Over the past few decades, rocket launches have become more frequent and more safe. The failure rate of space missions—manned and unmanned alike—has steadily declined from the near 20 percent level in the early 1960s to low single digits in the 2010s, which in effect has made the cost of insuring these launches go down (yes, rockets need insurance just like cars), and space insurance seem like a pretty good business.
The truth, of course, is complicated.
For one thing, space insurers aren’t making a lot of money at the moment. Last year, a total of 114 rockets were launched into space, according to the Space Launch Report. From all these missions, the space insurance industry, as a whole, collected $450 million in premiums and paid out $600 million in claims, according to Seradata SpaceTrak data. That averages out to a cost of about $5 million per launch for insurers. The actual per-launch claim was probably even higher, because not all rockets were insured.
Then, as a byproduct of high claim payouts, some of the largest launch failures tend to be followed by wild swings in insurance premiums, which can pressure some rocket and satellite companies out of buying insurance altogether. (Unlike auto insurance, rocket insurance is not mandatory.)
Several major claims have already been filed this year. In January, Maxar Technologies’ two-year-old WorldView-4 imaging satellite failed in orbit, resulting in a $183 million claim on its insurer’s book. In July, the European Space Agency’s Vega rocket carrying a military observation satellite for the United Arab Emirates crashed shortly after liftoff, resulting in at least $37 million in losses.
Germany’s Munich Re was one of the insurers behind the Vega launch. Italian aerospace company Avio Aero, which built the rocket, said it had a 100% success rate before the incident.
Shortly after the Vega failure, Swiss re-insurer Swiss Re, a major underwriter in the aviation sector, announced that it would exit the space market, citing “bad results of recent years and unsustainable premium rates.”
The fundamental concern wasn’t the staggering claim payout itself, but the challenge of predicting how much insurance premium should go up before incidents happen and getting a good sense of where rates could be going in the near future.
“There is a general market consensus that the premium volume that we’re seeing today is about half of what it should be,” Dominique Rora, a senior space underwriter at insurance giant AXA, said in a presentation at Euroconsult’s World Satellite Business Week in Paris earlier this month.
“There is a number of insurance players that are reviewing their position or withdrawing from this space insurance market,” Rora added. “In the first part of 2019, there was a flattening of rates, and since the events of this summer, we have seen an increase… We don’t know yet where the rates will stabilize.”
If insurers’ exodus from space continues, the whole insurance sector may lag behind the booming space industry. Recent research by Morgan Stanley estimated that, while the global space economy will triple over the next two decades to surpass $1 trillion, the space insurance sector will only grow around 14%—from about $700 million to $800 million.
Yet, some space watchers valuing an industry’s long-term promise believe that insurance companies simply have to wait the uncertainty out.
“Yes, the risk can be very high. However, this is a tech area where it will be a lot easier to predict the risk, because the cost inputs into rocket launches, such as payload and fuel, are relatively easy to analyze,” Andrew Chanin, CEO of space investment firm ProcureAM, told Observer.
“A counter example would be cyber insurance,” Chanin went on to explain. “Companies and governments are spending more than ever on cyber insurance. But the issue is you don’t know when a cyber attack is going to come, how it is going be executed, the amount of the damage, things like that.”
“For space insurance, as the sample size grows and insurance companies become confident in their pricing models, they are going to be able to more accurately price these things,” he added.