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FINTECH-IRDAI panel for drone insurance: Operators look for clarity on pricing, loss assessment-B-AI

With the insurance industry regulator setting up a working group on June 24 to suggest ways to improve coverage of drones, private and commercial owners hope to finally get clarity on the product structure and pricing.

For drones flown on a private and as well as commercial basis, it is mandatory to buy third-party liability insurance in India. However, in the absence of a defined product structure, both insurers as well as drone enthusiasts, are finding it difficult to find specific covers at affordable rates. Added to this, most insurance firms are unwilling to offer covers citing lack of reinsurance support.

A Mumbai-based entity working with farmers on deploying drones for fields said there is a need to standardise the product feature.

“Only a handful of products are available for drone operators. Plus insurers have tough conditions on the location where drones can be used. I was also asked to pay almost 1 percent of the opted sum insured as premium which is too high,” he added.

Typically, for third-party liability policies covering bodily injuries, the premium ranges between 0.5 percent and 0.75 percent of the sum insured.

Drones cost anything from Rs 25,000 to Rs 6 lakh.

Insurance Regulatory and Development Authority of India (IRDAI) has now set up a nine-member working group to look at the insurance needs of remote-piloted aircraft systems (RAPS), also called drones.

IRDAI said drones are emerging as one of the fastest-growing technologies and are being used for a variety of purposes.

“Drones are playing a significant role in the current coronavirus situation, assisting various authorities in several activities. There is an immediate need to make available suitable insurance products covering the various risks involved in the use of drones,” added IRDAI.

Industry estimates suggest that over 330,000 units of drones have been sold so far in India on a commercial basis. During the COVID-19 pandemic, drones are being used in India to check whether people are following social distancing norms.

Apart from this, drones are also being used in infrastructure and engineering sectors to monitor ongoing projects and for topographic surveys. In the agriculture sector, drones are being used to monitor crop yields and damage due to natural catastrophes and insect/wild animal attacks. In Mumbai, pizza delivery via drones was tested in May 2014 but was later discontinued after Mumbai Police said that the entity hadn’t sought prior permission.

Claim settlement is another area of confusion. The head of underwriting at a private insurer told Moneycontrol that private start-ups providing drones are also not aware of what qualifies as a valid claim.

“We had an incident where a drone deployed for agricultural purposes in Punjab reportedly crashed causing some damage to the field. The farm owner sought compensation from the company which is technically not payable because there was no injury or death. IRDAI also needs to spell out what drone-led losses qualify for insurance claims,” he added.

Insurance products are slowly becoming available for protection against physical injuries by drones. In June 2020, HDFC ERGO had launched a third-party liability claims cover in partnership with tech startup TropoGo. This product will be available for commercial drone owners and operators and will work on a pay-as-you-go model.

Similarly, Tata AIG General Insurance and Drone Federation of India had partnered in January 2020 to create insurance products and services for the drone industry.

The IRDAI working group will make recommendations within six weeks relating to the design and development of products to meet the needs of RPAS owners and operators. Reinsurance risks will also be studied.

Right now, general insurers are reluctant to offer drone insurance as a mass product because reinsurers have sought clarity on the product structure and pricing.

Since third-party liability plans have the possibility of high claims, insurance companies in turn take risk covers from reinsurance companies by paying a fixed premium. So whenever an insurer incurs a claim, this is paid out of the reinsurance cover.

It is legal to fly drones in India since December 2018. However, individuals need to take prior permission from the civil aviation authority for flying these remote-piloted aircraft. Nano drones weighing less than 250 grams have a permit exemption, subject to the condition that they are flown below 50 feet.

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