Title : Dealers Insurance - Why on Earth would a company offer insurance for space travel?
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Dealers Insurance - Why on Earth would a company offer insurance for space travel?
Dealers Insurance - Why on Earth would a company offer insurance for space travel?
Drivers need insurance before they get on the road. And space companies need it before they hurtle metal projectiles into the sky.
Offering insurance for space
flight might seem like an insane business decision. The pool of
customers is tiny, and the risk is, well, astronomical.
The industry collected $715 million in premiums and paid out $636
million in claims last year, according to an insurance industry expert.
That's a slim profit, but margins are known to bloat or thin from year
to year. Having a small pool of customers means dealing with volatility.
Yet, it remains a consistently profitable
business. A small group of insurance underwriters around the world have
racked up expertise that helps the space industry assess risk and write
policies.
But a new era of space flight is ushering in drastic changes.
A whole new world of risk
Private companies are driving down the costs of launch vehicles and satellites, making space travel more common.
Insurance for the space industry comes in various forms, including
insurance that covers hardware during transportation before launch,
insurance that covers launch, and insurance that covers satellites while
they're in orbit.
Satellite coverage in particular is about to get a lot more complicated.
Earth's orbit already has a problem with space debris — pieces of junk
flying around with no means to control them. They include discarded
rocket boosters dating back to the early days of space flight and tiny
pieces of shrapnel from a 2007 satellite explosion and a 2009 collision.
Low-Earth orbit, or LEO, is the most crowded area, and companies including SpaceX and OneWeb have plans for new satellite constellations that will put thousands of new devices in LEO.
Space is huge, and collisions are rare. But the more stuff that's put
in orbit, the higher the probability of a crash. And the risk doesn't
just involve objects that are dead in orbit. It involves potential
collisions between active satellites as well.
Satellites can
cost a few million dollars on the low end. But companies that operate
large communications satellites in geosynchronus orbit — which can be
worth as much as $1 billion — are particularly interested in protecting
their massive investments from spaceborne projectiles.
That's
where insurance steps in. Without it, the satellite operators would have
to write off the satellite as a complete loss, potentially cutting deep
into its bottom line.
Assessing collision risks is a key piece
of what insurers do. Just like in every other field of insurance, the
higher the risk is, the higher premiums climb.
Christopher Gibbs, head of space with AmTrust at the insurance company Lloyd's of London, said it's a top concern for underwriters.
"It's something that we constantly talk about," Gibbs said. And if more
collisions do occur, "the insurance market will react and premiums will
undoubtedly rise."
The broader space community is largely
eager to tackle the collision issue. Many in the industry advocate for
tougher standards for new satellites to ensure they won't become a dead
object in orbit later on. And other startups and researchers have
ambitious plans for devices that may be able to move or de-orbit some of
the junk in space.
Chris Kunstadter, a senior vice president at XL Catlin (XL), which recently merged with AXA, said insurers are "involved" in a number of those activities. He declined to elaborate.
"Everyone recognizes that it's in their interest to develop solutions to the issue," he said.
The history of insurance
Not all insurance for space flight comes from the private sector. The
US government made the crucial decision three decades ago to cover
massive amounts of collateral damage in the event of a disaster during a commercial rocket launch.
That insurance doesn't cover the cost of a rocket or valuable payloads — companies still need private coverage
for that — but it does cover the potentially cataclysmic damage if,
say, a rocket fails and plummets into an urban area.
The government's decision to shoulder that risk was a game changer.
Jim Cantrell, the CEO of rocket startup Vector and an early SpaceX
executive, credits that decision with making it possible for commercial
space companies to exist at all.
It was a win-win, Cantrell
said. Space flight was no longer considered too risky for the private
sector to get involved. And it gave the government an incentive to
regulate the launch industry to ensure companies wouldn't build reckless rockets.
Fast forward a few decades, and the United States is home to one of the
most successful rocket companies in the world: SpaceX. Despite a few
mishaps, Elon Musk's rocket startup is running a booming business and
beating longtime government contractors for launch awards.
Insurance underwriters who handle the other policies that rocket
companies need for launch are comfortable with SpaceX. And other players
in the launch game have long track records that make their launches
easy to assess.
New rockets
The droves of new space startups amount to a lot of new risks to
identify. Every new rocket that enters the market must be meticulously
vetted by insurers and federal regulators.
Dozens of new rocket companies have popped up in recent years, and some of them are beginning to enter the market.
Rocket Lab, a US-based venture with a launch pad in New Zealand,
completed its first successful orbital flight earlier this year.
Cantrell's Vector plans to reach orbit before the end of the year. And
Richard Branson's Virgin Orbit and Jeff Bezos's Blue Origin are planning
to debut their own orbital launch technology in the coming months and
years.
"That's where companies are made or lost in this commercial business is insuring for their loss," Cantrell said.
Appropriately assessing the risk of newcomers is essential for
insurers, but not many of them will threaten to put a major dent in the
industry's revenue. The majority of startups, including Vector, are
planning to introduce small, inexpensive rockets that will launch
relatively cheap satellites.
But with less financial risk comes less reward for insurers.
While the broader global space economy is expected to triple over the
next two decades, growing to $1 trillion, the insurance sector grows
around 14% — from about $700 million to $800 million, according to a
recent report from Morgan Stanley.
source : https://money.cnn.com/2018/09/15/technology/business/space-insurance-industry/index.html
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