet the requirements of regulators such as the CAA.”

Nick Beecroft, Lloyd’s manager of emerging risk & research, said in the statement that drones have significant potential, but at the same time, they are a controversial emerging technology. “As the market for drones continues to grow, so does the interaction of risk exposures,” he said. “Manufacturers, operators and regulators will need to work together, on a global basis, to understand exposures and ensure this technology is used safely and responsibly.”

Civil and commercial use of drones is growing and meeting an expanding range of applications from agriculture, public services, logistics, wildlife protection, media, research, infrastructure and utilities, Lloyd’s said.

Standard drone insurance programs can cover third party liability (compulsory in the EU for drones that weight more than 20 kilograms), physical loss and damage to the system components during operation or transit. These policies can be tailored to suit individual exposures and may also include Directors’ and Officers’ liability, professional indemnity, employers’ liability, product liability, cargo liability, terrorism, war and hijacking.