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INSURANCE | 11.25.2020

How do you insure a satellite?

We don’t always realize it, but satellites are a huge part of our lives. Satellites are used in communications, for gathering meteorological information, in navigation systems and even in many other activities, such as defense and security. Many of these systems simply wouldn’t work without satellites, or at best their potential would be massively limited.

And many of the satellites orbiting around us in space are insured. But how do you insure a satellite? And why is it so important to insure one? The answer to the second question is simple. Insuring a satellite means purchasing protection in case of an accident (known in the insurance business as an incident) so that satellite owners won’t completely lose their investment. This is similar to insuring your car or your house, for example.

The answer to the first question, however, requires a slightly more detailed explanation. There are two stages in the life cycle of a satellite: the moment of launch, and the rest of its life in orbit. Satellite insurance covers any damage to the satellite that occurs during these two stages. 

Coverage begins with the ignition of the launch vehicle’s main engines, when the launch can no longer be aborted. As we’ve all occasionally seen, launches can even be aborted during the countdown if final checks reveal a problem with one of the variables. There have even been situations where the launch was aborted in the final seconds of the countdown.

The launch is the most sensitive and high-risk part of the whole operation. Although technology has made the process much safer, failures do still occur. It is not until the satellite separates from the rocket that this first phase ends, and the second stage begins: the satellite’s life in orbit.

This is where in-orbit coverage comes into effect, which usually lasts for 12 months and is renewed each year for the remainder of its operational life. For a communications satellite, that tends to be around 15 years. At the end of its functional life, the satellite is shifted into a “graveyard” orbit. It is no longer operational and is therefore no longer insured.

This type of insurance policy is “tailor-made” for each client, as every satellite has its own very specific qualities. As a result, setting a premium for this type of insurance is a very complex process: there are lots of very distinct variables that come into play when designing each policy.

Similarly, the insured sums are astronomical, often with cover in the millions of dollars, meaning the cost of a claim can also be huge. The risk is therefore shared between several companies through coinsurance or reinsurance, with the help of a broker specializing in this sector.

Assessing this type of claim is either very simple or extremely complex. In the event of a total launch failure, there is little to discuss and the policyholder will be compensated for all of the sum insured. Conversely, once the satellite is in orbit, if an accident occurs that shortens its functional life or its operational capacity, the partial loss incurred would need to be calculated. This would involve producing a series of very complex projections to determine the percentage of operational life that has been impacted, and how much the policyholder should be compensated for. That’s not all, though: there is another level of added difficulty. Naturally, the insurance company can’t just send an assessor into space to analyze the claim. All of the processing must be carried out based on the information provided by the policyholder and the satellite’s manufacturer.

In addition, this type of policy often involves very lengthy negotiations. In fact, there are usually several months between the start of negotiations for this type of insurance policy and the satellite going into orbit.

Any insurance company that underwrites satellite insurance must operate globally and have the ability to insure any satellite, anywhere in the world. The insurance company therefore needs to have a balanced portfolio. Furthermore, insurance companies that underwrite space risks need specialist equipment and extensive knowledge of the specific technical and insurance-related aspects.

MAPFRE began its activity in this type of specialty risk policy in 1990 with the HISPASAT 1A satellite, followed by HISPASAT 1B and then 1C, becoming a benchmark insurer in Spain for insurance in this industry. MAPFRE gradually expanded its portfolio, participating in many international satellite programs, making MAPFRE Global Risks a key player worldwide when it comes to this type of insurance.