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Lloyd's raises red flags about drones

The biggest problem facing the burgeoning drone industry isn't the technology as much as the people drawn to it and those trying to regulate it. That's according to a report released Thursday by insurance giant Lloyd's of London.

Drones, also known as unmanned aerial systems (UAS) or unmanned aerial vehicles (UAVs), gained prominence a few years ago for their role in attacking enemy fighters in the wars in Iraq and Afghanistan. Businesses, though, began to see less deadly applications of the technology for everything from the package delivery service envisioned by Amazon (AMZN) to combating poaching in Kenyan game reserves.

Many insurers, though, are taking a cautious approach to covering the industry.

FAA clamping down on drone operators

According to Lloyd's, the main risks drones pose include negligent or reckless pilots, who could feel "dissociated from risks in the air;" inconsistent and poorly enforced rules and regulations; and the technology's vulnerability to cyberattacks. Then there are the privacy issues, which the insurer describes as "perhaps the most cited public concern about drones."

"Professional indemnity insurance can cover the cost of damages awarded for breach of privacy against drone operators," Lloyd's said. "Key requirements for insurance are expected to include the completion of privacy impact assessments, and compliance with applicable regulations and laws."

Commercial drone operators need to get a waiver from the Federal Aviation Administration to fly their vehicles. Drones can be operated only in the operators' line of site.

Even with current restrictions, the Consumer Electronics Association estimates that the U.S. consumer market could reach $250 million by 2018 from about $130 million this year. The market could eventually hit $1 billion if the FAA would allow drones to operate "beyond the line of sight." The number of drone flights per day is expected to hit 1 million by 2035.

Drones mark first with medical delivery

"To ensure that businesses can take advantage of this technology, the FAA needs to finalize its small UAS rules to bring about the 'robust regulatory framework' that's advocated in the Lloyd's report," the Association for Unmanned Vehicle Systems International said in an email to CBS MoneyWatch.

Several high-profile incidents involving drones have alarmed regulators, including reports in June that they were interfering with aircraft fighting wildfires in the West so much that the planes had to be grounded.

Earlier this year, a drone crashed-landed on the grounds of the White House. Drones have also hit an athlete in Australia and went into a crowd of revelers at an event in Virginia causing minor injuries. Singer Enrique Inglesias was injured by a drone while he was performing a concert in Spain.

According to the FAA, the number of close calls involving drones and aircraft is skyrocketing, hitting 650 this year, compared with 238 in 2015. This statistic prompted the FAA to issue a warning to drone pilots that operating them near planes is both "dangerous and illegal."

The FAA issued more than 1,000 commercial drone licenses over the past year. Many of the applications were from companies that were interested in aerial filming for motion picture production. Other uses included agriculture and real estate photography, along with inspecting electric power infrastructure and wiring.