Drone technology is changing the landscape of aviation insurance, creating new challenges and opportunities. This shift is particularly significant for managing general agents (MGAs), program administrators, and specialty brokers. While the ongoing pilot shortage is a concern, experts believe it is manageable. William Tabbert, co-head of Starfish Specialty Insurance Services, pointed out that drones are driving fundamental changes in aviation insurance.
Tabbert highlighted that the drone sector, especially in agriculture, is rapidly expanding. He mentioned that several insurers are now focusing on providing coverage for agricultural drones, which is a promising area for growth. He believes that this growth will surpass the current shortage of pilots in the U.S., which is estimated at 8,000 and increasing. However, he reassured that this shortage will not destabilize the industry, as it will ultimately be a matter of supply and demand.
Despite the buzz around drone delivery, especially in urban areas, experts say it is still a long way off. Tabbert emphasized that last-mile delivery remains a significant hurdle due to regulatory issues, privacy concerns, and public hesitation. As drone technology improves, these barriers still need to be addressed.
Charles Koehler, also co-head at Starfish, expressed that drones and advanced air mobility systems will greatly influence aviation insurance strategies. He noted the importance of understanding the technology and its implications for insurance. This includes recognizing new risks such as cyber threats, liability gaps, and managing airspace.
Automation is already altering insurance operations. Tabbert mentioned that black-box telemetry in drones allows for detailed analysis of incidents, enabling insurers to understand exactly what happened during a loss. This development opens doors for usage-based insurance models but also introduces risks, such as potential coverage gaps in app-only offerings.
Older aircraft present unique challenges, as they lack the sophisticated data available in newer models. A minor issue in an older engine could lead to significant costs. Koehler pointed out that underwriters now need to consider not just the pilots and planes but also the manufacturers and their technologies. This includes evaluating software integrity and safety systems, especially for electric aircraft.
The aviation insurance market is also facing capacity constraints. Koehler noted that these limitations began about five years ago when insurers reduced their limit authority. Additionally, social inflation in the U.S. legal environment has made insurers more cautious, further impacting capacity.
For global aviation clients, the landscape is becoming increasingly complex due to geopolitical and regulatory risks. Tabbert mentioned that Starfish often collaborates with reinsurers to address these challenges. He emphasized the importance of having specialized knowledge and relationships, particularly as global broker networks consolidate. He also highlighted the role of international aviation safety standards in managing risks worldwide.
Staying updated on cross-border regulatory changes is now crucial for insurers. Koehler pointed out that there are subscriptions available that notify insurers of any changes, underlining the need for technical knowledge about both aircraft operations and the relevant regulations.
As the aviation insurance industry evolves, the integration of drone technology and automation will continue to shape its future, presenting both exciting opportunities and significant challenges.