General overview

The space industry

The commercial space industry is driven by high technology and high risk. Due to the substantial financial investment that is required, insurance needs are significant. Damage to a satellite has such tremendous financial consequences for the insured that only the payment of an indemnity for insured losses makes it possible to restore the pre-claim financial balance and replace any lost or defective spatial equipment. Insurance costs account for 15 to 25 percent of a space program’s* total budget.

Space insurance coverage began in 1965 with the launch of the Early Bird. It was the first satellite for which insurance against pre-launch physical damage and third-party liability insurance for losses on the ground were crafted. In 1975, coverage was extended to include all known risks, i.e. all of the risks to which the insured is exposed, from the time the supply contract is signed through the in-orbit life expectancy of the satellite.

 
Space insurance

Space insurance is a type of property insurance that covers physical damage and financial losses related to civil satellites (most of them are commercial communications satellites) and their launch systems and equipment.

As a general rule, there are four types of space insurance coverage:

• Pre-launch insurance covers risks associated with construction, transportation from the manufacturing facility to the launch site and processing phases prior to launch.
• Launch insurance covers failures of a launch and consequential financial losses.
• In-orbit insurance covers satellites for in-orbit technical problems and damages once a satellite has been placed by a launch vehicle in the proper orbit.
• Third-party liability insurance covers legal liability arising from damage to a third party during the launch or the in-orbit operations of a satellite program. Generally, space insurers do not cover third-party liability, which is handled by aeronautic insurers.

Space insurance policies contain clauses that take into account the specifications of the satellite, launch vehicle and operations to be insured, the financial amount in play, the insured's options in terms of deductibles, and the latter's specific insurance coverage needs.

Consequently, commercial space insurance policies are individually crafted, with the specific content negotiated by and between the leading underwriter and the broker, subject to the approval of the other co-insurers.

The space insurance market is a highly specialized and global market. The three principal players are the insured party (the client), the broker and the insurer/reinsurer.

Insurance clients are generally manufacturers of launch systems and satellites, satellite operators (civil operators and distributors), telecommunications companies, television stations and, to a lesser extent, launch agencies (since, contractually, their services do not come with an obligation to produce a particular result). In addition to these industrial clients, service providers and users (cosmonauts and ground crew) may also require space insurance coverage.

The number of underwriters for this risk is quite limited. Risks are spread between co-insurers, who are not jointly liable when the claim is settled, and placed via brokers, who are responsible for administering policies and, when losses occur, claims.

Property insurance coverage for satellites alone accounts for one-third of the world aviation market (USD 800m to USD 1bn). Currently, 150 and 200 satellites in orbit are insured each year. The life expectancy of a satellite is approximately 10 to 15 years, and on average 20 new commercial satellites are launched into orbit each year.