LONDON — Space insurance underwriters agreed that their market has grown worse in the past couple of years and will improve only when some of them quit the business.
That, they said, is probably inevitable as total annual space insurance premium income continues to fall with the collapse of the market for large geostationary-orbit telecommunications satellites. Average launch premiums have fallen, too, as the glut of insurance underwriters has resulted in a buyer’s market for launch insurance.
Even as per-launch premiums and aggregate premium volume have declined, insurers’ aggregate exposure to insured in-orbit satellite risks has continued to grow — from nearly $20 billion in 2011 to $31 billion now.
In addition to the possible departure of insurers who no longer think space is sufficiently profitable, the arrival of multiple small satellites, including commercial constellations, could also help rationalize the industry.
“Hundreds of cubesats have been launched but they are not really part of our statistics,” said Jan Schmidt, head of the space department at Swiss Re Corporate Solutions. “Underwriters are interested in reliability measures and figures from The Aerospace Corp. reveals a terrible record — only 53% full mission achievement.
“So what do I want to charge [cubesat operators] as an underwriter? Only once these satellites improve to an acceptable level will they become insurable post-launch,” Schmidt said here June 25 at the Seradata Space Conference.
Cubesats and their insurability was a recurring topic at the conference. Axa XL is the biggest insurer, so far, of cubesat missions, which remain a small business for the underwriters.
Christopher T.W. Kunstadter, senior vice president and head of Axa XL’s space department, said that in the past 3.5 years, 343 cubesats were insured for launch. But only 12 of them carried post-launch insurance.
The reasons, he said, are that many cubesats are technology demonstrators, and some of the commercial satellites are part of a constellation that can afford to lose spacecraft in orbit without service interruption, reducing the need for in-orbit insurance.
One metric insurers use to assess the industry’s health is the relationship between annual premiums and the largest single insured risk. The largest risk each year is usually a European Ariane 5 rocket carrying two large telecommunications satellites.
Premiums in 2018 totaled less than $500 million, which is not enough to insure such a launch.
Stephane Rives, head of space at SCOR Global, said nearly half of all annual launches are insured, but the proportion of heavy launchers is declining relative to lighter vehicles.
“Satellites related to these launchers have smaller sums insured than in the past,” Rives said. He agreed that “We have far too much capacity today in the insurance market.”
Insurers said space insurance requires more technical knowledge than other markets, such as aviation. Maintaining technical teams is costly. As the market continues to sag, some underwriters will be tempted to reduce their technical staffs.
It’s already true that not all underwriters have their own in-house engineering capacity. These insurers depend on the expertise of larger underwriters when pricing risk. But they don’t pay for that expertise.
Pascal Lecointe, space underwriter at Hiscox, said there will be a natural attrition among underwriters given the market trend.
“Time will play a factor,” Lecointe said. “Premium volume has dropped significantly and expenses are going to be at a higher level.”
Attendees here said the growth in the number of space underwriters includes some who are counting on little technical assessment to determine which risks to cover, and how to price them.
“Part of it is just luck,” Schmidt said. “It makes it possible to stay in the market, even though it’s not sustainable at the moment. It’s a kind of legalized gambling.”
Should the most technically proficient, larger underwriters be better rewarded by the market by some sort of fee paid by the smaller insurers? None of those in attendance thought that was a good idea — at least not yet.
“The market actually works in a pretty efficient way,” said Peter Elson, chief executive of Gallagher Aerospace. “The marketplace dynamics are such that most insurers are capable of assessing and pricing risk and following their own fortunes. That’s why we see that different insurers have different results. That’s a healthy situation.”
Elson agreed that the growing smallsat/cubesat market may argue in favor of a lead-follow model where a handful of insurers decide on rates that are then accepted by others.
With smallsats, Elson said, “it maybe more difficult for all of the insurers in the market to carry all of the cost of being able to assess and rate and adjust risks and claims successfully…. In other markets there is something called a leaders’ fee, intended to compensate for leaders. It is paid by the following markets for the expertise the leader is providing. That would be a logical proposition if the market evolved” into one dominated by cubesats.