In today’s society, we rely heavily on the vast network of satellites that orbit our planet. From providing GPS navigation to enabling global communications, satellites have truly become an essential part of our daily lives. However, with the increasing number of satellites being launched around the Earth’s orbit, the risk of potential damages has also risen. To minimize the financial impact of such events, satellite insurance has become a crucial part of the industry.
Unlike other insurance policies, such as car or life insurance, calculating the insurance premiums is a lot harder. For life insurance for example, the insurer determines the premium based on factors such as age, gender, health, occupation and lifestyle. Using these factors, they calculate the probability of death and the likelihood of a payout based on the data of millions of people.
On the other hand, satellite insurance premiums are much harder to calculate. The premiums are based on the value and complexity of the satellite, but also the risks of potential damages or loss. Furthermore, satellite insurance is split into three types of coverage: Pre-launch insurance, Launch insurance, and In Orbit insurance. Each type of insurance covers the particular risks that a satellite might face during a specific period.
Pre-launch insurance covers the satellite from when it leaves the manufacturing facility up until the ignition of the launch rocket. This part of the insurance is relatively simple since the risk of potential damage is low compared to the other stages. The next type, Launch Insurance, covers the satellite from the moment of launch till the moment the satellite has successfully detached from the rocket in space. Calculating the risk for this coverage as accurate as possible is very complicated. The premium is mostly based on the reliability of the launch rocket itself. If you launch your satellite on a rocket with a successful launch history, the premium will be lower than that of a newer, less proven rocket.
This data however is hard to come by, since it is often protected by governments. For example, in the United States data satellite launch technology is protected by the International Traffic in Arms Regulation (ITAR). ITAR restricts and controls the export of military related technologies, to which the rockets to launch the satellites also apply. Only a select few insurers are given access to the data of a given launch vehicle, subject to close surveillance by government officials. Insurers which do not have access to this information are left with the limited data available for the public, which severely limits the ability to accurately predict the risk involved.
In Orbit insurance provides cover for damages or failure of the insured satellite while it is in orbit. Satellites endure very hazardous circumstances while in orbit, such as extreme differences in temperatures, radiation, potential damage by space debris and possible solar storms. Since repairing the satellite while in orbit is often not possible and would also be very expensive, the insurance basically covers the remaining life span of the satellite. To estimate the life expectancy of the satellites under these circumstances is not simple. Insurers often use data from satellites with the same bus1 or run simulations of satellites that are still in orbit. With these simulations they try to predict the remaining life span of the satellites and use the obtained data to make estimations about satellites that have not been launched yet.
The insurance premium however is not solely determined on a case by case basis, but by the whole space industry as well. If in a certain year there are more claims submitted due to satellite failures, the insurance industry will have to raise their premium for the upcoming year to make up for the losses. Such a thing happened in 2019, when the total losses amounted nearly 800 million dollars, compared to only 400-450 million dollars gross received through insurance premiums. As a result, premiums were doubled and sometimes even tripled for a relatively short time. Since then the premiums have returned to their normal amount, helped by new interest in the industry by new parties.
As the space industry continues to expand, satellite insurance will remain an important part in limiting the potential losses and ensuring the sustainability of the space industry. Add to that the increased risks of the growing amount of space debris and geopolitical tensions, and it seems like the insurance of satellites will only get more complicated.
1: A satellite bus is the main body of a satellite in which the payload or all scientific instruments are held