Game of drones: The rise of the machines
By Kevin Bartlett

The military use of drones is well known. However, there has been rapid growth in the recreational and commercial use of drone technology because of its relatively low cost and the diversity of its emerging applications.

The key challenges arising from this growing industry are how to successfully integrate drone operations into our busy airspace and how to manage the emerging and potentially significant third party risks. While collaboration between regulators, manufacturers and operators will be important to achieve safe operations, insurance will be a major component of the risk management process.

Like computer and smart phone technology, drone technology has become commonplace and an integral part of doing business. Drones are now: delivering medicine to remote areas; undertaking courier services within large cities; monitoring severe weather such as storms and cyclones; undertaking data gathering in the agricultural, marine and mining industries; assisting with law enforcement and border patrol; and carrying out photography and filming.

But it has not all been plain sailing. Drones have had near misses with passenger aircraft, hit power lines resulting in loss of power to approximately 200 commercial and industrial businesses, interfered with a police response to a siege and caused unwanted invasions of privacy—resulting in the inevitable media scrutiny.

Liability considerations, particularly third party liabilities, are increasingly important to operators and insurers. Potential damages and the costs associated with third party claims will play a significant role in the availability and cost of insurance. The ability to identify and assess these types of risks will therefore be important to the insurance industry in developing appropriate insurance cover and risk-based pricing.

Risk factors

In August this year, Lloyd’s of London released an emerging risk report into drone technology, “Drones take flight”, and identified five key risks facing the industry:

• negligence of the pilot (the drone operator)
• inconsistent international standards
• enforcement that has not kept up with the rapidly growing industry
• vulnerability to cyber-attack, and
• privacy infringement.

The report identified the “human factor” as a key concern for insurers. Several jurisdictions have introduced, or are introducing, comprehensive training and certification schemes that will be linked to the mandatory licensing of operators. This will allow insurers to better assess insured operators’ competence as part of their underwriting requirements. Additionally, effective airspace control and collision avoidance technology could become a prerequisite for obtaining insurance cover.

The history of aviation attests to the benefits of uniform international regulation. Drone technology is developing rapidly and is portable. Cooperation between drone manufacturers and regulators on the one hand and between regulators and insurers on the other hand, will ensure there is some consistency in the approach taken by regulators in different jurisdictions and an appropriate suite of insurance cover is developed to address the emerging risks.

The report highlights that regulatory enforcement has fallen behind the pace of drone technology development. It suggests that manufacturers should continue their research into a tracking and monitoring technology that can be incorporated into the drone design, which could assist enforcement and minimise the risk of future infractions.

Drones will become a target for hackers, according to the report, as jamming equipment is currently available at a relatively low cost. As the number of commercial use applications grow, so will the urgency of this issue for manufacturers and regulators.

Privacy issues related to drone use continue to be an area of concern. Where a drone has surveillance capability, it is proposed that an operator should first carry out a privacy impact assessment before permission is given to use the drone for surveillance purposes.

Regulation in Australia

Since mid-2014, the civil aviation regulator, Civil Aviation Safety Authority (CASA), has been working with the industry on proposed changes to the regulations that apply to remotely piloted aircraft. There is an intention to relax the restrictions on the use of small drones by commercial operators. Currently, the regulations prohibit a person from operating a drone:

• within 30 metres of a person or building
• above 400 feet
• above a populous area
• out of the person’s line of sight, and
• within five kilometres of an airport or airfield.

If the drone is to be used for commercial operations, the person must obtain an operator’s certificate. Any individual operating a drone for commercial gain must have a controller’s certificate. The regulations are more onerous if the drones are larger in size and mass.

CASA expects to release a revised set of regulations in 2016.

Australia does not specifically regulate to protect the privacy of individuals regarding the use of drones. In 2014, the Commonwealth Government undertook a review of the privacy issues in the digital era. The review recommended the introduction of a new statutory cause of action for serious invasions of privacy. If enacted, the new cause of action could potentially apply to the operation of drones. Outside of the statutory regime, those affected by intrusive drones need to explore the common law causes of action of trespass and nuisance.

What does this mean for insurers?

Insurers need to continue to develop and tailor their policies to meet the growing demand and emerging risks associated with this dynamic sector. The standard insurance will no doubt cover third party risks and may extend to cover professional indemnity liability (i.e. damages and legal costs associated with third party claims for breach of privacy), directors’ and officers’ liability, product liability, employment liability and terrorism cover.

Insurers will need to closely follow technological advancements to ensure safer operations. The regulation of passenger aircraft in the wider aviation industry already requires mandatory liability insurance. It is expected that mandatory cover for third party risks arising from drone use might be imposed by regulation and new anti-collision avoidance technology could become a prerequisite for obtaining cover. Insurers will also need to be nimble in identifying and addressing the emerging risks from new industry sectors that drones will operate in. Cooperation between manufacturers, regulators and insurers will be key to successfully managing the risks of this new frontier.

“This article was originally published by Sparke Helmore Lawyers.”