Thought Leadership by Reed Smith LLP: Drone Delivery — The need for insurance

Words by Lau­ra-May Scott, part­ner at Reed Smith LLP.

The land­scape of shop­ping has dras­ti­cal­ly evolved with the rise of online retail­ers. Gone are the days of endur­ing long queues for sim­ple items like can open­ers or, in today’s con­text, air fry­ers. Now, with a sim­ple click, goods are swift­ly dis­patched to our doorsteps. And soon, they may arrive with­out any human involve­ment.

In recent times, select retail­ers have ini­ti­at­ed tri­als for drone deliv­ery, herald­ing a new chap­ter in the realm of deliv­er­ies. This emerg­ing trend demands atten­tion from the insur­ance sec­tor. The drone insur­ance mar­ket is grow­ing, and it shows no signs of slow­ing down as tech­no­log­i­cal advance­ments con­tin­ue and busi­ness­es increas­ing­ly rely on drones for pack­age deliv­ery.

So, what insur­ance do you need when using a drone in the UK?

As of 2024, the UK has imple­ment­ed a com­pre­hen­sive set of drone laws reg­u­lat­ed by the Civ­il Avi­a­tion Author­i­ty (CAA) to ensure the safe and respon­si­ble oper­a­tion of drones. The CAA reg­u­lates drone usage and local author­i­ties may have spe­cif­ic require­ments and reg­u­la­tions for drone flights with­in their juris­dic­tion. Addi­tion­al­ly, there may be local bylaws reg­u­lat­ing flights over crowd­ed areas, sen­si­tive sites, and restrict­ed air­space.

The insur­ance you need depends on the size of your drone and what you use it for. In short, if you fly a drone that weighs less than 20kg for fun, recre­ation, sport, or as a hob­by, you can choose whether or not to have insur­ance. If the drone is over 20kg, you need insur­ance. If you fly for work/business
pur­pos­es, you need insur­ance.

The CAA requires com­mer­cial drone oper­a­tors to hold an “ade­quate lev­el of insur­ance,” which includes pub­lic lia­bil­i­ty and avi­a­tion-spe­cif­ic lia­bil­i­ty.
The pub­lic lia­bil­i­ty insur­ance needs to be com­pli­ant with EC Reg­u­la­tion 785/2004. The Reg­u­la­tion applies to all air car­ri­ers and to all air­craft oper­a­tors fly­ing with­in, into, out of, or over the ter­ri­to­ry of a Mem­ber State to which the Treaty applies (and the UK is caught with­in it).

Accord­ing to the Reg­u­la­tion, a drone oper­a­tor must pur­chase at least 750,000 Spe­cial Draw­ing Rights when oper­at­ing an air­craft up to 500kg. Spe­cial Draw­ing Rights (SDRs) are sup­ple­men­tary for­eign exchange reserve assets defined and main­tained by the Inter­na­tion­al Mon­e­tary Fund. At the time of writ­ing, 750,000 SDRs equate to around £784,967.15. Spe­cial­ist insur­ers will write insur­ance on a min­i­mum cov­er­age basis which will apply at all times to allow for fluc­tu­a­tions in the cur­ren­cy con­ver­sion rate of SDRs.

Fail­ure to com­ply with the Reg­u­la­tion can result in fines and/or revo­ca­tion of per­mis­sions to fly with­in the UK and Euro­pean Union. In prac­tice, drone insur­ance comes in vary­ing forms. As not­ed, it is manda­to­ry to have pub­lic lia­bil­i­ty and avi­a­tion-spe­cif­ic lia­bil­i­ty insur­ance, but, in real­i­ty, com­mer­cial drone oper­a­tors will want wider reach­ing cov­er.

For exam­ple, acci­den­tal dam­age insur­ance would come in handy as it cov­ers the cost of repair­ing or replac­ing your drone if it’s acci­den­tal­ly dam­aged. Theft insur­ance may also be a pru­dent invest­ment in a world where crim­i­nals find ways to inter­cept drones to use them for ille­gal activ­i­ty.

Anoth­er com­mon insur­ance is fly­away insur­ance. This pro­vides cov­er­age if your drone is lost due to fly­away, which occurs when your drone sud­den­ly los­es con­tact with the con­troller and flies away uncon­trol­lably. The cost of com­mer­cial drone insur­ance in the UK varies depend­ing on a vari­ety of fac­tors, such as the type of drone being used, the lev­el of cov­er­age required, and the intend­ed use of the drone.

One thing is for sure – drones are no longer being used by hob­by­ists for fun. This next-lev­el tech will no doubt become a more preva­lent fea­ture in our every day lives and it will be inter­est­ing to see how insur­ance prod­ucts evolve to sup­port it.