Tackling the stratospheric costs of space insurance

An international treaty on liability could be the key to commercialising space

Brody Hannan

Trade and industry, Law, Science and technology | Australia, Asia, East Asia, South Asia, Southeast Asia, The Pacific, The World

23 March 2018

Ground control to major premiums: the high cost of insurance is holding back private enterprise from entering the space race. Brody Hannan suggests a way to tackle the issue.

There’s been much talk recently in both Australia and the US about how to commercialise outer space. But the private sector has engaged with the space industry since the early 1960s, and we’re still yet to see companies be on the same footing as government space agencies such as NASA. If governments around the world want to boldly go and commercialise the final frontier, they need to put more thought into insurance.

For decades, US government policy dictated that only NASA was allowed to put satellites into space. But as part of a broader move toward deregulation, the Commercial Space Launch Act of 1984 was passed that allowed private companies to conduct their own launches.

Following the Challenger Disaster in 1986 – the spacecraft disintegrating just 73 seconds into flight, killing all seven crew onboard – NASA’s authority as the sole legal space option was threatened. The entire US Space Shuttle fleet was grounded for nearly three years after the accident. This opened the doors for the private sector to enter the space industry.

Then in 1990, President Bush signed the Launch Services Purchase Act, which ordered NASA to pay private companies to launch their satellites and payloads where possible. The law paved the way for new private space launch companies such as International Launch Services to form, whilst helping others grow such as the United Launch Alliance – now the world’s largest private space launching company.

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With the retirement of NASA’s space shuttle program in 2011 — NASA became entirely dependent upon Russia to transport its astronauts to and from the International Space Station. President Obama directed NASA to create a grant scheme for private companies to reduce America’s launch dependency on Russia. It’s a similar mentality that has been adopted by the Trump administration.

But it isn’t just governments who have been trying to incentivise the private sector to be interested in space. The Google Lunar X Prize, launched in 2007, offered US $20 million to a privately-funded team who would be the first to land a robotic spacecraft on the Moon, travel 500 metres, and transmit back to Earth high definition video and images.

The deadline was originally 2012, but was extended to 2016 and the prize upped to US $30 million, at which point there were 16 companies still competing. When the competition was again extended until December 2017, only five companies remained. The deadline was then extended to 31 March 2018, only to then be cancelled earlier this year after the Google X Prize Foundation announced that “no team would be able to make a launch attempt to reach the Moon by the [31 March 2018] deadline… and the [prize] will go unclaimed”.

Knowing the efforts that both governments and companies have made trying to incentivise and commercialise the space industry for several decades – what’s the way forward? How do we get more companies in space?

A crucial factor in the commercialisation of outer space for private enterprises is the question of insurability. While there have been many cases of private space missions being insured by insurance companies – the first being in 1965 – the premiums remain staggeringly high.

In the early days of private space missions, premiums were roughly 10 per cent of the gross cost of the satellite and its launch. These days, computer models and simulations are used to calculate the risk of the mission, and premiums can reach upwards of several hundreds of millions of dollars.

The staggering costs are primarily due to the high insecurity and uncertainty involved in space missions. It is extremely difficult to insure against unknown risks with unknown financial consequences.

The insurance market is also incredibly volatile to accidents in space missions. For example, when a SpaceX Falcon 9 rocket failed in 2016, it destroyed an Israeli satellite worth US $200 million. Following the accident, insurance rates rose by 100 per cent.

But when so much could go wrong and even the smallest components (like an O-Ring in the infamous Challenger tragedy) could cause an incredible disaster – should liability for private companies be limited?

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An international treaty would have the power to do so. Indeed, the world has done this kind of thing before – the UN Liability Convention of 1972 sought to hold countries responsible for the damage caused by satellites launched from their own territory.

An international treaty on the liability of private manufacturers would also bring all private companies under the same rulebook given the various law systems around the world.

Today, there are 14 active service providers from the private sector capable of launching. However, there are almost 100 companies spread across a small handful of countries providing a speciality of space services, from telecommunication to propulsion, rovers to space stations, asteroid mining to research and development.

Given the current limited number of countries that are home to private space enterprises, the sooner an international treaty is brought in, the easier it will be to ratify.

The private sector will play a critical role in the future of space exploration and space technology. But while the good intentions of governments may be there, history has shown that politicians are cautious when it comes to the allocation of taxpayer money to private space enterprises. It’s been almost 35 years since the US Government first supported the private space sector.

For the private sector to have a higher place in space, there needs to be more than just grants, contracts or competitions. What is needed are intergovernmental collaborations, like international treaties, and space insurance that will provide the security of profit and will pave the way for the private sector to be more ambitious in space.

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