Skip to: Content
Skip to: Site Navigation
Skip to: Search


Despite the risks, insuring satellites is a lively business

By Barbara Ann BradleySpecial to The Christian Science Monitor / July 29, 1981



Boston

Suddenly it just wasn't there. Satcom 3, RCA's communications satellite, had been successfully maneuvered between altitudes of 100 miles and 22,300 miles for a three-day trial orbit. Then, just when RCA flight controllers radioed a command to fire the satellite's apogee kick motor, the screen went black. And, a year and a half later, the bird still hasn't been seen.

Skip to next paragraph

Fortunately the satellite was insured, by Lloyd's of London, for $77 million.

Despite its risks, the satellite business has taken off, carrying the space-insurance business with it. The demand for access to satellite space has doubled every three to four years, says Gavin Trevitt of Intelsat, a communications satellite consortium of 105 member countries. About 50 satellites have been insured since 1968. Between 75 and 80 will be launched in the next three years, and close to 200 this decade, according to forecasts by the United States Aviation Underwriters Inc.

Satellites are already widely used for communication, such as telephone service, cable television, and high-speed data transmission for business and government. A study done for the National Aeronautics and Space Administration by the International Telephone & Telegraph Corporation and WEstern Union projects that satellites will link about 25 percent of all long-distance telephone calls and 50 percent of all data transmissions by the year 2000.

But satellite technology has left space-insurance practices light-years behind. Since underwriters first began insuring satellites, their loss ration has exceeded 200 percent: Worldwide premium volume ended up to between $55 million and $60 million, while losses surpassed $120 million, according to Harmut Heese of Munich Reinsurance Inc.

Why are underwriters being beaten at their own game?

"The insurance mechanism hasn't been able to keep up with the technological advance," says Brian Hughes, vice- president of Inspace, a space insurance broker. "Underwriters have tried to standardize satellite insurance like life insurance, but in an embryonic industry each policy differs from the last."

When space insurance was just getting off the ground, underwriters moved cautiously. The first insured lauchings in 1968 had a premium rate equal to 20 percent of the amount of coverage and a one-failure deductible clause, which protected the underwriters from the first loss.

As more and more satellites were launched, however, premiums steadily decreased. Underwriters dropped the one- failure deductible. And no-claims bonuses -- the amount underwriters returned to the insureds if the flight was successful -- reduced the actual premium to a low of 6 percent by 1977. When a huge loss finally occurred, underwriters were badly burned.

"After the RCA disappearance in 1979, initial indications from the market showed launch insurance rates at 30 percent," Mr. Hughes recalls. "Everyone realized that the lead names [underwriters] were the blind leading the blind."

The temperamental nature of space vehicles makes it difficult to assess risk and assign an appropriate premium. Thousands of potential failurs haunt a satellite during every moment of flight.