LONDON — The sudden failure of Maxar Technologies’ WorldView-4 optical Earth observation satellite this year was a painful reminder for some insurance underwriters of the risk associated with long-term insurance policies.
The rewards are clear enough. Underwriters can generate higher annual premiums than they would likely get from the same policy were it renewed every year. For the customer, in this case Maxar, the additional cost is offset by the predictability of the premium and the coverage and the fact that there in no need to renegotiate the policy every year.
WorldView-4 was insured for $188 million. Maxar announced the failure in January and said in May that its underwriters had agreed to the claim.
Not all of Maxar’s insurers were affected. Some had declined to offer multi-year coverage, preferring the standard annual renewals.
When these underwriters were told that WorldView-4’s control momentum gyros had begun to fail, they excluded the CMGs from the following year’s coverage. WorldView-4 had sufficient CMG redundancy so that the earlier failures had no effect on the satellite’s performance.
When the final CMG failure came, insurance officials said, most underwriters on the annual-renewal policy had already excluded GMGs from the coverage and thus were not part of the $188 million settlement.
Space insurance premiums are at historically low rates, with underwriters concerned about the sustainability of the current market in the event of a couple of large claims. The WorldView-4 case was one of those discussed here June 25 at the Seradata Space Conference.
“We have a very happy customer,” Russell Sawyer, executive director of insurance brokerage Willis Towers Watson Inspace, said of Maxar. “They bought insurance and were able to say publicly that they were able to collect on the insurance. Other people have bought the [multi-year insurance] product. This has helped them understand the value. In those years when longer-term cover wasn’t available, the constant call we got from some clients was that that’s what they really needed.”
Devin Fairbanks, vice president of underwriter Starr Aviation, said her company took a fresh look at long-term coverage in 2015, more than a decade after it went out of fashion in the space insurance market, as a way to mitigate the drop in space insurance premiums.
“We embraced the concept of long-term policies. We like the reliability we are seeing in the satellites,” Fairbanks said. “We haven’t had a loss in that until WorldView-4 — bad luck for us.
“But I still think there is value in the long-term product, and I still think we’ll see an uptick in premium for us. We can allocate that premium over the period that really justifies a double-digit rate for launches enormously. It increases it by 50%. But I wish that WorldView-4 hadn’t happened.”
Satellite owners have long complained that insurers exclude suspected component fragilities when renewing policies after a year, making the policy less valuable but not less costly.
Jeff Poliseno, chief executive of brokerage Aon International Space Brokers, critiqued what he said was the “black or white” nature of many policies. “Instead of pricing it accordingly, there’s always a restriction.”
“There’s very little discussion where an annual in-orbit policy is modified to reflect the lack of redundancy. It’s either: Coverage is either available at a certain price, or it’s restricted,” Poliseno said. “That is one of the values of long-term policies.”
Adam Sturmer, senior vice president of Marsh Space Projects brokerage, said: “The WorldView-4 actually proves the value of the long-term policy. They collected a claim on the policy. Customers tell us it is really helpful from a budgeting perspective, especially in current market conditions.”