The unique challenges facing space insurance

The market for in-orbit insurance satellites has evolved significantly over the years, but space remains a uniquely challenging environment for these operations. Satellites must endure extreme conditions, from intense solar radiation and vacuum exposure to temperature fluctuations ranging from minus 150°C to 200°C.

Despite careful engineering and testing, failures still occur, highlighting the importance of space insurance as an important risk mitigation tool for satellite operators, manufacturers, and financiers.

Russell Sawyer, satellite account manager at Lockton, notes that space insurance is important given the large amount of money that communications satellites can generate. A single satellite can bring in between $100 million and $200 million annually, and if replicated in a series of 30 spacecraft, the potential financial impact is enormous.

This makes getting satellite outage insurance a smart investment.

Although space insurance has seen steady growth, it is far from a new concept. The first space insurance policy was issued in 1965 for the Intelsat I satellite, covering third party liability and pre-launch risks. Since then, the field has matured, adapting to meet the needs of satellite operators.

However, as Sawyer points out, two main challenges continue to impact the market: limited statistical data and the rapid pace of technological innovation.

The limited number of non-payable satellites creates a very small statistical pool compared to other fields such as aviation, where thousands of aircraft, such as Airbus A330s or Boeing 737s, operate. This small pool makes risk assessment very difficult.

Additionally, although innovation is necessary in any field of engineering, it can conflict with underwriters' preferences for machine reliability based on established performance.

Sawyer said these factors contribute to a volatile insurance market, where a few large claims can have a negative impact on annual earnings. For example, in 2023/24, claims exceed premiums, causing prices to rise significantly. This volatility is an ongoing problem for the aerospace insurance industry.

It is not naturally accessible

One of the difficulties with satellites is the inaccessibility of their operating environment. Most communication satellites operate 36,000 km from Earth, making it difficult to directly repair them if something goes wrong.

However, Sawyer said recent technological advances may provide solutions through in-orbit service (IOS).

Several space agencies and industrial players are working on technologies to put satellites into orbit, with the aim of extending their operational lifetimes. Companies like Northrop Grumman and Astroscale have already demonstrated the ability to capture and control malfunctioning satellites.

Other technologies under development include spacecraft that can refuel satellites to extend their operational lives.

Sawyer also pointed to the traction power of future robotic arms to repair or replace faulty parts. Many of these components can be manufactured in space using techniques such as 3D printing, further reducing the need for complete replacement of the satellite. These developments could standardize satellite insurance, compared to other forms of insurance by reducing the high costs associated with satellite failure.

The hope within the space insurance community, according to Sawyer, is that in-orbit servicing will help reduce the cost of claims by allowing for repairs rather than requiring claims for the full value of the satellite.

Replacing a large satellite can cost hundreds of millions of dollars, so reducing these costs can make the market less dynamic and more attractive to insurers, thereby increasing market power.

Lockton's space team, based in London, is keeping a close eye on these developments. Sawyer said the team is looking beyond current technology, as the aerospace industry continues to grow. The arrival of commercial space stations in low Earth orbit, and planned missions to the Moon, would further increase the need for space insurance.

If lunar mining becomes a reality, it will require a communications network and navigation satellites in lunar orbit, similar to those currently orbiting Earth, and these satellites will also require insurance.

The space insurance market, according to Sawyer, is prone to challenges. As the industry moves toward more ambitious projects, such as lunar exploration and mining, the role of space insurance will continue to evolve.

The next few years will test the resilience and flexibility of the market, but Lockton's aerospace team noted that they are preparing for the opportunities ahead.

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