Opinion

On the business of insuring satellites: Laurent Lemaire of elseco

Laurent Lemaire of elseco, speaks about the space insurance segment and how it is changing with the emergence of new types of satellites and launch vehicles.
Laurent Lemaire, Chairman and CEO of elseco.

Laurent Lemaire, Chairman and CEO of elseco, a space risk management and insurance underwriting specialist, speaks exclusively with SatellitePro ME about the space insurance segment and how it is changing with the emergence of new types of satellites and launch vehicles.

How are satellites insured, and do they have to be insured at each stage?

Satellites are insured from cradle to grave. They are insured throughout their construction and up to launch by the manufacturer. At launch, risk of loss typically passes to the operator, and they then take over insuring their satellite for the launch, for the operating years in orbit and sometimes also for a deorbit. Launch insurance covers the satellite against the launch failing or leaving the satellite on the wrong orbit, whereas in-orbit insurance covers any failures on the satellite itself caused by workmanship or poor design, but also by space debris or collision.

What are the major sectors that insure satellites?

The two main types of satellite operator that correspond to the majority of premium income are telecommunication and Earth imaging companies, with smaller operators in surveillance, space science and exploration, manned spaceflight and navigation. Communication operators can provide broadcasting services for TV and radio, as well as telephone and broadband services. Earth imaging operators will provide images used for cartography, civil engineering, agriculture and others. The operators are technology companies, often with a global presence, such as Intelsat, Dish network, Echostar, YahSat, Digitalglobe, Arabsat, Spotimage, SkyPerfect and more. The recent advance of smaller satellites and launchers has also seen a growth in possible missions and applications, and many new and smaller operators are entering the sector.

The challenge to the insurers is to rate the risks correctly to ensure that over time, the premium they receive covers the losses they pay” Laurent Lemaire, Chairman & CEO, elseco

How much does it cost to insure a satellite? How does this change depending on the type?

Insurers charge a premium rate which is applied to the sum insured. The sum insured is normally a function of the replacement cost of the satellite, i.e. the cost to procure a new satellite and to launch it. Some operators will also insure the revenue they would lose during the approximate three-year period it would take to rebuild and relaunch the satellite. The sum insured therefore varies substantially from satellite to satellite, depending on the satellite cost itself, as well as the launcher cost and whether any revenues are insured. Finally, the premium rate varies depending on the insurer’s view of the satellite type, the specific satellite application and the launcher used. Launch insurance can therefore cost $5 million to $20 million, with annual in-orbit policies costing $500,000-$1.5 million. The global space market premium income for 2017 is estimated in the region of $650 million.

Are these costs rising with launch failures?

Costs mentioned above are influenced not just by launch failures but also by satellite failures. Failures within the space market in general can influence all insurance costs depending on their impact on market results; failure of a specified technology will increase the cost of insuring a similar technology thereafter. This increase in cost will mainly be influenced by the extent of the failure, the ability to identify the root cause of such failure and implement measures to avoid its occurrence in the future, the transparency of the manufacturer and/or insurance buyer with the insurance community on such failure, as well as the level of recurrence of failures on a similar technology.

Does the launcher also require to be insured, and up to what point?

The launch vehicle is generally seen as disposable and is therefore not insured. However, one current launcher and several upcoming projects use various degrees of reusability, e.g. a reusable first stage has a commercial and therefore insurable value to the launch operator. Insurance is available to cover this risk not just during the launch itself, but also during the return to the launch pad. Furthermore, during the launch a failure could cause damage to third-party property; obtaining insurance against this is generally a prerequisite for the launch operator to obtain a licence to launch.

Launch insurance covers the satellite against the launch failing or leaving the satellite on the wrong orbit, whereas in-orbit insurance covers any failures on the satellite itself” Laurent Lemaire, Chairman & CEO, elseco

Does the cost of insurance go down as the satellite’s remaining life time reduces?

As long as there are no significant events on the satellite, most insurers would see the satellite to be the same level of risk throughout its design lifetime once it has successfully passed its in-orbit testing. Sometimes satellites suffer failures of on-board equipment which may use up available margins or redundancies – in this case, insurers may seek to increase the premium rate or to reduce the cover. Sometimes, satellites are operated beyond their nominal lifetime; this also normally requires a higher premium rate to be applied.

Are there any challenges? How are they being overcome?

The challenge to the insurers is to rate the risks correctly to ensure that over time, the premium they receive covers the losses they pay. Since there are relatively few insured satellites and losses and every satellite tends to be unique, it is difficult to use traditional statistical techniques. Technical experts working with the insurers will therefore carefully review the design of every satellite and its launcher before they will agree to insure it.

Another challenge arises when a satellite suffers losses in orbit. Most of these are innocuous, but some may be a precursor to further losses or may leave the satellite with reduced margins or workaround capabilities in terms of future losses. The insurers need to assess how this should impact the cover, the rate, or whether they want to continue to insure the satellite at all.

How is the industry evolving?

The traditional space insurance market has experienced gradual rate reductions for over a decade, with pressure on the rating environment justified by a general reduction in losses. In parallel, a minor revolution in the space industry is taking place, caused by miniaturisation and increased capabilities of electronics. So-called mini-, nano- and cube satellites are enabling more functionality to be built into ever shrinking satellites, which can then be launched on smaller launchers. Combining this with the ability to launch many, maybe thousands, of these satellites into constellations opens up possibilities for more missions and applications using space infrastructure. As a result, the industry is reinventing itself, forcing insurers to go outside their comfort zones.

For the last four years, space insurers have been able to manage successive challenges and have supported growing space ventures. We would expect to be able to continue to enable innovation by providing effective risk mitigation products going forward.