The use of drones in various sectors, including insurance, hasmuch potential. Drone technology is widely used in militaryapplications, but is now available in agriculture (crop monitoring,precision fertilizing), public services (border control, assistingemergency services), logistics (parcel and medical supplydelivery), wildlife protection (prevention of poaching or mining),media (news production, film and entertainment) and research (datagathering and analysis).

Commercial and personal lines insurers that cover property risksare no strangers to drone technology, as these firms were have beenearly adopters in the fields of claims and risk assessments.

The Association for Unmanned Vehicle Systems Internationalpredicts that by 2025, drones will create 100,000 new jobs andgenerate $82 billion in economic activity. However, in order forthe industry to be fully prepared for widespread drone use, it'simperative to realize that safety, security and surveillance issuespose incredible risks to users of this technology, according toLloyd's Emerging Risk Report, "DronesTake Flight."

Below and on the following pages, read about five risks that thedrone industry faces:

1. Negligent or reckless pilots

People aren't perfect. As with any new technology operated by ahuman, safe operational procedures are a critical factor drivingthe rate of safety incidents. Mandatory operating licensing willenhance insurers' ability to assess risk. "The development oftraining and licensing schemes will be important to provideassurance of the capability of operators," Lloyd's writes in itsreport.  

Related: Drone-plane safety incidents seen quadrupling, U.S.FAA says

The Federal Aviation Authority estimates that more than 7,000aircraft are airborne within U.S. airspace at any given time. "Nearmiss" events already have begun to appear. Therefore, the potentialfor collision between aircraft will likely be a key riskaggregation issue for carriers. Lloyd's predicts that collisionavoidance technology will be a requirement for future insurancepolicies.

Nevertheless, technical malfunctions or failure (or maliciousattacks – continue reading) outside of the operator's control couldcause an incident and generate liability claims. Therefore, productliability insurance has the potential to be a significant exposurefor drone manufacturers.

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2. Patchy regulatory regimes

Regulation is developing, but isinconsistent between international jurisdictions,Lloyd's says in its report. "A regulatory system that reliedheavily on responsible behavior and/or the threat of sanctionscould generate significant uncertainty for insurers." Effectivecollaboration and a consistent multinational approach will helpenable the development of standard insurance wordings and cover fordrone operations.

Third-party liability clarity is needed. Last year in New York,a restaurant patron was injured by a drone taking pictures ofdiners. This exposure can grow in size and damages, if, forexample, a drone were to collide with a commercial passengeraircraft, causing it to crash.

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3. Poor enforcement

The drone industry has grown so rapidly that regulators areunable to provide strong oversight. "Tracking/monitoring technologycould also help operators avoid breaking laws in the first place,such as by supporting the development of 'geo-fencing' technologyto ensure drones do not stray into controlled airspace," Lloyd'swrites in its report.

Related: Firefighters get OK to down drones under Californiameasure

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4. Vulnerability to cyber attack

Drones are vulnerable to a range of cyber attacks. Drones fornon-military use rely on unencrypted data links for command,control and navigation. Realizing this, hackers have jammed,intercepted and manipulated the drones' controls.

Cyber attack has not yet emerged as a major factor for insurers'assessment of drone risks, Lloyd's writes, but cyber security willfactor heavily in commercial drone operations, and will play aheavy role in underwriters' risk assessment.

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5. Privacy infringement

According to Lloyd's, privacy is the most cited public concernregarding drones. "Professional indemnity insurance can cover thecost of legal fees and damages awarded for breach of privacyagainst drone operators," Lloyd's writes in its report. In order toobtain this type of policy for a drone with surveillancecapabilities, an insured should complete a privacy impactassessment and comply with applicable regulations and laws. Lloyd'spoints to the Data Protection Act in the U.K. as one such law thatgoverns the processing of personal data.

Related: Here's how drones are going to transform theinsurance industry