Fishing for stray satellites: insurers agog
Early next week two American astronauts will strap on jetpacks before zipping out in the void to fish for a couple of errant satellites. Space-insurance and communications companies will be hanging on their every move.Skip to next paragraph
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''If they succeed, it'll be the first time we have proof we can salvage an asset lost in space,'' says Marc Vaucher, senior analyst at the Center for Space Policy, a space research and consulting firm in Cambridge, Mass.
So what? Well, if you were in the business of insuring things that go up, it would not be unusual if you paid out $2 to $2.50 for every $1 in premiums your policyholders paid in.
The Center for Space Policy recently reported that space insurers (mostly covering satellites) have had six years of losses in a row. This year alone, the insurers are in the hole a total of $282 million. Several of them have left the market, thus reducing the pool of insurance funds.
The rescue mission presents an opportunity that is not likely to become commonplace. Satellites are seldom lost in a retrievable orbit. Most do arrive in geosynchronous orbit (22,300 miles up), which is far beyond the US space shuttle's reach. But the Westar 6 and the Palapa B-2, launched from the shuttle Challenger in Feburary, are exceptions. When their boosters misfired, they were left in a low, useless orbit around the planet. In June, another satellite was lost in low orbit but deemed irretrievable. Since then, the record for shuttle-launched satellites has improved.
Nonetheless, this is an industry in need of a psychological boost. A successful retrieval will ''cheer a few people up,'' comments Brian Stockwell, president of Corroon & Black/Inspace, the original broker for the Palapa satellite. And it offers an opportunity to recoup some of the $180 million dished out to the Western Union Corporation and the Indonesian government for the two communication satellites.
The underwriters are chipping in another $5.5 million for the rescue fee the National Aeronautics and Space Administration will charge. Once the craft are returned to Earth, how much the underwriters recoup ''depends on what condition the satellite is in and what people are willing to buy it for,'' says John Higginbotham, vice-president of risk analysis at International Technology Underwriters in Washington, D.C. A refurbished secondhand bird might fetch about sell for about $35 million to $40 million new.
A successful retrieval would set a precedent and undoubtedly plug more-favorable figures into investment risk formulas. But because of the great losses already incurred, the trend on satellite insurance rates is expected to be upward.
No new policies have been written since the February mishap, but brokers and underwriters almost universally predict that the cost of insuring satellites launched from the US shuttle will rise from 6 percent of the payload value to 15 or 20 percent. That increase would put Europe's Ariane launcher (which has not had any recent losses) on equal footing, from the standpoint of insurance costs, with the US shuttle.
Another satellite launch failure would be a ''major blow ... the space-insurance industry can't afford another loss,'' says Marc Vaucher at the Center for Space Policy. ''A number of major underwriters could pull out of the market,'' he adds. Rates would soar, crimping all commercial space development, and cutting into profit margins of communications companies.
Who will feel the pinch? Companies involved in voice and video telecommunications and data transmissions, as well as television and cable.
Also, the effect of rocketing insurance costs will be keenly felt by young communication companies (such as Rainbow Satellites, US Satellite Systems), analysts say. And even such giants as Western Union, AT&T and Comsat may rethink satellite launch plans.
There are now enough satellites floating in Earth orbit to meet demand for their services. But once a company commits itself to a launching it's tough to back out. ''And because of prepayment charges on the shuttle and contracts with satellite manufacturers, many companies figure it may cost more not to launch,'' says James P. Samuels, an analyst at Shearson Lehman/American Express.
Analysts predict that rising insurance costs may force communications companies to self-insure, to seek government assistance, or simply to drive a harder bargain with brokers.
Steps are already being taken to hold the line on costs, Mr. Samuels says. ''Brokers and underwriters are getting involved at an earlier stage of satellite development, to help 'design out' a lot of the risk.'' And he believes insurance coverage will become more flexible and more specific. Only certain parts of the satellite may be insured. Perhaps some clients will forgo the expensive insurance covering the launch from the shuttle and cover the craft once it reaches orbit.