Recalibrating Risk in an Evolving Satellite Market

Insurers are revisiting risk assessment as satellite deployment patterns, technology choices and mission profiles broaden across both GEO and LEO.

Constellations talked to David Wade, space underwriter at Atrium Space Insurance Consortium, about the shifts reshaping how risk is understood in today’s satellite market.

Q: After several years of unusually large claims, how is the satellite insurance market restructuring its risk models, and what long-term structural shifts might these losses trigger for both insurers and operators?

A: Space insurance has always been a volatile class of business, i.e. one where the annual global market premium is only sufficient to pay for a handful of claims in any one year.

The past few years have seen the loss of some large satellites with values close to the annual global market premium, which in some recent years has tipped the space insurance market into a loss-making position. This resulted in some insurance capacity withdrawal from the market, reducing competition between insurers and driving up prices in an attempt to rebalance the incoming premium and outgoing claims. After a few years of increased rates, new capacity has been attracted back into the market, increasing competition between insurers and the market cycle has started over once again.

What makes the situation with space insurance particularly challenging is the limited number of satellites that are insured. Of the 16,000 or so active satellites in orbit, only about 250 are insured; 200 in geostationary orbit (GEO) and the majority of the rest in low Earth orbit (LEO). Some others are insured for the launch phase only, but many remain uninsured.

Insurance is often purchased at the request of the provider of financing to protect their investment, just like a mortgage provider would insist on a homeowner taking out insurance to protect their property. The space industry, however, is currently in a phase where much of the finance comes from personal wealth or venture capital. Such sources of finance tend to have a different attitude to risk than the traditional financial providers and many have chosen to forego insurance. This will likely change in the coming years as more of the startups pass their early financing phases and need to raise further capital and take on debt.

Q: How are underwriters redefining orbital risk for LEO mega-constellations, and can current actuarial models handle this scale?

A: The aggregated risk in constellations is a major issue for the space insurance market. In many instances constellation satellites are mass produced, undergo very limited testing and are launched so rapidly that half or more of the satellites will be in-orbit before the first satellites reach their operational orbit, undergo in-orbit testing and start to gather operational experience. A defect, whether it be design or manufacturing related or a defective component from way down the supply chain, which only comes to light after a few months in orbit could result in a large number of satellites being affected. Unfortunately, the space insurance market has a few examples of such generic defects over the years, and it is one of the major concerns for insuring constellations. With the value of many constellations being multiples of the amount of global insurance capacity available, deductibles (where insurance would not pay until claims exceeded a particular amount) or caps (where insurance would stop paying any further claims) will likely need to be applied.

Other potential approaches to limit insurer exposure could be explored but few constellations to date have wanted to cover more than the launch phase so we are still exploring possibilities with clients and their brokers.

The rapid increase in the in-orbit population has certainly raised concerns around collision risk. As already mentioned, only approximately 50 satellites in LEO are insured and we see increasing incidents of conjunction alerts and maneuvers in health reports. This is factored into rating along with aspects such as orbital parameters, propellant margins, the use of conjunction alert services, etc. Mathematical modelling beyond this has some value but when we insure a satellite we insure it for all insured perils that may befall it for the next 12 months. We can insure it based on statistical models today that could change very dramatically if there were to be an event tomorrow yet there would be nothing we could do until the following year’s policy renewal.

Q: To what extent are price pressures and reduced underwriting capacity reshaping the availability and affordability of coverage for certain types of missions?

A: There may be difficulty finding enough cover for some of the highest values, such as a commercial space station, with multiple modules and visiting crew and cargo spacecraft where the market’s maximum available capacity will be exceeded and alternatives may need to be considered.

In terms of affordability – it’s often down to understanding the risk. We sometimes find we need to manage expectations with new launch vehicles or New Space satellites with limited redundancy and heritage expecting to pay only a tiny fraction more than well proven vehicles. There are many brilliant engineers in our industry with significant knowledge, but results continue to show that space is hard, especially during the first few flights / missions.

Q: How do growing sovereign space programs change the competitive landscape for commercial operators and alter global insurance risk?

A: We hope the sovereign space programs may provide new opportunities for insurers. To meet deployment deadlines and cost constraints many of these state-backed missions are turning to commercial service providers, some of which may already insure their satellites and others of which may do so in the future. We also see an increase in the number of manufacturing contracts that include incentives that the manufacturer can only earn if the satellite performs as expected. As such incentives would be lost in the event of a major satellite anomaly, the manufacturers’ incentives can also be insured.

Q: How is the space insurance market adapting to the complex new failure risks of emerging on-orbit technologies?

A: The introduction of new technology will prompt a lot more analysis and questions as part of the risk evaluation process to fully understand the risk being taken on. In some cases, this may be seeing existing technology used in a new way. In other cases, we will work with the satellite manufacturer, operator and their broker to consider the new technology being used and look at the testing being performed. In the case of completely new concepts, such as debris removal, life extension or commercial lunar landings, this work may start years before launch so that we can follow developments and see how the operator overcomes hurdles. Our advice in such circumstances would always be to take insurers on the journey with you as opposed to purchasing insurance at the last moment when there is limited time to fully comprehend the risk.

For software-defined satellites, we need to consider both the introduction of the new technology and how the insurance coverage will respond. From a technology point of view, we look at each individual system to understand what has heritage and what is truly new. From an insurance coverage point of view, we consider changes that need to be made to the insurance policy wording as our wordings are still generally based on those prepared in the early days of space insurance when we were mainly looking at simple bent-pipe payloads. The flexibility introduced by the software-defined satellites is one aspect that needs to be recognized – but that is not necessarily just in defining how losses will be calculated – but also aspects such as the rights of salvage that insurers would retain in the event of a total loss of the satellite. Typically, salvage has been of limited value, but the flexibility of the software-defined satellites could see appreciable value remaining even for a satellite that is not able to achieve its primary mission objectives.

Q: How is the proliferation of multi-mission, multi-sensor satellites challenging traditional underwriting categories, and does the industry need entirely new frameworks for valuing and assessing multifunctional platforms?

A: The insurance market has accommodated such situations before, albeit not to the same extent as may be seen going forward. In the past we have covered CondoSat arrangements with communication payloads for two or more different operators on the same satellite and satellites carrying both communication and meteorology payloads on a single platform.

What is important in situations such as this is how the resources are shared and whether there is any impact of one payload on the other. In the event of a total loss of the power or propulsion system of the platform, it’s easy enough to see how all of the payload services would be affected, but in the event of a partial loss of power – does one of the payloads take priority or is remaining power shared evenly? We’d also want to know if the payloads are fully independent so the loss of one does not impact those remaining.

Insurers will also need to consider their total accumulated exposure across the multiple payloads. All space insurers have a maximum line that they are able to offer. In the event of a multi-mission satellite, insurers need to ensure the total accumulation across all insured payloads on the satellite do not exceed their maximum line so their losses in a catastrophic failure would not exceed this amount.

Q: If the industry moves toward hybrid insurance models, parametric products or government-backed risk pools, what might the future structure of satellite insurance look like?

A: Each of these has a role to play. For individual satellites or launches where an operator wants very broad coverage the traditional space insurance product will continue to be eminently suitable. For commercial space stations, where values will exceed the amount of insurance available in the market and where governments continue to have an active interest in their utilization, you can imagine the need for government-backed risk pools. Parametric products on the other hand may be a good approach for CubeSats or small satellite operators that would not normally buy insurance to be able to purchase limited cover for the risks that concern them most, such as space debris or space weather impacts.

All of these solutions have already been considered within the market with the trigger often being driven by the affordability of insurance or the amount of insurance cover that is needed.

Q: Looking ahead to the next decade, what scenarios does Atrium view as the most disruptive and how prepared is the market to absorb such shocks?

A: My largest concern is the ever-increasing congestion in orbit and the corresponding risk of collision. Luckily, we’ve seen few collision events, but action is most certainly needed. That is the reason I, along with some other insurers, have got involved with the Earth and Space Sustainability Initiative to help derive some space sustainability principles that we hope responsible operators and manufacturers will observe. The obvious concern is that a collision could occur and affect not only the impacted satellites but pose a risk to other satellites too, but my concerns go further than that. My ultimate concern is that there is a significant event and a number of insurers chose to stop providing insurance for LEO satellites. Depending on the financial arrangements, if the insurance is not available, the finance may not be available, which could undermine some new commercial developments.

The current geopolitical situation and the increasing use of commercial satellites to provide military services is also of concern. Could these commercial satellites become targets of interest for adversaries? At present, acts of war are excluded, but like the aviation and marine insurance markets – might we need a separate space war policy in the future? We recently undertook a study of space war cover as part of the Space Risks Study Group of the International Union of Aerospace Insurers trying to derive a space version of the aviation war coverage. It generated some interesting discussions. For example, cyber-attacks are excluded from aviation war cover, but it’s difficult to imagine cyber-attacks not forming part of a space war policy. Also, aviation war policies include clear geographic areas where the policy will apply. What would be the equivalent for a space war policy where any space war event would potentially have global reach?

Space insurance is trying to contemplate such coverage as we see the changes taking place within industry but we’re also waiting to see if there is market demand for such products.