By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
It was good days for nearly the entire previous decade in the space insurance market. Rates were hardened, and the market made a profit every year since 2002 (with 2007 being the only exception), according to David Wade, a space underwriter with Atrium Space Insurance Consortium (ASIC). Now, however, the space insurance market is at the trough of the soft cycle.
New capacity came chasing those profits. In total, the market can now write up to $700 million in total limits.
Wade estimates that about 60 satellites are launched each year and about half of those are insured at what are now lower prices.
"The property side is very soft," agreed Tim Wakeman, an executive vice president at Aon's International Space Brokers.
Traditionally, the space insurance market is comprised of property coverage for satellites. A so-called launch policy covers a satellite from the moment a launch vehicle's rocket engines are intentionally ignited to the first anniversary of the launch date, explained Wade. The policy covers everything from the dangers of launch to mechanical failures in space, such as the failure to deploy an antenna or a solar array, the electrical failure of a component, damage caused by a micrometeoroid or the effects of space weather. Once a satellite makes it to its first anniversary in orbit, its owner then can get in-orbit coverage, which is basically the same as the launch policy. From there, the policy can be renewed every year, according to Wade.
"A typical geostationary communications satellite would be expected to have a 15-year insured lifetime," he said.
Before 2002, Wade said, the space insurance market got itself into trouble by offering policies with durations as long as five years. In the beginning of the millennia, a number of insured satellites experienced problems in orbit because of the same defective components. The result was the hard market (and subsequent profits) that started in 2002.
Satellite owners and operators can also purchase third-party liability coverage from the aviation insurance market to cover possible collisions with other satellites or damage to items on the ground during launch, added Wakeman.
The underwriting process for space insurance is not based on past statistics and actuarial analysis, like many other types of property/casualty insurance, largely because each satellite is unique, Wade said. Underwriting comes down to the engineering knowledge of the insurer's staff. At the Atrium Space Insurance Consortium, Wade has one engineer with 25 years on the corporate side, and another with 30 years of experience.
"That's the level of experience that we really need in this industry to fully evaluate the risks," Wade said.
The underwriters and their engineers receive top-level presentations and design descriptions for new satellites.
"What we're trying to get to grips with: Space is a very harsh. How is the satellite designed to survive in that harsh environment," Wade said.
March 1, 2011
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