As the commercialization of Low-Earth Orbit (LEO) continues at pace, there is a growing concern as to the continued availability of insurance for satellites operating in it. The last few years have seen Swiss Re, AIG, Aspen Re, and AGCS (Allianz) exit the space insurance market, with several others pulling back their coverage. The key underlying issue is that while premia are low and there is a low frequency of demand, risk exposure is significantly increasing.
Based on information from insurer AXA, there were 186 launches in 2022, which carried a total of 2,500 satellites to orbit. Of those, 1,730 were Starlink satellites, which were not insured. Of the remaining 770 satellites, only 340 satellites were insured during launch.
There were around 7,000 active satellites in orbit in 2022, worth $120 billion. This includes 590 satellites in Geostationary Orbit (GEO) and 280 satellites in Medium-Earth Orbit (MEO) or Highly Elliptical Orbit (HEO), of which only 238 satellites were insured for $24.7 billion; and 6,100 in LEO, of which only 63 satellites were insured for $3.1 billion.
While space insurers are concerned about the increasing potential risk of collisions, they are also questioning whether a sustainable LEO insurance market can evolve to serve the new space community. The latter is in part due to the diverse characteristics of the satellites being launched, which makes the risk difficult to model from an insurance perspective. It is also due to the fact that new space spacecraft tend to have much lower values than the generally larger satellites that operate from GEO.
Insurance premia are calculated as a percentage of the sum which needs to be insured, therefore space insurers earn far less from small New Space satellites in LEO when compared to traditional GEO satellites. The market will only develop if there is sufficient premia to make space insurance a viable market into which to commit resources and investment. The space insurance market also relies on the New Space class of business being profitable. The characteristics required to achieve this outcome depend on improvements in underwriting efficiency and greater reliability of objects launched. The question is “How can we best acquire these characteristics?”
The solution requires collective action from space insurers and the new space community. Space insurers want new space risks to be easier to assess from a technical perspective. If the technical analysis for a new space risk is the same as for a GEO satellite, but the corresponding returns from premium income are about one-tenth of what they are for a GEO satellite, underwriters simply will not participate in the market. Conversely, this also impacts the GEO market because maintaining income and risk diversity across the whole space insurance sector is necessary to maintain the market.
Underwriting efficiently requires good data sources, but underwriting profitably is dependent upon the reliability of the equipment insured. The space insurance market needs to be profitable and cannot be so if it merely supports industry research and development. While new, innovative satellites are necessary to expand commercial activity, there needs to be a greater focus towards reliability and sustainability.
There are several ways to achieve these outcomes, but perhaps one of the most efficient ways is through introducing space industry sustainability standards. Setting industry standards is a way to demonstrate quality assurance for products. It can also be a mechanism for service or operational standards. Operators that buy equipment that meets quality assurance criteria and run their companies soundly, with good risk management practices, will be perceived more positively – they will be classed as a “better risk.”
Introducing space sustainability standards will benefit manufacturers, operators, launch service providers, space insurers and also the investment community and regulators. It is not just for New Space; encouraging standards for products and best operating practices will lead to improved reliability and sustainability of equipment in space, which in turn will encourage space insurers to provide cover for the whole space sector.
Space sustainability standards can help protect the space insurance market for LEO and new space operations as a vital growth area that will sustain the availability of space insurance for the future. VS
Joanne Wheeler is the Managing Director of Alden Legal
Neil Stevens is an advisory board member of the Satellite Finance Network