Satellite Insurance – An Introductory Guide

Satellite Insurance – An Introductory Guide | Insurance Business Canada

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Satellite Insurance – An Introductory Guide

Space insurance is one of the newest types of insurance some companies – even your client’s – may eventually need. Here’s a look at space insurance

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By
Ramon Berenguer

Satellite insurance blasted into the spotlight when a European Vega rocket failed about two minutes after lift-off from a base in French Guiana, destroying a United Arab Emirates military observation satellite in the process. According to a Reuters report, the combined insurance policy for the rocket and satellite totaled €369 million (around US$411 million). This makes the incident possibly the largest ever space insurance loss to be incurred by the industry. 

The first satellite insurance policy was placed with Lloyd’s of London in 1965. It was designed to cover physical damage on pre-launch of Intelsat 1 – known as the Early Bird. This was the first commercial communications satellite to be placed in geosynchronous orbit. The satellite enabled direct and nearly instantaneous contact between North America and Europe via television, telephone and fax transmissions. Since then, the number of insurers engaging in aerospace activity has increased alongside the fast commercialization of space. 

Stating the obvious – satellites are expensive! It can cost billions of dollars to complete a satellite project, through the planning, manufacturing, testing, and eventual launch stages. In correlation with this, only the major global insurance firms with the deepest pockets are able to even entertain the notion of providing satellite insurance. 

In this article, Insurance Business delves into satellite insurance – the unique and fast-growing type of aviation insurance that is helping shape the way high-tech startups do business. Don’t forget to share this article with your clients; you never know when they’ll start sending satellites into space, as their business scales up! 

Satellite insurance is a highly specialized type of aviation insurance. As of the year 2000, there have been about 20 satellite insurance providers who give coverage directly. Others participate via reinsurance contracts with these direct providers.  

How does satellite insurance work? For one, this form of aviation insurance consists of a suite of insurance products that covers space-related activities, including:  

Pre-launch insurance 

This is all-risk coverage for material damage during the pre-launch phase. The pre-launch phase includes:  

Pre-launch insurance typically ends when ownership of the satellite is turned over from the manufacturer to the purchaser. Ownership – as well as risk – passes from the manufacturer to its customer, and the risk is transferred when the launch can no longer be aborted. This can be seconds after ignition of the launch vehicle’s engines.  

In such cases, pre-launch insurance covers the risk of launch failure. If the cover has passed at an earlier point of the launch, coverage may reactivate if the launch is aborted – this is known as post-abort coverage. 

Launch insurance 

This is all-risks coverage for material damage and malfunctions that may occur at any time from the beginning of the launch phase to the end of the positioning phase. To accommodate policyholders in their wish for longer coverage period, launch insurance nowadays is usually granted for up to a year after launch. 

In cases where the satellite becomes only partially operational, or if it has reached the end of its service life, this is considered a partial loss. But in cases where impairment of a satellite is due to a partial loss that exceeds a specific limit, this can be written off as a total loss.  

The compensation payable in the event of a total loss is agreed upon in advance of the launch; this is called the agreed value. This amount is usually derived from the replacement value of the satellite, or the cost of a new satellite, the cost of launching it, and the cost of launch insurance.  

In other words, the launch vehicle does not get separate coverage but is included as an additional cost factor in the insured replacement value. Satellite insurance policy wordings like this make space insurance and risk management for space underwriters easier.  

In-orbit insurance 

This type of satellite insurance at this stage is meant to protect against the risk of partial or complete failure during the satellite’s operation. Like launch insurance, the insured value is an agreed value that is set in advance, usually based on the satellite’s replacement value at the start of its service life. This value covers the entire value of a satellite. 

If a satellite is physically destroyed or rendered completely inoperable while in orbit, this is a total loss. Meanwhile, a partial or constructive total loss results if the satellite’s performance or service life is only partially impacted.  

Launch plus life insurance 

Launch plus life insurance is the unique mix of launch and in-orbit satellite insurance. This form of insurance for satellites provides all-risk coverage for material damage and malfunctions. Coverage is regardless of whether the damage or malfunction causes a total or partial loss during the satellite’s entire service life.  

This type of satellite insurance provides the operator-owner of the satellite with complete certainty despite any market price changes, restrictions over the satellite life, and coverage restrictions that may arise during in-orbit renewals.  

Satellite insurance costs can vary depending on:  

As of early 2023, the average cost of coverage for a communications satellite worth $200 million at launch and for its first year in orbit was less than $30 million. More broadly, the premiums for launch insurance range between 15% and 25% of the satellite’s total insured value. 

Thanks to rising claims, the need for satellite insurance has risen significantly. In the early stages of 2023, the premiums for a typical geostationary satellite on a Falcon 9 rocket have increased to 10% of its insured value, compared to barely 6% previously.  It’s clear that satellite insurance will only become more costly as more companies launch satellites, thereby increasing insurance demand.  

The increase in satellite insurance premiums is reflective of the heightened risks and vulnerabilities in the space insurance industry. What’s more, a new report claims that there are an estimated 20,000 new satellites that will be launched by the end of 2030. The bulk of these new satellites will be from SpaceX and the Starlink broadband network. In fact, as of last November, SpaceX has already launched over 5,400 satellites.  

Apart from SpaceX and Starlink, there are about 350 other government and commercial satellite constellations slated for launch. If all these reached their planned orbits without any hitches, there would be an eye-popping 478,000 satellites circling above Earth by as soon as 2030.  

At present, some of the key global players who offer services, products and advice around space and satellite insurance include: 

It’s a safe bet that these firms have provided the insurance for the companies with the most and most costly satellites at one time or another. Should your clients ever find themselves launching satellites as they take their business to the next level, it’s part of a diligent insurance broker’s or agent’s job to know which ones provide the best satellite insurance. 

Types of coverage 

Space risk management has evolved in recent years, according to global insurance brokerage Marsh. Now that space is becoming increasingly commercialized, insurance providers and risk managers are having to think about more than just the launch of a vessel and satellite. Today’s lines of coverage include things like: 

Simply put, space and satellite insurance products tend to cover the pre-launch, launch and in-orbit stages and their associated risks. 

Speaking of risks, a lot can go wrong in a rocket launch. Look at this video of one of SpaceX’s rockets, the Falcon 9. This is one of the more successful launches and landings of the Falcon 9. Launching and landing is itself impressive, since rockets of past space races have not been able to launch then land, making them unusable after a launch.  

Each stage of a rocket launch can be a nail-biting moment for insurers and insureds, as one rocket can involve claims worth millions if something goes awry. It’s a good thing this launch was a successful one. 

Navigating the complexity 

The coverage is complex and really requires the touch of an expert, as Munich Re explains on its website: “The insurance of satellites with complex and new types of payload is where the know-how and experience of our aerospace experts really pays off. The development of previously untried satellites always raises questions about their insurability. A lot of hard work and dedication is required. Manufacturer’s technical specifications and presentations, discussions with the manufacturer, operator and broker all need to be analyzed before the pieces of the puzzle can be assembled into a well-designed coverage concept.” 

The European Vega rocket failure is not the first of its kind. On September 01, 2018, a SpaceX Falcon 9 rocket failed while preparing a static-fire test, destroying a US$200 million satellite in the process and wiping out 20 years of insurance premiums for prelaunch coverage.  

Following that incident, John Munro, global chief executive of space projects for Marsh at the time, told Space News that pre-launch insurance rates could “increase, maybe by 100%.” 

Munro said the entire prelaunch insurance market generates only about US$10 million to US$12 million in premiums per year. Following the Falcon’s failure, he said: “Underwriters will want to review some of the terms and conditions they have insured before — particularly the hot-fire test, which we would exclude under a traditional premium policy.” 

When a space loss occurs, the claim is likely to come in at astronomic proportions – that’s just the nature of the business. For example, the May 2015 loss of the Centenario mobile communications satellite, which was due to be part of Mexico’s MexSat system, resulted in a US$390.7 million claim.  

That’s no breeze in the park for any insurance provider, regardless of size. Luckily, these claims are not frequent occurrences. 

Satellite insurance solutions open new frontiers for insurers and businesses. Knowing that satellite insurance exists is a boon for visionary insurance companies, brokers, or agents. These policies can offer comprehensive coverage for commercial satellites. This is why businesses can launch them with confidence, knowing that the big names in insurance  – like the ones in our Best in Insurance Special Reports page – have their backs.  

Be sure to let your clients know that insurance companies keep up with advancements in technology and they can have the support they need to scale up their operations – even if it involves launching a satellite.  

Are you glad to know that you can offer something as exciting and unique as satellite insurance to big-ticket clients? Let us know in the comments.  

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