AGL Magazine - AGLM - June 2017

Rise Of The Drones: Managing The Unique Risks Associated With Unmanned Aircraft Systems

James Van Meter 2017-06-02 01:05:04

The use of drones for industrial inspection, which includes cell towers, represents 42 percent in a breakdown by industry.  Source: FAA Aerospace Forecast FY2016-2036 Managing risks associated with drone operation involves both the owner and/or operator as well as the manufacturer. It also requires those who hire a drone or related service provider to follow certain guidelines. Drones or unmanned aircraft systems (UAS) used to be primarily associated with military operations. Today, compact versions are increasingly operating in everyday life and the UAS industry is fast becoming a multibillion-dollar business, as the benefits to be gained from using such innovative technology become increasingly apparent. The following information examines the key issues and trends underpinning rapid growth in the use of UAS and provides insight into the potential risk exposures related to their deployment in the private, public and commercial realms. UAS have the potential to both solve problems and save costs in a number of industries throughout the developing world and in disaster relief scenarios. Growth projections for the sector are significant as UAS become cheaper to purchase, smaller in size and easier to operate. In fact, the UAS industry is regarded by many as the most dynamic growth sector of the global aerospace industry. However, as civilian and commercial use of UAS rapidly increases and continues to evolve, the potential for misuse of this technology needs to be considered. Advances in technology are inevitably accompanied by a host of new and little-understood risks. There have already been enough incidents and near-misses to date involving UAS to generate concern that the likelihood of collisions and other loss events will grow as UAS numbers multiply. The use of drones for industrial inspection, which includes cell towers, represents 42 percent in a breakdown by industry. Source: FAA Aerospace Forecast FY2016-2036 UAS consist of unmanned aerial vehicles (UAVs, or drones), ground-based controllers and a means of communication between them. The use of drones in the public airspace is increasing dramatically. In the United States, the Federal Aviation Administration (FAA) projected that by the end of 2016, more than 600,000 UAS would be deployed for commercial use — three times the amount of manned general aviation aircraft. In addition, 1.9 million UAS are expected to be for recreational purposes. The number of UAS is set to triple by 2020, according to the FAA Aerospace Forecast for the fiscal years 2016–2036. The Research and Markets report, “Unmanned Aerial Vehicles Market, By Value and Volume Analysis and Forecast 2015-2020,” predicts the global UAS market volume to reach 4. 7 million units by 2020. Other estimates are even higher. The market for commercial application of UAS technology is estimated to soar from $2 billion to $127 billion by 2020, according to PwC. Expectations that UAS will become cheaper, smaller and easier to use support such projections, as does the expectation for regulatory progress. Uses and Benefits Piloted remotely on the ground via control stations, UAS are increasingly used for both menial and dangerous tasks, potentially solving problems and overcoming challenges across numerous countries and industries, improving the safety of thousands of workers every year, and significantly reducing costs. UAS are commercially used in a variety of situations, the most popular of which are industrial inspections, aerial photography, agriculture (surveying crops) and law enforcement. As UAS technology penetrates further, a decline in workers compensation losses can be anticipated, particularly related to building inspections. Insurers are also increasingly using UAS to survey loss damage from floods and other catastrophic events, and to help alleviate distress and damage to victims and property more quickly. Emerging UAS use includes deliver-ing blood and vaccines to remote locations in Africa, as monitoring tools to prevent the exploitation of slave labor in Brazil, fighting grass fires, and even delivering pizza and coffee. Subsidiary UAS industries are also being created, such as the emergence of third-party drone-for-service vendors who rent UAS to commercial operators. The Risk Landscape As recreational and commercial UAS use increases, new risk exposures are emerging. More incidents are likely to occur once regulations are finalized that encourage more widespread use. Such incidents could result in multimillion- dollar claims against businesses, operators and manufacturers. Hobbyists account for the majority of UAS owners, yet they remain largely unregulated in many countries, raising safety concerns because many can be untrained and inexperienced. Insurers have already seen loss activity resulting from novice control of UAS. Regardless of technological sophistication or operator skill, however, accidents happen. UAS raise two priority safety concerns: mid-air collisions and the loss of control. A collision can occur if the pilot cannot see and avoid manned aircraft in time. Most at risk are manned aircraft that fly below 500 feet, such as helicopters, agricultural planes, and aircraft landing or departing from airports. Loss of control can result from system failure or flying beyond signal range, a major risk that has already caused incidents involving injuries. A scenario involving a pilot losing control of a UAS during a building inspection could result in a loss easily in excess of $5 million. Damage from foreign objects, such as bird strikes for example, is already a problem for the aviation sector, and it is the fifth-largest generator of insurance claims, according to a global claims review by Allianz Global Corporate & Specialty. A collision involving a UAS striking the engine of an airliner could cause $10 million in physical damage alone. As with manned aircraft, there are concerns UAS may be used for malicious acts. An emerging peril is the potential threat from UAS being used to target critical infrastructure. There have been a number of incidents of drone overflights at power stations. There are also concerns that UAS could be used to attack sports stadiums or other events where large crowds gather. Other risk scenarios include the prospect of hackers spoofing a UAS radio signal and potentially leading to a crash, the potential loss or theft of valuable recorded data when the device is transmitting information to the control station, or after the flight by a cyber-attack when the data has been stored. In addition to data protection, there are also many public concerns about such matters as privacy, trespass and nuisance. The increasing use of UAS is also altering the risk profile of many industries. For example, a real estate agent has little bodily injury exposure, but this changes if an agent engages UAS to take aerial photographs. Regulation Regulations have been a significant barrier to more widespread use of UAS. Standards differ remarkably around the world, as evidenced by the hundreds of working groups trying to harmonize rules. Another challenge is posed by the fact that regulations cannot keep pace with technological advancement. In most cases, the designation between commercial and recreational UAS use is the starting point. Other common standards exist such as visual line of sight (VLOS) requirements for pilots, size restrictions (usually less than 55 pounds), and restrictions against operating UAS near airports or outdoor venues. New rules for commercial use in the United States that became effective in August 2016 represent a milestone because they lower the barrier to entry for new commercial users and are expected to significantly increase the number of units in operation. These new regulations are likely to influence other countries to adopt similar laws. The European Union is also working toward issuing UAS rules. Insurance and Risk Mitigation As UAS ownership grows, so will expectations for safety education. Operators should make this a top priority and obtain the necessary training and experience to competently pilot their UAS. Training is crucial to reducing the number of incidents, and operators should focus on flight time calculation, meteorology, security checks for aircraft navigation systems, emergency instructions and air traffic law. For businesses, additional training should include onboard camera image use, flight communications and planning, system maintenance, and a host of other technological issues. Even basic safety checklists can help. In many countries, UAS registration is not required, causing problems for insurers and claimants. Identification of both UAS and operators will be essential for maintaining proper liability in the future. Introduction of car registration- style methods will help. Insurance can protect both operators and the public from risk of mid-air collision, as well as physical or property damage or injury to others. Manufacturers, owners and operators of UAS are exposed to a number of risks, as are businesses that sell and service UAS. If growth projections for the commercial UAS industry in the United States materialize, the drone insurance market has the potential to be worth more than $500 million by the end of 2020. Globally, its value could be approaching $1 billion, according to Allianz Global Corporate & Specialty. James Van Meter is the aviation practice leader at Allianz Global Corporate & Specialty, the Allianz center of expertise for large corporate, specialty and industrial insurance.

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