Space insurance

Image provided to Microsoft by Fotolia. Used with permission from MicrosoftWhat was a futuristic vision fostered by collective imagination and fermented in science fiction has become, in hardly forty years, a complex booming business and an ideal ground for political, technological and economic competition between the industrialized powers.

A historical overview of space activity

Born after the second World War, space activity is a product of the cold war. The first exploration flights of the 1950s and 1960s came within the framework of a race for the conquest of space by the two super-powers at that time. As of the 1970, space has become a commercial stake with the advent of telecommunication technologies (telephony, television) then that of observation (Spot) and navigation (GPS, Galileo).

Space activity and insurance

Photo credit: NASAEarly Bird satellite (Intelsat I)

The launching of the satellite Early Bird on April 6, 1965 ushered in the birth of space insurance. The cover was then restricted solely to the ground risks. In 1968, the series of Intelsat III satellites was insured during launching phase. In 1975, the guarantee was extended to the comprehensive cover of risks, that is, the risks incurred since the signing of the contract until the exhaustion of the satellite's life in orbit. The first indemnification of a claim dates back to 1977 with the destruction of the launcher Thor-Delta and the loss of the satellite OTSI.

In 1980, six new commercial satellites came to be insured. At the start of the 1990s, the boom witnessed by the information industries triggered the manufacture of satellites and launchers.

In 1998, significant losses due to constellations along with serial losses for satellites in orbit slowed down the booming space industry. These losses have resulted in the decline in the number of launched satellites and a considerable impact on the market of space insurance as well as its main stake holders.

International legislation

Space activities are governed by a set of national instruments among the most important of which stands the Space treaty of January 27, 1967 which institutes a comprehensive legal framework. It stipulates that extra- atmospheric space exploration and use, including the moon and other celestial bodies, should be done for the benefit of all countries and underscores that space can not be subjected to national appropriation. The January 27, 1967 treaty was supplemented by:

The March 29, 1972 Convention on international liability for damage caused by space objects.
The 1975 Convention on the registration of the objects launched in extra atmospheric space.

Today, about 20 new satellites are insured in the launching stage every year, raising the total number of the insured satellites launched or currently in orbit to more than 150.

A legal framework in evolution

Photo credit: International Civil Aviation OrganizationUnlike air transportation whose safety is entrusted to the International Civil Aviation Organisation (ICAO), the problems pertaining to the safety of space flights are still sorted at the level of the governmental agencies of each state.

But the growing cooperation between space powers, the emergence of new stake holders (India, Brazil, China) and the emergence of private operators in “space tourism” have prompted the international community to consider the need to reform and harmonize the current legal framework and to adapt it to the new context. The Conference of the International Association for the Advancement of Space Safety (IAASS)'s mission is to initiate this reform.

Space insurance: a world apart

Photo credit: NASARemains of the shuttle Challenger which disintegrated after lift off on January 28, 1986

In terms of launchers and satellites insurance, the insured objects, the risks, the technical challenges and the sums covered cannot be compared to any other sector. To meet the challenge, the insurers found themselves in the same situation they were in when they first started business, when they had to invent everything. In an effort to support and monitor an extremely complex and ever-evolving activity, they had to design innovating solutions as they have no typical products for such an activity where each situation and each loss is unique.

Space insurance guarantees damages or financial losses pertaining to civil satellites (most of which are commercial or communications satellites) and their launchers.

Insurance accounts for 15 to 25% of the total budget of space programs, but this share is on such a steady rise today that it is poised to hold the third rank in space operators' budgets. 

Space insurance: characteristics and constraints

Photo credit: NASAEngine powerheads found after space shuttle Columbia explosion on February 1, 2003

The environment of in-orbit satellites and their risks still remain unknown and that is why the insurer is invited to attend satellite launching operations. The craft of space insurer is to be invented.

Given the physical impossibility to access the insured item in case of loss, the insurer is bound to settle with uncertain causes and random consequences.

Trust is essential to his or her relationship with the client.

To be eligible to compensation, the claim should be submitted to a formal investigation. The inability to assess the loss physically leads to the indemnification of just the claims whose materiality is characterized in comparison with reference telemetric data. The insured sums are usually comprised between 150 million USD and 400 million USD.

The amount declared for the policy covers a satellite, a launcher and the insurance premium. Due to statistical failure, space insurance does not make recourse to actuarial service and must design specific tariff tools. National legislations remain unfit for space insurance, especially in terms of risk assessment, its aggravation, onus of proof, claim indemnification, premium payment or risk cancellation.

Space activity is characterized by a high degree of severity and loss probability. Its insurance requires a true syndicate system through two possible processes:

  • The gathering together of several insurers to share risks according to the principle of co-insurance and reinsurance,
  • The mutualisation of risks through the gathering of a high number of independent risks around a body in which the non-damaged shall finance, by way of compensation, the damaged.

Space insurance: The main policies

The liability policies for space vehicles

They are written by:

  • Launch agencies to cover damage incurred by a third party during lunch and during first operations in orbit, even if the cause of the damage is the satellite itself and not the launcher or the launch departments,
  • The user or the owner of the satellite for the damages caused to a third party following the period (one year maximum) set for the insurance obligation of the launch agency.

The liability policies for space products

The policies of “product-related liability” cover the liability of industrialists and service providers who take part in the manufacture of a space vehicle, whenever the product's defectiveness is the cause of a material and or bodily damage external to the vehicle under construction.

Specific policies

In addition to the conventional damage and liability risks, a space project is submitted to a number of significant non-physical risks such as:

  • The political risk: confiscation or embargo
  • Commercial risk: that is, the client's financial failure, for the launcher for instance
  • Launch delays: in such case, the insured wishes to protect himself against the financial impact of the satellite launch delay. The delay shall be attributed to damage on satellite.
  • Incentives-Warranty Pay Back: the satellite manufacturer may seek a cover for the amounts put in stake in the satellite's sales contract and that would not be otherwise settled by the user in case of an unsatisfactory performance of the system.
  • Test and pre-launch guarantees: this insurance scheme covers the loss or damage sustained by the satellite and or the launcher during integration and test phases. The cover usually extends to the departure of the satellite and or the launcher from the place of manufacture to the launch site.

    The Pre-Launch insurer covers loss or damage incurred by satellite and or launcher during transfer on launching pad, or during storage period. The cover may start on departure from manufacture site to extend to the ignition of the launcher's engines.

  • Property insurance/construction/erection of factories and launching sites: this insurance covers manufacture sites as well as launch sites during handling and setting up operations. This type of insurance is associated to space risks given the technical specificities of the installations (white rooms, explosives, ...), the products handled (satellites and launchers) and to the operations carried out during pre-launch and launch stages (fuel supply, launcher self-destruction control, ...).
  • Launch and receipts insurance: the launch insurance covers the satellite, the launcher and the possible additional costs during satellite launch and until receipts generation, usually up to 180 days following launch.
  • In-orbit life insurance: the in-orbit life insurance guarantees the satellite during its operational life until its ejection towards a cemetery orbit. These contracts are renewed after thorough review of the satellites' health.
  • Incentive insurance: the incentive type of contract allow constructors to cover the risks resulting from the non-compliance of the product with its specifications.
  • Service interruption/loss of revenues/event broadcasts insurance: this type of product deals with satellite owners or operators, or even the satellite users such as television channels, internet service providers, VSAT services (banks, distribution chains, and industrial groups). These products cover the revenues losses and or additional expenses triggered by a satellite failure. This type of cover can be put in place for short periods, for instance, the broadcast of sports events.

The space insurance market in figures

The market of space insurance is a very specialized market whose main insured are:

  • launchers and satellites' constructors
  • satellite operators (civil operations and marketing companies)
  • telecommunication companies
  • televison channels
  • launch agencies

To these industrials we may add service providers and users (cosmonauts and ground personnel).

The amount of annual premium is comprised between 700 million USD and 1 000 million USD.

The space insurance market is endowed with a capacity estimated in 2007 at 490 million USD for launch risks and at 620 million USD for in-orbit risks.

Photo credit: NASAFor any liability in case the orbital station MIR would fall on populations, the Russian Space Agency (RSA) wrote an insurance policy worth 200 million USD at Lloyd's.

Space insurance: The market's main stake holders

It is estimated that about 30 insurance and reinsurance companies are dominating the market of space insurance among which we find the Lloyd's, XL Re, Munich Re, AGF/Spaceco, AXA Space, Megaruss.

Lloyd's Liberty syndicates have set up a service insurance consortium, “all-in-one” for the satellite operators in 2007.

AGF has been covering space risks since 1985. It set up its subsidiary Spaceco in 2004. Spaceco's market share accounts for about 10% of the worldwide activity. 80% of the turnover is realised outside France. Spaceco has been the world's number one for five years now with 10 to 12% of the market shares.

The Réunion Spatiale has reported a turnover of about 70 million USD in 2004.

AXA Space is the first company to specialize in the cover of space technologies.

Megaruss is the leader of the Russian space industry market. The biggest risk it actually covered was the Russian telecommunication satellite Gals 12, insured (launch and first month operations) for the sum of 10 million USD in 1995. Ever since, Megaruss has been member of a space insurers' association and of a space insurers' pool making up a total capacity of 466 million USD.

Space insurance large brokers

The group Marsh& McLennan is in pole position.

International Space Brokers (ISB), subsidiary of the brokerage group Le Blanc de Nicolay, is ranking second in the world's space insurance market with 30% of premiums volume.

AON Explorer: Being very active in the sector, the broker Aon Explorer has been entrusted in 2007 by the European Space Agency with the task of analysing the evolution of the demand in terms of launch services performance over the next decade and for geostationary orbit missions.

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