Strained satellite insurance market could be in jeopardy

In the history of space satellites, 165 insurance claims involving 159 satellites have been filed for losses that exceeded $10 million each.

Two of the most expensive claims — each for more than $300 million — occurred this year, David Todd, insurance underwriter and head of space content at launch and satellite database Seradata, told Connectivity Business News.

The satellite insurance market is in a very bad place right now, Todd said, with major incidents such as those involving satcom provider Viasat’s ViaSat-3 F1 Americas and Inmarsat I6 F2 satellites, which suffered malfunctions during the past summer, creating challenges.

“Claims are currently $950 million on a calendar basis, while gross premiums prior to any broker reduction are circa $560 million.”

—David Todd, head of space content, Seradata

Claims are expected to exceed $1 billion by the end of the year, Jan Schmidt, head of space at Swiss insurance provider Helvetia Insurance, told CBN.

“This year marks the most challenging period for the industry in over two decades,” Schmidt said.

Mounting losses

Viasat (NYSE: VSAT) is reportedly filing an aggregate $770 million in claims for the two satellites. The company confirmed in an October statement that the $420 million in coverage for Viasat-3 is nearly half the satellite’s value.

Viasat-3’s net insurance loss of $445 million, $25 million more than the satellite’s $420 million in coverage, is the highest of any satellite ever, Todd told CBN. Other historical losses include the UAE Armed Forces’ Falcon Eye-1, which suffered a launch failure in 2019, generating $414 million in net loss, and Intelsat’s Intelsat 27, which generated $406.2 million in net loss after a 2013 launch failure, Todd said.

Inmarsat’s $348 million claim for its Inmarsat I6 likely exceeds the satellite’s value. Inmarsat I6 was built in December 2015 as part of a two-satellite, $600 million contract with manufacturer Airbus Space and Defence, the aerospace company previously told CBN.

Inmarsat was acquired by Viasat on May 31 in a deal valued at $551 million.

In July, ViaSat-3 experienced a malfunction of its primary antenna, rendering the geostationary (GEO) satellite non-operational, Viasat said. The company in July told CBN that the malfunction wasn’t a serious setback, and has said it expects claims for both satellites to be finalized by yearend.

Viasat’s two losses comprise 80% of the total $950 million in claims for 2023, Chris Kunstadter, global head of space at space insurance provider AXA XL, recently told CBN.

“Our business this year has been a difficult one,” Kundstadter said. “Space insurance has suffered [losses of about $950 million], and that’s against about [$600 million] in premiums.”

A $24 billion problem

Traditionally, GEO satellites have been the heart of the satellite insurance market, AXA’s Kunstadter said last month during Connectivity Next Summit 2023. This is because GEO satellites generate the most revenues and are more difficult to replace, Kunstadter said.

Kunstadter estimates that there are $23 billion to $24 billion worth of satellites insured in orbit.

“To put that in perspective, we estimate the total value of all [insured and uninsured] assets in space, excluding the International Space Station and Tiangong, China’s space station, to be around $150 billion.”

—Chris Kunstadter, Global Head of Space, AXA XL

“It’s probably higher than that, but that’s the number in our head,” Kundstadter said.

Even some GEO satellites are uninsured, Seradata’s Todd told CBN.

“Very few large satellites have funding or finance providers that insist on insurance,” he said.

However, Kunstadter recently told CBN that in the past 20 years, only 1% of commercial GEO satellites have been launched without insurance.

Network provider EchoStar Corp. (NYSE: SATS) has filed a few insurance claims over the years, but for a time, the network provider went without insurance, Todd said. EchoStar “ just about got away with it — some of its satellites had power shorts on its solar arrays and some thruster issues but no major failures.”

EchoStar declined to comment when asked what led the company to begin insuring some of its satellites.

Cost drivers

Satellites that comprise large low Earth orbit (LEO) constellations are often insured for launch only but not in orbit because of the in-orbit reserve provided by a large constellation.

“When a company launches 100 [LEO satellites] and need to have 90 working, they don’t need insurance,” Kunstadter said on the panel. “Their insurance is their system resiliency.”

Launch service providers such as SpaceX also purchase third-party liability insurance in case a populated area is impacted during a failed launch, according to a report by the nonprofit Space Foundation.

Geostationary satellites typically take three years to build, whereas a new LEO satellite can be produced in a day, a spokesperson for Canadian satellite operator Telesat (NASDAQ: TSAT / TSX:TSAT), told CBN.

“If we lost 18 satellites, we would only need 18 days to replace all of them,” the spokesperson said.

Even for large LEO mega constellations used for both commercial and government applications, the sheer number of satellites tends to be a deterrent for insuring the constellation, Philip Harlow, president of Telesat Government Solutions, recently told CBN.

“If you’re, for example, SpaceX, and you’ve already got 1,000 or so satellites in space, if your next launch fails — no big deal, right? You might have 30-40 satellites lost, but in the scheme of things it’s a small number, so talking about insurance in that scenario might be a little moot,” Harlow said.

If a LEO operator is just starting its constellation and only has about 200 satellites in orbit without the ability to rapidly replace any failed satellites, then insuring the constellation might be understandable, Harlow said.

Only 25% of about 300 insured satellites are in LEO, David Wade, space underwriter at Atrium Space Insurance Consortium, told CBN. This is despite the fact that 85% of all operational satellites reside in low Earth orbit, according to a 2023 report by U.S. Congress.

However, extending the life of an obsolete LEO satellite is not an attractive value proposition, Maureen Haverty, principal investor at London-based space tech investment firm Seraphim Space told CBN.

“In the same way we replace laptops as technology improves, it makes sense to upgrade to a next-gen satellite to improve performance,” she said.

Investing in LEO satellite insurance is seldom worthwhile, Haverty added.

“A bigger cost driver seems to be that insurers traditionally tried to ‘force’ design changes onto satellite designers, such as increasing the number of backup systems,” she said. “While common in GEO, this would be prohibitively expensive for LEO satellites and is probably the greatest factor in discouraging LEO satellite operators from insuring their satellites.”

Government satellites are rarely insured due to the nature of their missions, although NASA does insure delivery flights to the International Space Station, Todd told CBN.

“For military satellites, the problem is disclosure — insurers need to see the technical details before they will insure,” he added.

The decision to purchase satellite insurance is usually made by a company’s lenders or shareholders, Atrium Space’s Wade said.

“While third-party liability insurance is usually mandatory, insurance to cover the physical loss or damage of the satellite is not,” he said.

Operators can choose the insurer they want, but price is usually the determining factor, Wade said.

“Most satellite risks are of such a value that multiple insurers are required for every placement,” he said. The number of insurers varies based on the technical aspects of the risk and the amount of insurance needed.

“A satellite which is deemed a good technical risk with a small sum insured will only need a handful of insurers to cover the risk,” he said. “A satellite which is less good technically will need more insurers, even if it has a low value, as insurers will write more constrained lines.”

There are no guaranteed penalties for being uninsured, but “you have to take it on the chin when your satellite fails,” Seradata’s Todd said.

Investors are also more likely to invest in a company that insures its satellites and sometimes insurance is a key element of a financing agreement, he said.

Causes for claims

Historically, 60% to 70% of all satellite insurance claims have been due to launch failures, according to an October report by New Space Economy, which offers space industry market insights and analysis.

For example, when a satellite was destroyed aboard a SpaceX Falcon 9 during a launch in 2018, the result was a $200 million claim. The following year, a satellite was lost during the failed launch of an Arianespace Vega rocket and led to a $415 insurance claim, according to the report.

Aside from launch failures, the report lists several other causes of satellite insurance claims, including:

• Failures during the critical deployment and testing phase in orbit;
• Collisions with orbital debris;
• Adverse space conditions such as radiation;
• Component failures or malfunctions; and
• Human error, even though satellites are becoming increasingly autonomous.

Launch failures are infrequent, so most insurance claims seem to involve satellite malfunctions, Seraphim’s Haverty told CBN. Claims are often motivated by lost revenue when a satellite is unable to fulfill its mission life, she said.

Seradata’s Todd told CBN that the first year in orbit after launch is when most satellite anomalies occur — and also when insurance premium rates are highest.

Premium rates tend to be low shortly after launch before a satellite is likely to experience an anomaly, Todd told CBN. As the satellite’s first year in orbit ensues, the risk of an anomaly increases, and the insurance premium rate follows suit.

“In-orbit coverage after the first year [on orbit] has just about doubled [in 2023],” Todd said.

What’s next?

The satellite insurance market has lost money for three of the past five years amid a decade of instability, Atrium’s Wade told CBN.

“Prior to 2010, the market could afford two total losses and was still able to make a profit, but for the past decade, the market has become more and more volatile,” he said.

“For the majority of the past decade, had the single largest value satellite failed, that one failure would have been sufficient to push the market into a loss for the year,” he added. “This has come to a head in 2023 with the loss of two large, high-value satellites — ViaSat-3 and Inmarsat 6.”

Wade said that the insurance market has seen a “major readjustment” with increased rates, and he expects many insurers to exit the space market in early 2024.

AXA’s Kunstadter expects changes next year, noting that a degree of instability is to be expected in the insurance market.

“This line of insurance is naturally volatile, and as a result, some companies have already pulled out of the business and others will pull out in the next couple of months,” Kunstadter recently told CBN.

Insurance prices will rise as the available capital in the market goes down, he said, adding that higher prices will also result in differentiation of risks.

“New space technologies will see more of an increase in insurance premiums than established technologies and operators,” he said.

Satellite insurance companies are going to have to raise rates to save the market and continue to provide quality coverage, Helvetia’s Schmidt told CBN.

“Despite the difficulty this poses for our clients, it is imperative that sustainable insurance premiums are established to guarantee ongoing insurance coverage in the forthcoming years,” Schmidt said. “The fulfillment of this crucial pledge hinges upon the generation of adequate premiums capable of meeting both claim settlements and operational expenses over a defined period.”

A call to action

Daniel Faber, chief executive of in-orbit services company Orbit Fab, remains optimistic about the future of satellite insurance. As space becomes more crowded, increased risk of orbital collisions could provide new opportunities for the insurance market, Faber told CBN.

“I don’t think orbital debris is causing a lot of insurance claims yet, but we have seen collisions,” Faber said. Increased regulations on satellite operators aimed at mitigating orbital debris may incentivize satellite operators to look to insurance markets to manage that risk for them, he said. “That puts a direct price on it,”

“The insurance companies can gather data and perform analysis to determine what the risk is, and they’ll tell you what you can do to lower your risk and thereby get a lower insurance premium. And that creates financial incentive.”

—Daniel Faber, CEO, Orbit Fab

The prospect of receiving a regulatory fine for insufficient satellite maintenance could also motivate operators to take extra measures in managing risks. For example, the Federal Communications Commission on Oct. 2 issued a $150,000 fine to Dish Network Corp. for failing to retire its EchoStar-7 satellite, which had been in space since 2002, according to an order published by the FCC.

AXA XL is developing a debris-mitigating insurance product that will include protection of commercial space stations, Kunstadter said.

He said that AXA has been working with in-orbit services companies such as Astroscale, and ClearSpace along with defense contractors Northrop Grumman (NYSE: NOC) and Airbus to find ways to incentivize satellite operators, launch providers and government agencies to invest more in debris removal.

AXA expects to release more information on the product in February, Kunstadter said.