Insurance Insights for Unmanned Aerial Vehicles

How Government Contractors Use Drones

Many of today’s government contractors use drones as part of their broader service offerings. Some use drones exclusively, while others integrate them into construction support, infrastructure planning, and aerial surveillance. In war-torn countries, drones are used for planning and inspection phases in rebuilding efforts. Drones are also being deployed for intelligence, surveillance, and reconnaissance (ISR) missions, often involving international operations where contractors collect real-time data for government agencies.

In addition to data collection, drones are increasingly used for logistics and resupply missions. Instead of sending manned aircraft into dangerous areas, contractors can deploy drones to deliver supplies directly, which reduces risk to personnel and aids operational efficiency.

Insuring Against Common Exposures

The risks associated with UAVs are related mainly to liability and physical damage and require the following coverages:

• Liability insurance: Protects against third-party bodily injury and property damage. For example, if a drone operated by a contractor falls and injures a pedestrian or damages a building, liability coverage would respond to those claims.
• Hull insurance: Protects the drone itself, including attached equipment such as sensors, cameras, and other payloads. This is critical for operators using high-end or customized drones, which can cost tens or hundreds of thousands of dollars. Hull insurance typically covers theft, fire, crash damage, and water loss.

Additional Risks: Privacy Issues & Lithium Batteries

Privacy issues are another growing risk. Drones equipped with high-resolution cameras and data-capture technology can inadvertently—or deliberately—invade private spaces, leading to allegations of surveillance or data misuse. This is especially sensitive when drones are deployed near populated areas or private property, regardless of the operator’s intent. Some insurers offer endorsements for third-party privacy liability coverage.

Lithium-ion batteries, which power many drones, are also a growing concern. If a malfunction or crash occurs, these batteries can ignite and potentially cause additional fires, especially problematic when drones are operating near flammable materials or in wildfire-prone regions. This risk becomes even more relevant as drones are increasingly used in aerial firefighting operations and imaging.

Underwriting Considerations

Insurers evaluate a range of factors when underwriting drone coverage. These include the type and value of the drone, the operator’s experience and training, the nature of the operations, geographical areas of use, and compliance with Federal Aviation Administration (FAA) regulations. For government contractors, additional scrutiny may be applied due to the sensitive nature of the work and the heightened risks associated with federal contracts.

Conclusion

The use of UAVs is transforming industries, delivering real-time data, reducing operational costs, and improving safety. These advancements require thoughtful risk management and insurance planning. For government contractors and commercial operators alike, working with brokers like McGriff who understand the intricacies of UAV technology and the evolving regulatory landscape is essential.