IMPACT ON PREMIUMS

Aerial site

assessments using drone technology can

identify property features that can

lower the overall risk profile or justify lower premiums9.

4.7MNDRONES BY THE NUMBERS:

Unmanned aircraft systems (UAS) or drones have the potential to both solve problems and save costs in the future across a number of industries, through the developing world and in disaster relief scenarios. The risk of misuse of this technology needs to be considered as use rapidly increases and continues to evolve. This infographic looks at how Allianz Global Corporate & Specialty (AGCS) is using drones in our business and the potential risk exposures for clients in relation to the deployment of drones in the private, public and commercial realms.

ALLIANZ GLOBAL CORPORATE & SPECIALTY AGCS.ALLIANZ.COM

PROJECTED VALUE OF DRONE SOLUTIONS RESULTING FROM COMMERCIAL BUSINESS IN 20209.

ESTIMATED SAVINGS THAT COMMERICIAL DRONES CAN BRING TO THE INSURANCE INDUSTRY BY IMPROVING TRANSACTION PROCESSING, RISK MANAGEMENT, RESOURCE EFFICIENCY, FRAUD REDUCTION AND EMPLOYEE SAFETY9.

$13BN

KEY DRONE RISKS4

READY FOR TAKEOFF: AGCS & DRONES FACTS AND FIGURES

PERCENTAGE OF GLOBAL AVIATION FLEET THAT COULD BE UNMANNED IN 10 YEARS4.

10%ESTIMATED NUMBER OF COMMERCIAL DRONES BY 20206.

A GAME OF DRONES: DID YOU KNOW?

SINGAPORE’S DRONE ESTATE1

As part of Singapore’s Smart Nation

Initiative,One-north was designated as a drone

estate in 2018, creating an urban environment for companies to test their

UAVs.

ALLIANZ X FLOCK PARTNERSHIP

Allianz offers on-demand drone insurance for commercial and recreational users in the UK

through our partnership with InsurTech startup Flock. The app

provides pilots with real-time information, reducing risk and

improving flight safety.

LIABILITY RISKS: Liability risks associated with UAS are completely different to those posed by manned aircrafts as there are no occupants onboard, and the size and weight of the UAS are usually smaller.

WAR / TERRORISM PERILS: Similarly to manned aircrafts, UAS can be used for malicious acts like attacking key infrastructure or events where large crowds gather. in Sept 2019, a Saudi oilfield was the target of drone attacks, wiping out 5% of the world’s oil supply2.

CYBER ATTACKS: The prospect of hackers taking control of a UAV during flight is a real one. Causing a crash in the air or on the ground could result in material damage and loss of life.

All figures in USD unless stated otherwise 1 https://www.straitstimes.com/singapore/transport/one-north-to-be-designated-as-singapores-first-drone-estate 2 https://www.theguardian.com/world/2019/sep/16/trump-says-us-locked-and-loaded-after-saudi-arabia-oil-attack-as-crude-prices-soar-iran-aramco 3Engineering & Construction claims and insurance trends report - Allianz Global Corporate & Specialty 4Rise of the Drones report - Allianz Global Corporate & Specialty 5Aviation Risk 2020: Safety and the State of the Nation - Allianz Global Corporate & Specialty 6Global Risk Dialogue Summer/Autumn 2019 - Allianz Global Corporate & Specialty 7Global Claims Review 2018 - Allianz Global Corporate & Specialty 8Global Risk Dialogue Winter/Spring 2019 - Allianz Global Corporate & Specialty 9Insurance industry drone use is flying higher and further, Deloitte 10https://www.forbes.com/sites/baymclaughlin/2018/07/25/this-week-in-china-tech-ai-disrupting-insurance-claims-china-opens-airspace-for-drones-and-more/#770f46556f3d

$7BN

PRIVACY ISSUES: There are many public concerns over UAV around issues like privacy, trespass and nuisance.

CONSTRUCTION CLAIMS3

The precise photos that drones take can potentially improve the quality of the claims adjudication process. AGCS recently used drones, laser

scanning and computer modeling to carry out analysis of the root cause

of a machinery explosion at a construction site that was

inaccessible to loss adjusters.

NATURAL CATASTROPHE CLAIMS6

AGCS has used drones to better assess damage in the wake of

natural catastrophes like Hurricane Harvey, wildfires in California and

Hurricane Florence.

DRONE SURVEYS AND INSPECTIONS

Drones can provide a more cost-effective way of conducting site inspections.

AGCS, together with our partner FairFleet, started offering 3D model creation and efficient roof inspection

solutions using modern drone technology as a service available to our clients.

DRONE DISRUPTION: TOP AVIATION RISK

Drone disruption while relatively new, is one of the main aviation risk trends. Drone incidents with airliners or near airports occured in late 2018 and early 2019 in Tijuana, Mexico, Newark, New York, London’s Heathrow Airport, Dubai and even Singapore’s own Changi Airport5.

Severe disruptions occured at Gatwick Airport in London, resulting in 1,000 flight cancellations or diversions, affecting 140,000 passengers and cost the airport $60mn. Airline EasyJet confirmed it lost £15mn as a result. In the aftermath, Gatwick spent about £5mn on anti-drone equipment.

GROWING BUSINESSAGCS has seen a greater uptake of drone

insurance as UAV use becomes more mainstream. Hull losses still make up the majority of claims, compared to liability

claims7.

$2.25BNESTIMATED VALUE OF UAV MARKET IN CHINA BY 202010.

THE UNION OF AI AND DRONES1

Most unmanned aircraft systems still currently require a human agent to control them remotely, however, as artificial intelligence (AI) capabilities improve, we anticipate the disappearance of human agents in piloting the UAS, such as in driverless air taxis. Legal gaps must be plugged before such systems can be deployed. AI agents may take over many decisions from humans in the future, but they cannot legally be held liable for those decisions. In general, the manufacturer or software programmer of AI agents is liable for defects that cause damages to users. However, AI decisions that are not directly related to design or manufacturing, but are taken by an AI agent because of its interpretation of reality, would have no explicit liable party, according to current law. Insurers like AGCS, already an early adopter of drones and AI with machine learning, will benefit from the improved data analytics associated with AI. This allows insurers and their customers to have a much better understanding of risks so that they can be more effectively reduced, while new insurance solutions could also be developed.

FURTHER READING

Software Accessibility

Safety Accountability Liability Ethics

1The Rise of Artificial Intelligence: Future Outlook and Emerging Risks - Allianz Global Cpororate & Specialty 2Washington Post, This company says its air taxis could be flying people across major cities by the ‘mid-2020s’, January 10, 2019 3Rise of the Drones report - Allianz Global Corporate & Specialty 4Inside Unmanned Systems, Urban Air Mobility: Catching a very local flight, April 20, 2018 For more information, please visit: https://www.agcs.allianz.com/news-and-insights/reports/the-rise-of-artificial-intelligence.html https://www.agcs.allianz.com/news-and-insights/expert-risk-articles/taxi-drones.html www.agcs.allianz.com

CHALLENGES IN URBAN AIR MOBILITY3

Urban air mobility (UAM) promises many improvements over its land-based counterpart - traffic decongestion, improved mobility, reduced commutes,

decreased pollution and diminished accidents amongst others.

Like any new product, risk exposures will need to be assessed by insurers, but adequate historical data doesn’t yet exist. From a risk standpoint, it will be

important to generate sufficient data and make it available to all stakeholders.

Once authorities have cleared the technology, the public may embrace it and insurers will step-up their commitment to offer solutions. Hull and physical

damage coverages will be similar to aviation coverages that already exist, while liability scenarios will change. The process could dramatically deviate from the path smaller drone insurance has taken, since the amount of damage or injury

capable of being inflicted is relatively minimal. With a human passenger onboard, the potential liability escalates considerably.

INFRASTRUCTUREOn-ground support

infrastructure remains the biggest challenge

facing widespread integration of air taxis2. Landing

stations, charging stations, customer

access points as well as an efficient method

of airspace control are all necessary.

VEHICLE INVENTORYYears of vehicle testing and development are

needed before air taxis can become functional.

One bottleneck is battery capacity, as power loss is a safety issue. Charging

requirements must evolve from recharging after

every flight to recharging after multiple flights for

full operational functionality.

REGULATIONSExisting regulations are not conducive to

the rapid development and implementations of

UAM within the next five years or more. As UAM contributes new

propulsion systems and vehicles that have not

been certified4, stringent requirements will necessarily follow.

SAFETYWithout a pilot onboard,

a new automated communication and

guidance will need to be developed, performing identical functions as a manned crew. Safety

standards will have to be robust to attract riders. In the case of accidents, liability

questions will shift from pilots to developers,

manufacturers or operators.

5 AREAS OF EMERGING AI RISKSAGCS has identified 5 key areas of emerging AI related risks. Responsible development and introduction of AI becomes less hazardous for society when each of these areas are addressed. In the race to bring AI systems to the market, such as unmanned air taxis, care must be taken to prevent insufficient or negligent validation activities. Otherwise, an increase in defective products and recalls may occur.