Insurance Article, The Insurance Times 2021, The Insurance Times February 2021

DRONE INSURANCE: THE NEXT GAME CHANGER

Drones promise to be the next disruptive technology, with the potential to dramatically alter business conventions by introducing new ways of working. In June 2020, the government published draft drone rules, in an effort to frame dedicated legislation around them.

Several people from the industry welcomed the move, admitting that the government was finally “identifying” both the presence and importance of the industry. With COVID-19 related lockdowns in the country, we saw several police forces use drones to surveil streets to enforce the lockdown, while some states used drones to spray disinfectants over areas that were the most vulnerable to the virus.

Drones also present an opportunity to carry out deliveries, which can be crucial for use cases such as medicine and other healthcare-related services. Several companies are soon going to experiment with these use cases under a regulatory sandbox. .

Despite useful applications, however, drones can also be a privacy threat and have repeatedly been used by law enforcement agencies not only in India but across the world to surveil protestors. Several authorities in India have often not been forthcoming about the surveillance they conduct, using drones.

Drones are proving to be efficient and beneficial for public surveillance, crowd monitoring and; in certain areas even for delivery of essentials like medicines. Use of drones may also become central to various functions of different businesses in future, where humans may be unable to perform the tasks.

The drone market will grow steadily in the consumer, commercial, and military sectors. The global Commercial Drone market size is projected to reach USD 34500 Million by 2026, from USD 6510.8 Million in 2020, at a CAGR of 32.0% during 2021-2026. Drone technology is growing as businesses make massive investments.

Put simply, a flying drone is an aircraft without a human pilot aboard, earning their alternate name as unmanned aerial vehicles (UAV). Drones are robots typically remotely controlled by a pilot, though fully autonomous drones are in the late stages of development.

Drones were originally created as safer, cheaper alternatives to manned military aircraft. Today they are still used for military purposes, but are now also consumer toys and purveyors of commercial operational efficiency. The Unmanned Aircraft System (UAS) Rules of 2020 stipulates that drones can only be sold by authorized entities and be owned or operated by entities authorized by the Director General of Civil Aviation.

Permits for flying these also have to be sought online and a log has to be shared after the flight. The norms apply to all existing drones as well with effect from Thursday. Nano-drones weighing 250 grams or less can be operated without a drone pilot license. The rules come at a time the coronavirus pandemic has highlighted the role technology can play in reducing human interface and costs.

Drones offer low-cost, safe and quick aerial surveys for data collection and are useful for industries such as power, mining, realty, oil and gas exploration, railways and highways. They are also effective in relief and rescue work and in policing. A set of rules notified by the government to regulate the production, import, trade, ownership and operation of unmanned aircraft systems or drones seek to create a framework for their use by businesses.

Drones have wide use in commercial, safety, law and order, disaster management and surveillance operations, which cuts down manpower requirement and costs. The government is also keen to encourage domestic production of drones.

 

Drone Registration:

The draft rules by the Centre come 18 months after it mandated that drone owners will have to get their equipment registered with the DGCA and allowed their use within the visual range. Rule number 36 and 38 in the Ministry’s draft state that no unmanned aircraft shall carry any payload, unless specified by the Director General of DGCA. Neither shall a person “drop or project or cause or permit to be dropped or projected from a UAS (unmanned aircraft system) in motion anything.

Individuals and commercial establishments flying drones will now have to get themselves as well as the aircraft and the drone registered in addition to securing third party insurance and employing a qualified drone pilot in certain cases. For owning and using a drone, one has to be at least 18 years old.

In the case of companies, the requirement is that their main place of business has to be in India and the chairman and at least two thirds of directors have to be Indian citizens. Also, businesses operating drones have to be substantially owned and effectively controlled by Indian nationals. Registration is required for all but the Nano category:

 

  • Nano: Less than or equal to 250 grams (.55 pounds)
  • Micro: From 250 grams (.55 pounds) to 2kg (4.4 pounds)
  • Small: From 2kg (4.4 pounds) to 25kg (55 pounds)
  • Medium: From 25kg (55 pounds) to 150kg (330 pounds)
  • Large: Greater than 150kg (33 pounds)

 

License for UTM service providers:

The DGCA “may also establish an Unmanned Aircraft Traffic Management System in  the Indian airspace”, and provide UTM service providers a license for this, which is a key requirement for carrying out BVLOS operations, such as delivery or remote surveillance.

BVLOS drones can be controlled remotely. UTMs are necessary for BVLOS drone operations as they are essentially an air traffic management system for drones, except that they are an automated tool. UTMs automatically collect information about flight details, and vicinity of drones in airspace to avoid collisions, among other things. Interestingly Digital sky provides for the one of its kind compliance known as NPNT or No Permission, No Take-off, which is an online system to secure day to day permission to fly a drone.

This permission would be granted through the same Digital sky portal by the concerned authority after you submit the UIN of the drone and UAOP number of the operator together with purpose and area you would be flying in and if everything is found to be as per the standard. It’s like a No Objection Certificate granted by the government authority and a tool to secure an eye on drones flying in a neighborhood.

Timeline of Indian Drone Policy

This is done to ensure that air traffic is regulated even that which includes drones. Plus every operator must maintain a record register disclosing every time as to when a drone took flight and for how long. However as the Digital Sky portal is itself in a beta version no one can get this NPNT permission certificate which makes it legally impossible to fly drones in India as of now other than those drones that don’t require such permit as mentioned above.

Permission for trials

The rules come at a time the DGCA has permitted food startups like Zomato and Swiggy to conduct trials for drones beyond the visual line of sight (BVLOS). As many as 13 consortia, including SpiceJet, have received permissions from the aviation safety watchdog to conduct trials.

Trials for these 13 companies could take up to six months to conclude. Each of these companies will then submit a report to the DGCA, which will then examine the feasibility of remote operations of drones. A separate set of rules which will enable use of drones for e-commerce or delivering medical supplies may take at least a year.

This time-frame may be too optimistic, as regulatory clearances are slow and tardy. Food delivery by drones in India is quite some time away despite the DGCA’s nod to aggregators like Zomato and Swiggy for trials. The Centre has notified draft rules prohibiting “carriage of payload” as well as “dropping of articles” by unmanned aerial vehicles. Also worth noting is that India has specific requirements regarding the types of features a drone must have to be flown in India (excluding those in the Nano category). These mandatory requirements include:

 

  • GPS
  • Return-to-home (RTH)
  • Anti-collision light
  • ID plate
  • A flight controller with flight data logging capability
  • RF ID and SIM/No Permission No Takeoff (NPNT)

Mandatory Third Party Insurance of Drones:

As per rules, “No unmanned aircraft (UA) system shall be operated in India unless there is in existence a valid third party insurance policy to cover the liability that may arise on account of a mishap…,” The Covid-19 crisis has resulted in increased adoption of drones after they were deployed in multiple states, such as Delhi, Maharashtra, Kerala, Telangana, and Punjab, for surveillance and containment activities.

The draft says that no drone can be operated in India without having a valid third party insurance policy to cover the liability that may arise during mishaps, causing death or bodily injury to any person or damage to property. The Covid-19 crisis has resulted in increased adoption of drones after they were deployed in multiple states, such as Delhi, Maharashtra, Kerala, Telangana, and Punjab, for surveillance and containment activities.

For drones flown on a private and as well as commercial basis, it is mandatory to buy third-party liability insurance in India. However, in the absence of a defined product structure, both insurers as well as drone enthusiasts are finding it difficult to find specific covers at affordable rates.

Most insurance firms are unwilling to offer covers citing lack of reinsurance support. An IRDAI working committee has recommended a comprehensive insurance cover for drones with a third-party liability which should be in line with aircraft or aviation liability – as is the practice in the developed nations – instead of following the Motor Vehicles Act.

While drone operators continue to have minimum levels of insurance such as third-party liability cover, the committee on remotely piloted aircraft (RPA) systems/ drone technology said this may not be comprehensive enough to address the requirement of drone operators. If an accident occurs there is a risk that coverage is not comprehensive and that an injured member of the public may not be able to obtain adequate compensation, or do so easily, from the drone operator. Various government bodies and especially police have been using drones in their fight against the coronavirus pandemic.

Panel for insurance of drones:

Drones are playing a significant role in the current Covid-19 situation, assisting various authorities in several activities. There is an immediate need to make available suitable insurance products covering the various risks involved in the use of drones.

The IRDAI has formed a working group to suggest insurance products covering the various risks involved in the use of drones. There is an immediate need to make available suitable insurance products covering the various risks involved in the use of drones.

Drones are emerging as one of the fastest growing technologies and are being used for a variety of purposes and were playing a ‘significant’ role in the present Covid-19 situation helping the authorities in several activities. The nine-member panel has been asked to study and understand the insurance needs of Remotely Piloted Aircraft System (RPAS) owners and operators.

Apart from making recommendations on design and development of products meeting the needs of RPAS owners and operators, including third party liability, the group will suggest measures relating to underwriting of different risks. This move has come in the backdrop of drones emerging as one of the fastest growing technologies and being used for a variety of purposes. Their numbers are growing rapidly.

Risk coverage:

Drone crashes are the most frequent type of insurance claims. These crashes can be of different types, including bird hit, lightning strike, any mid-flight physical damage (e.g. overhead wire hit). Though the regulator (aviation regulator) has made mandatory the third party insurance, the compensation to be on the lines of the Motor Vehicles Act is somewhat not in line with international practices.

According to the working group, the structured basis formula payment on ‘No Fault Liability’ can be considered while designing the insurance product. There is a need to standardize the product feature. Only a handful of products are available for drone operators.

Plus insurers have tough conditions on the location where drones can be used. The panel also said that drone insurance coverage can be broken into three categories — physical damage or loss to drone due to various contingencies, third party liability arising due to usage of drone and any additional coverages.

This insurance does not apply to any liability arising out of or connected directly or indirectly with any aircraft product or any missile or spacecraft or aerial device including any article, equipment, material, part or spare part installed or otherwise incorporated in, on or under any aircraft, missile, spacecraft or aerial device or furnished or used in connection with air or space communication, guidance or navigation system

Meanwhile, the non-availability of claim data for drone losses and lack of reinsurance support for unlimited liability is seen as concerns in developing a feasible drone insurance ecosystem. Drone insurance coverage can be broken into three sets — physical damage or loss to drone due to various contingencies, third party liability arising due to usage of drone and any additional coverages.

While drone operators continue to have minimum levels of insurance such as third-party liability cover, the committee on remotely piloted aircraft systems/ drone technology said this may not be comprehensive enough to address the requirement of drone operators.

Legal aspects of drone risk:

It is legal to fly drones in India since December 2018. However, individuals need to take prior permission from the civil aviation authority for flying these remote-piloted aircraft. Nano drones weighing less than 250 grams have a permit exemption, subject to the condition that they are flown below 50 feet.

Right now, general insurers are reluctant to offer drone insurance as a mass product because reinsurers have sought clarity on the product structure and pricing. Since third-party liability plans have the possibility of high claims, insurance companies in turn take risk covers from reinsurance companies by paying a fixed premium.

So whenever an insurer incurs a claim, this is paid out of the reinsurance cover. The IRDI Working Group has left the decision of arriving at the third-party liability limits to individual insurers as the underwriting appetite, retention, reinsurance programme devised and finally the business volume generated for the drone segment may differ.

However, the drone owner/ operator should choose an appropriate third-party liability limit when flying the drones in a high value concentration zone, after a thorough assessment of potential scenarios which can lead to liability claims. However, the unlimited legal recourse brings in an element of uncertainty in determining the exposure which is a key concern to insurers and re-insurers in supporting this promising technology and developing the drone insurance ecosystem within the country.

Liability limits:

Typically, for third-party liability policies covering bodily injuries, the premium ranges between 0.5 percent and 0.75 percent of the sum insured. Drones cost anything from Rs 25,000 to Rs 6 lakh. The IRDAI has now set up a nine-member working group to look at the insurance needs of remote-piloted aircraft systems (RAPS), also called drones.

The IRDAI working group has left the decision of setting drone third-party liability limits to individual insurers as the underwriting appetite, retention, reinsurance programme devised and the business volume generated for the drone segment may differ from insurer to insurer.

However, the drone owner/ operator should choose an appropriate third-party liability limit when flying the drones in a high value concentration zone, after a thorough assessment of potential scenarios which can lead to liability claims.

Among suggested measures, the committee proposes that insurers pay the sum assured in the event of bodily injury resulting in death of the insured beneficiary within 12 months of such bodily injury being sustained. With the growth in the use of drones, some insurers are already offering drone cover through existing products and extending some covers as and when required.

Commercial Drones at a Glance:

In Insurance, the property and casualty insurance industry can benefit significantly from the use of drones, especially in the areas of claims adjudication, risk engineering and catastrophe claims management. Drones are distinguished by the following key features:

  • Lightweight units typically range from two to 15 pounds, with the ability to easily fit in the back of a car.
  • Highly efficient propulsion systems enable quiet hover capability and flight durations typically range from around 40 to 200 minutes.
  • Dual forward and side-look high-resolution color and thermal imagery cameras with image stabilization are ideal for video recording during day and night.
  • Line of sight ranges from 0.5 miles to 10 miles.
  • Requires minimal use of runway strips, with options for vertical take-off and landing (VTOL).
  • Data connectivity is typically through low-power, digital, wireless and video links.

 

Before every single flight, drone pilots are required to request permission to fly via a mobile app, which will automatically process the request and grant or reject it. India is calling their system “No Permission, No Takeoff” (NPNT).

If a drone pilot tries to fly without receiving permission from the Digital Sky Platform, he or she will simply not be able to take off. All drone operators will register their drone and request permission to fly for each flight through India’s Digital Sky Platform. Permission to fly in controlled airspace can be obtained by filing a flight plan and obtaining a unique Air Defense Clearance (ADC)/Flight Information Center (FIC) number.

 

Country’s first drone Insurance cover:

Tata AIG has been insuring the device against damages for the past two years as well as covering third-party liability. Third-party insurance liability claim is mandatory for drone operations in the country. Various government bodies and especially police have been using drones in their fight against the coronavirus pandemic.

Drones are being used in outdoor commercial activities, operational mistakes and equipment failures may cause damages to third parties. Considering this HDFC has launched this cover under aviation insurance, which is a first in the industry, to safeguard drone owners and pilots from any third-party liability while flying a drone commercially.

In June 2020, HDFC ERGO had launched a third-party liability claims cover in partnership with tech startup TropoGo. This product will be available for commercial drone owners and operators and will work on a pay-as-you-go model. HDFC Ergo offer the country’s first on-demand pay-as-you-fly third-party liability cover for drone owners and operators, Insurance products are slowly becoming available for protection against physical injuries by drones.

This is India’s first on-demand ‘Pay As You Fly’ Third-Party Liability cover for drone owners and operators which is Smart, Affordable & Fit-for-Purpose. The policy offers coverage for third party property damage and bodily injury/death arising from the use of drones. We will indemnify the Insured for the sum which he/she will be legally liable to pay due to the damage caused by the Remotely Piloted Aircraft (RPA) whilst operating the same. The coverage offered is subject to maximum limit of Indemnity, which currently is for Rs. 10,00,000/-.

TATA IG in collaboration:

Similarly, Tata AIG General Insurance and Drone Federation of India had partnered in January 2020 to create insurance products and services for the drone industry. Tata AIG and Drone Federation of India (DFI) have collaborated to create world-class insurance products and services for the Drone Industry.  DGCA regulations make insurance mandatory during operation of remotely piloted aircraft systems.

Our collaboration with DFI to launch tailor-made insurance products for drone operators, subject to necessary approvals from insurance regulator, furthers our mission to create a better tomorrow for our customers by delivering innovative risk solutions.

With the government taking active steps to support drone manufacturing and drone operations in India, we will soon see proactive usage of drones in activities like mining, construction, surveillance, transport, fire-fighting, law enforcement, agricultural and topographical data acquisition, insurance assessments, media and entertainment. Tata AIG General Insurance Company was the insurance presenter at the festival and showcased its readiness to cater to the insurance and risk management requirements of drone manufacturers, suppliers, buyers, owners and operators

BVLOS drone insurance coverage to Asteria Aerospace:

State-owned general insurer National Insurance Company has issued the country’’s first beyond visual line of sight (BVLOS) drone insurance coverage to Asteria Aerospace, a manufacturer and operator of unmanned aerial vehicles. National Insurance is providing the coverage through Itus Insurance Brokers using deep-tech startup TropoGo’s platform. TropoGo, which specializes in risk assessment of aerial mobility, has worked closely with the insurance player in offering the product.

BVLOS drone operations are the next frontier in drone-technology to deliver multiple mass benefit use cases like agriculture, disaster management, healthcare, infrastructure monitoring, among others. The insurance coverage is to safeguard the risk of any loss or damage to third-party due to any accident during the test flights.

The insurance coverage is exclusively designed for Asteria’s DGCA approved consortium to conduct 100 hours of BVLOS test flights in a pre-defined airspace approved by the Directorate General of Civil Aviation. A consortium includes drone operators, unified traffic management (UTM) providers, among others. The DGCA has approved 20 drone consortia, including Asteria Aerospace, for conducting BVLOS drone trials in a sandboxed environment. Besides Asteria Aerospace, National Insurance is also providing similar coverage to the DunzoAir consortium.

Salient features of Drone Insurance:

With the growth in the use of drones, some insurers in the country are offering drones cover through existing products and extending some covers as and when required. One insurer has launched third-party liability cover of Rs 10 lakh through one of the tech firms on “Pay as you Fly” basis where a drone operator can choose a flying option – up to four hours, one day and one Month.

Some insurers are providing third-party liability in a range of Rs 10 lakh to Rs 20 lakh cover along with optional hull cover. Globally, drones are classified as an ‘aircraft’ and the aviation regulators have stepped in to regulate the sector. The insurer should pay the sum assured in the event of bodily injury resulting in death of the insured beneficiary within 12 months of such bodily injury being sustained.

The company will also, in addition to the sun assured, pay up to two per cent of the sum assured or Rs 5,000 (whichever is lower) towards the cost of transporting the mortal remains of the insured/ authorized operator from the place of death to the hospital/ residence and/or cremation and/or burial ground. In the event of bodily injury resulting in permanent total disability of the insured/ authorized operator within 12 months of such Injury being sustained, the company will pay 125 per cent of the sum assured.

Drone Market Size in India:

India’s commercial drone market witnessed substantial growth in the past few years on account of increasing awareness, technological advancement, and growing adoption across several verticals such as mining, filming & photography, and agriculture in the country.

The outbreak of COVID-19 has highlighted the importance of drones in India. Additionally, government initiatives such as the Make in India, which promotes the domestic manufacturing of drones, will further fuel the growth of the commercial drone market in India during the forecast period. According to this research, India’s commercial drone market is projected to grow at a CAGR of 12.4% during 2020-2026.

Based on types, rotary blade drones dominated the India commercial drone market share in 2019 owing to its special advantage of vertical landing and take-off. Also, they could hover at one particular point and are best suited for short-range applications.

However, significant growth is recorded in fixed-wing drones on account of its simple structure and longer duration at high speed. Commercial drones are widely accepted and implemented across several verticals. However, mapping & surveying holds the majority of revenue share due to high accuracy and quality provided by such drones with relatively less manpower and low cost.

Also, recently, the government of India has employed drones for 3D digital mapping for road widening in the Allahabad highway. Further, filming & photography application has also registered significant share in India commercial drone market 2019.

The report comprehensively covers the market by types, applications, and regions. The report provides an unbiased and detailed analysis of the on-going trends, market share, opportunities/high growth areas, and market drivers which would help the stakeholders to device and align their market strategies according to the current and future market dynamics.

The increasing use of UAVs in various commercial applications, such as monitoring, surveying & mapping, precision agriculture, aerial remote sensing, and product delivery, is also contributing to the growth of the UAV market.

The structured basis formula payment:

According to the working group, the structured basis formula payment on ‘No Fault Liability’ can be considered while designing the insurance product. However, the unlimited legal recourse brings in an element of uncertainty in determining the exposures which are a key concern to insurers and re-insurers in supporting this promising technology and developing the drone insurance ecosystem within the country.

The group has recommended that the third party liability insurance be in line with aircraft/aviation liability as is the practice in the developed nations. Based on the discussions with few insurers and re-insurers, we understand that they (insurers & re-insurers) are interested in providing a Comprehensive Insurance Cover i.e. both Hull (drone body) and third party liability rather than stand-alone liability cover or Hull (drone body).

While the group wants the global practice to be followed in the case of third party liability, it wants to deviate from the global norms on arriving at the third party liability limit arising out of drone operations. It referred to the European Union Guideline No 285/2010 that provides that an aircraft operator (including UAS) flying over the territory of executive committee member state should have an insurance cover which is dependent on Maximum Take Off Mass (MTOM) of the aircraft concerned.

For MTOM of up to 500 kg, minimum insurance requirement in Special Drawing Rights (SDR) terms is 0.75 million (i.e. equivalent to Rs 7.5 crore). In India, as the drone usage being in the nascent stages, we expect the weight of the drones in the market to be much lesser than 500 kg (may be less than 25 kg) and hence we may look at liability limits lower than the European guidelines.

Drones are playing a significant role in the current coronavirus situation, assisting various authorities in several activities. Draft drone rules propose to mandate insurance cover for drones to be eligible to operate. HDFC Ergo recently launched a dedicated drone insurance product, but that remains the only product specifically developed for drone liability cover so far.

The draft says that no drone can be operated in India without having a valid third party insurance policy to cover the liability that may arise during mishaps, causing death or bodily injury to any person or damage to property. Industry estimates suggest that over 330,000 units of drones have been sold so far in India on a commercial basis.

During the Covid -19 pandemic, drones are being used in India to check whether people are following social distancing norms. Apart from this, drones are also being used in infrastructure and engineering sectors to monitor ongoing projects and for topographic surveys.

In the agriculture sector, drones are being used to monitor crop yields and damage due to natural catastrophes and insect/wild animal attacks. In Mumbai, pizza delivery via drones was tested in May 2014 but was later discontinued after Mumbai Police said that the entity hadn’t sought prior permission.

The Drone Federation of India (DFI), a not-for-profit industry-led body that strives to build a safe and scalable unmanned aviation industry in India, recently organized the Drone Festival of India.. Tata AIG General Insurance Company Limited (Tata AIG) was the insurance presenter at the festival and showcased its readiness to cater to the insurance and risk management requirements of drone manufacturers, suppliers, buyers, owners and operators.

Drones were effectively used by the police to implement lockdowns as they have proved to be efficient and beneficial for public surveillance, crowd monitoring and in certain areas even for delivery of essentials like medicines.

Drone regulations need to be tweaked by addressing concerns of all the stakeholders. Although futuristic, the digital sky platform should be further upgraded. The platform should be fed with back-end data to grant automated permissions.

Unless the data bank within the platform is able to process the flying location and flying path, it would be difficult for it to grant automated permissions. The market for non-military unmanned aerial systems (UAS) — drones — in India has been marred by restrictive policy, which can stagnate this industry in its infancy.

The Indian UAS market is expected to touch $885.7 million, making it about 4% of the nearly $21.47 billion global market. At the same time, it accounts for 20% of global imports of UAS, making it the fifth-largest importer of drones. This indicates the presence of demand beyond the military.

The Ministry of Civil Aviation has notified the draft Unmanned Aircraft System (UAS) Rules, 2020 wherein it has said no Unmanned Aerial Vehicle (UAV) shall be operated without a third party insurance policy to cover the liability that may arise on account of an accident and causing death or bodily injury to any person or damage to property.

In India, as the drone usage being in the nascent stages, we expect the weight of the drones in the market to be much lesser than 500 kg (may be less than 25 kg) and hence we may look at liability limits lower than the European guidelines.

As insurance carriers build business and technology use cases and the necessary architecture and services, they must consider not only how and where drone technology fits into their digital roadmap, but also how the operating model can be enhanced to deliver optimal benefits for the business and its customers.

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