Drone manufacturers likely to face potential product liability issues: A.M. Best

Aerial drone manufacturers themselves are likely to face potential product liability issues, suggests a new Best’s Briefing released on Monday by rating agency A.M. Best Company.

“Operator skills or shortcomings in product training could also inevitably lead to greater risk exposure and liability,” the briefing said. “The potential for dangers to aviation, invasion of privacy and inappropriate misuse of drones have the obvious insurability problems.”

But with clearer definitions from the Federal Aviation Administration (FAA) in the United States and similar regulators elsewhere, it is anticipated that “operating parameters will be more measurable,” A.M. Best said.

In February, the FAA released a framework of guidelines for small drones (also known as unmanned aircraft systems). “These limit the use of drones to devices under 55 pounds, restrict commercial use unless authorized, limit operations to daylight hours, require flights to be in the operator’s visual-line-of-sight, adhere to maintaining flights below 500 feet in altitude, require the operators of the UAS to be certified and mandate that all UAS units be registered with the FAA,” the briefing noted. “The comment period ended April 24th, but some skeptics believe finalizing this law could take up to a year, which could further dampen interest for insurance coverage in 2015.”

By the end of the comment period, the FAA had received nearly 4,500 comments. Earlier this month, the FAA also announced its Pathfinder program, which involves the agency partnering with CNN news service, PrecisionHawk (an aerial data solution manufacturer) and BNSF Railroad to “research ways to extend commercial UAS operations outside the current visual line-of-sight limitation,” Anthony Mormino, senior legal counsel with Swiss Re, told Canadian Underwriter last week.

CNN will be researching how visual line-of-sight operations may be used in news gathering in urban areas; PrecisionHawk will survey crops in rural areas using drones that will fly outside of the pilot’s direct vision; and BNSF Railroad will explore the challenges of using drones to inspect rail infrastructure outside of line-of-sight in isolated areas, Mormino said at the time.

Related: FAA drone rules could have implications for Canada: Swiss Re

There are several broad areas of risk involved with the use of drones, the Best Briefing noted. One is that drones have only a limited capability of detecting problems either via camera and other sensing devices placed on board; this limitation is further defined by the amount and speed of the data that it is able to transmit to its ground-based controller. “These are far short of what a pilot on board an aircraft can detect and respond to,” the briefing warned.

Another risk is operator error, “whether due to inadequate training or operating mistakes stemming from shortcomings in the data transmissions from the drone.” A third risk is loss of communications with the drone during active operation. This could be caused by equipment failure, drone distance exceeding the radio transmission range, weather interference, or more maliciously, usurpation of control by unauthorized individuals, A.M. Best suggested.

“If operating drones is to become acceptable in the mainstream, all of these risks need to be addressed and to some extent are partially addressed by the FAA’s recent guidelines,” the briefing said. “Improvements are entering the equipment manufacturing sphere along with experience-based operator training enhancements and licensing requirements. Insurers can provide significant inputs in the process by taking an active role in quality assurance via product liability insurance risk management, collecting and aggregating loss and near miss data to supplement operator training regimen, and by supporting extensive field testing of drone operating protocols and procedures.”

Related: FAA partners with industry on next steps in drone operations

A.M. Best suggested that commercial property and homeowner insurers have the most to benefit from this new technology, as “these insurers would be able to speed up payments to their policyholders, have access to digital imaging unlike ever before, and be able to accomplish this with far fewer personnel on the ground. This will save on the high expenses associated with having adjusters and catastrophe teams transported to, and housed at, the site of the loss.” Instead, drones could capture remote aerial digital images that could be collected and submitted to claims adjusters “anywhere in the world.”

From an underwriting perspective, preliminary underwriting could be vetted through drone technology, the briefing suggested. “The ability to perform real-time, up front and ongoing building and construction monitoring surveys and roof inspections, as well as determining a property’s actual proximity to coasts or flood prone areas could lend to better underwriting decisions as opposed to relying solely on longitude / latitude geocoding.”

The briefing concluded that depending on how quickly the technology evolves, drone usage could become a “standard operating procedure” for p&c insurers and another way for insurers to distinguish themselves from their competitors. “This in turn would ultimately compel other insurers to adopt this same technology for the benefit of the consumer and for themselves, or risk being left behind.”