Cyber risk could ground drones before they take off, Lloyd’s report suggests

The vulnerability to cyber attacks could threaten the development of the drone industry, according to a new report from Lloyd’s of London, which suggested that insurers must take into account the potential liability associated with drones that could be hacked while underwriting.

Despite the wide potential for positive uses of drones in the fields of agriculture, media, insurance, and more, more attention must be paid to cybersecurity by the manufacturers of drones, as well as the insurance industry as it adds this risk to other more traditional aviation risks, Lloyd’s commented. Much as cyber risk blurs the line for many other lines of business, drone operators face risks arising out of privacy breaches, property damage, and hacking.

“Most civilian drones rely on unencrypted data links for command and control and navigation, meaning they are particularly vulnerable to jamming, interception and manipulation. Researchers have highlighted the ease with which drones can be attacked electronically, and some reports have suggested that a thriving community of ‘drone hackers’ is already established,” stated Lloyd’s in its report. “Equipment capable of generating ‘spoof ’ signals that enable a third party to control or disrupt a drone, together with jamming equipment able to block the satellite navigation signals that many drones rely on, is widely available at relatively low cost. Vulnerability to cyber attack has not yet emerged as a major factor for insurers’ assessment of drone risks, but it is likely that cyber security will be an increasingly important consideration for commercial drone operations.”

In addition to security, safety, and regulatory concerns, drone risk generally falls into the categories of privacy, property, and product liability. Cyber risk could give rise to a claim under any of these categories. While operator training and licensure has been a focus of the drone conversation, organizations using drones may have little recourse against hackers tampering with their devices.

“Insurance is expected to be a key component of the risk management framework that will need to be developed for the systems to operate safely and with due regard for third party interests,” said Lloyd’s.

Lloyd’s cited the potential for malfunction of drones, either due to mechanical failure or faulty design, or malicious attack from outsiders. This raises the specter of claims affecting a “wider range” of parties, not only the operator.

Nick Beecroft, Lloyd’s manager of emerging risk and research, said, “Drones have significant potential but at the same time they are a controversial emerging technology. As the market for drones continues to grow, so does the interaction of risk exposures. Manufacturers, operators and regulators will need to work together, on a global basis, to understand exposures and ensure this technology is used safely and responsibly.”