Where No Policy Has Gone Before: Insuring the Risks of Doing Business in Space

By: | October 18, 2022

Richard Parker has 29 years of experience in the space industry. He is currently head of space insurance at Canopius and divisional president of Assure Space, an underwriting agency that provides space insurance, which he co-founded in 2011.

As we enter a new frontier of space development, the insurance industry is playing a key role in propelling space endeavors.

Considering that a typical telecommunications satellite in geostationary orbit costs around $200 million, and launching it into its proper orbit costs another $100 million, space insurance is essential for financing commercial space ventures.

Commercial human spaceflight has arrived. Rockets from companies run by Richard Branson, Jeff Bezos, and Elon Musk are regularly going to space. Massive satellite constellations in low-Earth orbit are being built to provide global satellite services.

And new commercial missions are being planned to return humans to the moon and to explore Mars by the end of the decade. These endeavors represent both opportunities and risks for space insurers.

Challenges Facing Space Insurers

Most space-related insurance to date has centered around the satellite services on which modern life increasingly depends.

In our interconnected, data-driven world, spacecraft provide a vital link in telecommunications and internet infrastructure. Satellites enable internet, television, banking, Earth observation, the Global Positioning System (GPS), weather, national defense, and communication between cell towers and networks in remote areas.

With increasing satellite launches driven by demand for broadband, the need to replace older satellites, and more regular resupply schedules for the International Space Station (ISS), considerable opportunities exist for space insurers.

Spacecraft and the rockets that launch them are becoming increasingly more complex, as are the business applications that ensure their seamless integration into our daily lives. This, combined with a limited number of launches per year and the potential for large losses, makes space insurance one of the most challenging types of insurance to underwrite.

In addition, two new challenges are significantly affecting the core business of space insurers.

The first is the risk of collision due to an increasing number of objects in low-Earth orbit. The deployment of over 2,000 satellites for Starlink and OneWeb into an already-congested environment containing both active and derelict satellites and rocket bodies has greatly raised the probability of collision. Recent anti-satellite demonstrations have added to the amount of both trackable and un-trackable debris in these orbits.

Potential regulation surrounding debris in low-Earth orbit is possible, as space debris could ultimately cause significant losses for space insurers and limit the use of certain orbits. How it will be cleaned up and who will fund these efforts could affect space insurance in terms of risk analysis and the potential to insure debris removal operations.

Tracking technology, automatic collision avoidance systems, debris removal, and in-orbit servicing also have the potential to reduce the risk of collision.

The second new challenge facing space insurers is the introduction of new launch vehicles. Several companies are currently developing rockets, both small and large.

For these vehicles to be commercially successful, they will need paying customers, who in turn will need insurance, for early flights. Insurers will then have to decide whether to insure the first, second, or third launch of a new rocket.

Future Near-Term Projects

Renewed interest in space exploration, as well as the predicted rise of the space-for-space industry (when goods and services are produced in space for use in space), are fueling a number of emerging space endeavors. For example, NASA is working on multiple moon missions as a prelude to returning humans to the moon by 2024 and establishing a potential staging point for traveling onto Mars.

Many of these missions will be implemented by the commercial space industry. Their objectives will include mapping, demonstrating technology, and exploring the moon’s natural resources.

Many other countries are also working on moon missions; some will orbit the moon, others will land, and some will deploy rovers for detailed exploration. Canopius is already considering the requirements for space insurance for all or elements of these missions.

Space tourism is another new project. In addition to buying a seat on a commercial rocket into space, a private citizen can pay NASA to take a trip to the ISS.

To date, most space tourism has been funded by high-net-worth individuals who have not typically sought insurance. As additional players enter the market, they will need access to both insurance and funding for cutting-edge space projects.

The space insurance industry cautiously welcomes growth in commercial space endeavors. New launch vehicles, new satellite technology, and ambitious space missions require careful analysis of the design, manufacture, and testing of the hardware.

Underwriters need to be comfortable with the heritage, margins, and redundancy of these programs. Policy expertise is needed to ensure that the coverage is appropriate and addresses all potential scenarios. Financial modeling of individual space insurance risks and the overall space portfolio is necessary to calculate premium, establish strategy, and ensure results.

Long-Term Space Endeavors

Much excitement in the space industry stems from innovative ideas that are pushing well beyond the boundaries of traditional space exploration or commercial satellite use.

Many space-related entrepreneurial business opportunities are being explored. Some of these include sending objects to space for the sole purpose of raising their value once back on Earth, increasing use of Earth observation combined with artificial intelligence, assembling spacecraft with components already in space, expanding the internet of things, and mining asteroids for materials to construct habitats or fueling stations.

Indeed, a boom in the space-for-space economy is not only possible, it’s expected. It may soon be possible to assemble commercial satellites in space, further reducing risk and launch costs. Again, insurers will facilitate these opportunities by providing coverage for the first-party physical loss of the assets involved, likely a requisite to secure funding.

Evolving legislation opens the possibility for additional space-related risks and resulting insurance implications. Increased regulation of the commercial space industry is imminent as the congressionally-mandated learning period surrounding space travel ends in 2023.

The commercial space industry, worried about onerous regulations slowing progress made in space travel, may be in direct opposition to those members of Congress who feel space travel should be regulated like commercial aviation.

Space insurance is important for both existing and future commercial space endeavors. It provides financial protection for current satellite operators, new entrepreneurs, and investors in an industry facing potential significant losses due to collisions in orbit, failure of launch vehicles or spacecraft, and loss of human life.

If insurers pull back from space by reducing exposures or coverage, or dramatically increasing premiums, the effect will be felt across the whole space industry. &

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