Unless there is a willingness (and financial ability) to self-insure – as lots of low earth orbit operators do – then launch plus 1 satellite insurance is a necessary cost associated with launching a new spacecraft. The issue for operators is that the cost of such insurance has risen following a dramatic increase in claims during 2023 and into 2024.
At the beginning of 2023, the market outlook for insurance premiums in relation to launch policies was trending downwards, with capacity remaining available, meaning there continued to be competition over the rates. That position did not last. Things changed dramatically during the course of 2023 with two high profile post separation spacecraft issues - Viasat-3 F1 ($770m claim) and Inmarsat 6-F2 ($348m loss) – leading the pack when it came to claim values. Ultimately, 2023 losses reached a level which is understood to be around double the total insurance premiums paid.
Faced with such losses, insurers were quick to raise prices and those increases to premiums for the riskiest time in a spacecraft's life – launch, in-orbit transfer and deployment - remain.
The reaction by the space insurance industry facing such a high level of claims is understandable, but it can fundamentally change the economics for operators who are already committed to launching new spacecraft, or those at the earlier stage of planning new orders.
As well as having an impact on pricing, a high level of claims shapes the market at a more macro level. An environment with high overall value of insurance claims (as against overall premium levels) also leads to insurers reconsidering their level of risk appetite, and in some cases whether they are prepared to write policies at all – one insurer, BRIT, pulled out of the direct market entirely. Any drop in capacity, in particular in the face of continuing and indeed increasing demand, exerts further upward pressure on premiums.
Another important factor which impacts the level of premiums being offered to operators is technology-based risk. Unproven technology (whether it is the space craft, the launch vehicle or a combination of both) can have a significant impact on price.
In circumstances where underwriters do not have access to historic information, in particular in relation to failures, assessing and ultimately pricing risk is incredibly difficult. As a result, insurers' appetite and capacity for writing risks associated with unproven technologies, even where the potential returns may be better due to pricing, can be limited.
Since first-flight or unproven technologies are inherently riskier, insurers will price accordingly. What that means for operators is that they face the prospect of paying very high premiums, being unable to access limited underwriting capacity or potentially having to take the decision to self-insure.
The lack of commercially affordable space risk cover – or an insurance market with less willingness to write policies for unproven technologies - could, if it persists, serve as a drag on growth in the global space industry and in related technological advancements.
In circumstances where thousands of satellites are expected to be launched before 2030 – partly driven by the lower barriers to entry offered by the advent of new launch vehicle technologies including reusable launch systems such as SpaceX's Falcon 9 – ensuring that there is a functioning space insurance market is crucial.
As the new technologies become more established, underwriters will be better placed to price the risk levels they present. Separately, pressure to maintain a sustainable and properly functioning market (which includes in-orbit policies) may begin to balance out the competing pressures on price. Finally, attractive pricing might tempt insurers to ensure capacity remains available. Regardless, insurers cannot entirely avoid programmes offering cover to new and emerging technologies in the face of diminishing legacy technologies whose risk profile is well established.
Operators and insurers alike will be hoping that there is a marked downward trend in failures and insurance losses, so that the market can return to a level which offers sustainable pricing opportunities to help ensure (and insure) the continued advancement of the space technology for the benefit of all stakeholders.
