Firstly it is worth noting that whilst most kite insurance policies cover you for items accidentally dropped from a kite, most do not cover those dropped deliberately. In June 2010 a number of clubs have had a clause added to their insurance to caver parachuting soft toys.
More recently it has been covered in insurance via BKFA.
It is worth noting that their risk assessment also covers this.
Under The Air Navigation Order 2005 you are required to have an exemption before dropping an article by parachute. These exemptions can be applied for from The Civil Aviation Authority. A sample can be found here. A few clubs already hold these exemptions and a copy of the required document "BMISS Aerial Applications Manual" can be found here in it's original format or here reformatted for the computer era.
NOTE:- This document is the property of Brighton Kite Flyers, see page 2.