The insurance market for the commercial space transportation industry is a global one, with satellite owners, satellite manufacturers, launch services providers, insurance brokers, underwriters, financial institutions, reinsurers, and government agents worldwide cooperating in order to coordinate an insurance package for any given commercial satellite launch.
Lloyd’s of London covered the first satellite insurance policy in 1965 to cover physical damages on the pre-launch of Intelsat 1, which was the first commercial communications satellite to be placed in orbit having a period of rotation synchronous with that of the earth’s rotation. This satellite enabled direct and nearly instantaneous contact between North America and Europe via television, telephone, and fax transmissions. The number of insurers engaging in aerospace activity has increased since then, alongside the fast commercialization of space.
The U.S. commercial space industry has also expanded, conducting eight launches in 2015 compared with none in 2011. In 2017, service providers conducted a total of 90 orbital launches from sites in seven countries.
Space Insurance Types
Within the space insurance market, many different types of coverage are available:
Pre-launch insurance covers damage to a satellite or launch vehicle during the construction, transportation, and processing phases prior to launch.
Launch insurance covers losses of a satellite occurring during the launch phase of a project. It insures against complete launch failures as well as the failure of a launch vehicle to place a satellite in the proper orbit.
In-orbit policies insure satellites for in-orbit technical problems and damages once a satellite has been placed by a launch vehicle in its proper orbit.
Third-party liability and government property insurances protect launch service providers and their customers in the event of public injury or government property damage, respectively, caused by launch or mission failure. In the United States, Federal Aviation Administration (FAA) regulations require that commercial launch licensees carry insurance to cover third-party and government property damage claims that might result from launch activity.
Re-launch guarantees are a form of risk management in which a launch company acts as an insurance provider to its customers. When a launch fails and a customer has agreed to accept a re-launch in lieu of cash payment, the launch services provider re-launches a customer’s replacement payload. The launch services provider often will protect itself by purchasing insurance for a series of launches, thus spreading risk over several events and receiving better rates than could be obtained for a single launch event.
Space Insurance Finance
Space insurance is usually a small, specialty line of business within a larger multinational insurance conglomerate. Several of these umbrella companies are headquartered in tax haven environments (like Bermuda and the Cayman Islands) and offer various specialty insurance, reinsurance, and financial services to a variety of international clients. Most of these umbrella insurance companies are publicly traded.
Insurance conglomerates typically have large premium bases to protect themselves in the extremely volatile insurance market. These conglomerates invest premium income and can return high profits on their investments, especially when located in favorable tax environments.
After negotiating a space insurance policy, many underwriters also seek additional financial backing. Reinsurers and financial institutions can buy participation in any insurance package from an underwriter. Generally, reinsurers and financiers take on the same risks as underwriters and are similarly affected by mission successes and losses. The participation of these additional financial backers allows underwriters to spread risk throughout many layers of the insurance industry. Reinsurers do not analyze any technical information, but they depend on underwriters’ evaluations of risk to determine their level of involvement.
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