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By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

Ground control to Major Tom. Take your protein pills and put your helmet on. Ground control to Major Tom. Commencing insurance, stay calm. Checked space carriers, but got far cheaper rates thanks to our aviation mates.

"It's really a unique industry in that it's been government from the beginning and government forever," said Bretton Alexander, president of the Commercial Spaceflight Federation, an inside-the-Beltway trade association dedicated to the commercial space industry.

Not forever anymore. Events in commercial space are moving along, not quite at the speed of light, nor even the speed of sound, but pretty darn fast. One firm, Hawthorne, Calif.-based Space Exploration Technologies Corp., or SpaceX, succeeded as the first private company to launch a vehicle into low-Earth orbit and return it to terra firma unharmed, its Dragon capsule atop the Falcon 9 rocket on Dec. 8, 2010. It recently announced a contract with Astrobotic Technology to deliver a robotic rover to the moon in 2013. A contract from NASA to transport astronauts could be in the works, too.

Perhaps the biggest and most glamorous name in the commercial space industry, Virgin Galactic, one of the cooler jewels in hip Richard Branson's crown, could send a pilot into a suborbital test flight in its SpaceShipTwo later this year, according to Alexander. Soon thereafter, the first paying customer could be taking off from Governor Bill Richardson Spaceway at Spaceport America, the world's first commercial spaceport in Upham, N.M.

Watching all of this progress are insurance underwriters, of both the space and aviation varieties.

As far as David Wade, space underwriter with Atrium Space Insurance Consortium, knows, SpaceX hasn't come to the market yet for insurance "but that's starting to come around now." The firm's given underwriters three to four presentations already.

"We all know about the Falcon vehicle," Wade said. "Just knowing that it's achieved those milestones gives a lot of confidence that the engineers know what they're doing," he said about the Dec. 8 test flight.

One reason that its owners haven't insured it yet could be that, as a new, untested vehicle, its rates would be higher. According to Wade, SpaceX could fly it another 10 to 15 times and build even more confidence in the design.

"They'll be able to enter the market with a well-proven vehicle," he said. Rates then would drop.

Virgin Galactic, on the other hand, might be able to leverage its relationships with aviation underwriters and the weight of the insurance program from Virgin Atlantic to land lower insurance rates now.

In fact, Wade suggested that current insurance discussions involving Virgin Galactic are with the aviation market, and that enough underwriters there want to curry favor with Virgin that they're willing to write the Galactic risk. Virgin probably doesn't mind working with aviation because rates are cheaper there than in the space market, and they're able to buy "bulk" because of all the aviation insurance they already purchase each year.

"My inclination is that the aviation market is a more likely route," Roger Bathurst, head of the InSpace team at brokerage Willis, said.

Now the question for other operators, Wade raised, is whether they'll get the benefit of cheaper rates in the aviation market, too. Underwriters might wonder about the different technologies involved.

Virgin's SpaceShipTwo, for instance, is designed to take off horizontally, whereas Blue Origin's New Shepard vehicle launches vertically. A debate could ensue among space and aviation underwriters when different players come calling, discussions that could get more vocal when Virgin isn't involved, Wade, the Lloyd's underwriter, said.

Or aviation might be in the mix no matter what. The main reason: Enterprises closest to coming on-line will be suborbital trips, not truly taking tourists into outer space. The space-tourism vehicles are in effect "what is a high-altitude airplane," as Bathurst described. What's more, the sums insured won't be too daunting to the aviation market; it might be in the tens of millions of dollars, Wade estimated.

Then choice could simply come down to price. "The broker will go into aviation market and the space market and will place it wherever it's cheaper," Bathurst said.

Other experts, however, suggest that a hybrid product will be needed no matter the operator. Space-tourism operators might take one product from space underwriters--like a property product to cover the vehicle itself--and others from aviation--like third-party and passenger liability--explained Chris O'Gwen, chief underwriting officer of global aerospace at XL Insurance, and his colleague, Chris Kunstadter, head of space underwriting.

"The risk is not too dissimilar for the passenger liability risks that the market already provides for the passenger airlines," said Tim Wakeman, executive vice president of Aon's International Space Brokers.

Liability coverage for both the paying customers and for third-party property liability, however, could get interesting because of regulatory question marks. Under a law passed by the U.S. Congress in 2004, the Federal Aviation Administration regulates the commercial space business. So as not to crush the nascent industry with airline-like safety rules, the FAA initially set up an informed-consent regime, Alexander said.

That is, paying customers on a suborbital cruise aren't considered passengers but rather "participants." They get full safety disclosure before their trip and sign a waiver.

"From a liability perspective, those types of things are potentially helpful," O'Gwen said. "But those things are completely untested in the legal system today."

In other words, participants could still sue. Operators will still need passenger liability insurance.

Another complication is that the informed-consent regime runs out in 2012. The FAA was hoping by next year to know how safe the industry would be.

"Is it a cavalier industry full of cowboys and risk takers?" Alexander said.

The FAA most likely will not know the answer by next year, so the industry is working with the FAA on what will happen next, Alexander said. "From an industry standpoint, we want to maintain that regime," he said.

Another regulatory "if" is the launch indemnification regime. The feds cap the liability for satellite operators, who then buy (or don't buy) insurance below the cap. Alexander assumes that commercial space flights will get this, too.

Yet the space ports from which these vehicles will blast off (and hopefully land), such as the one being built in New Mexico, will need a completely new, hybrid product as well, the XL underwriters added.

Insurers have time to come up with answers. XL's O'Gwen said that at least one client has approached his firm to talk about its needs during the developmental phase of its spacecraft. Not for the operational phase yet.

"And that's a paced approach, and that makes sense," he said.

Yes, underwriters like slow going. Time affords them opportunity to get familiar with the commercial spacecrafts. With satellites, underwriters rely on aerospace engineers on staff to "get down to the component level" and understand how well they will perform, Wade said. Each satellite is unique, so space underwriters cannot rely on past statistics. Such analysis will be tricky with suborbital tourist vehicles.

"It will look like an aircraft and fly like a rocket," Kunstadter said about the spacecraft. And about the passengers: "These will not be trained astronauts."

If it's aviation underwriters ultimately writing these risks, Wade sees them getting together with their space colleagues and analyzing the exposure together.

"I certainly hope they're taking the advice of the space guys," he said.

Such analysis will be even trickier when orbital commercial space enterprises come to the insurance market. Whether you're talking space tourism or enterprises that plan to collaborate with NASA to deliver supplies and equipment to the International Space Station--or even to deliver astronauts (as SpaceX plans to do with its Dragon capsule)--that's going boldly where no commercial company has gone before.

The scale is different--from a price point of $100 million for a suborbital operation to at least $1 billion for orbital.

The what-ifs are far more daunting. Just try to calculate how much an operator would owe if they dinged the space station. "There's quite a lot of don't-knows," said Willis' Bathurst. Once they have answers though, underwriters will know how to write the risks.

"The market's pretty good at coming up with stuff like this," he said.

March 1, 2011

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