The final frontier: satellite insurance
On 4 October 1957, Sputnik 1 became the first satellite to orbit the Earth, transmitting a radio signal for about three weeks before re-entering the Earth’s atmosphere and kick-starting the Space Race. Nearly 70 years later and the United Nations Office for Outer Space Affairs has documented nearly 20,000 objects launched into space, with over 10,000 of these being satellites that remain in active service.
Despite the immense advances in technology since the launch of Sputnik 1, the satellite industry continues to face significant risks and uncertainties, not least in its need for insurance coverage.
We explore the satellite insurance market and the ongoing challenges faced by policyholders, and offer a positive outlook for future developments.
Rocket science: overview of the satellite insurance market
Satellite insurance is traditionally provided under two models:
- Launch plus one: provides coverage for the launch itself, plus one year of orbit.
- In-orbit: provides coverage from the second year of orbit onwards and is renewed annually.
The terms of such insurance will, of course, vary between providers and, given the specialised nature of the market, will often be more bespoke than policies in, for example, the aviation industry. However, more often than not, regulators around the world require satellite operators to take out insurance covering third-party liability before any launch can take place. In the UK, the Outer Space Act 1986 confirms that licences for launching or operating a space object can be made subject to the licensee insuring against third-party liability, and the Space Industry Act 2018 envisions further regulations in this respect.
When considering satellite insurance, it is important to distinguish between satellites that operate in low Earth orbit (LEO) and those that operate in geostationary orbit (GEO).
- Traditionally, communications providers would exclusively operate GEO satellites, which orbit at 36,000 kilometres above a fixed point on Earth. These satellites are expensive, often over US$200 million per unit, but only a small number are required in order to provide global communications coverage. As one would expect, GEO satellites are almost always insured, particularly as financing is often provided by financial institutions which require coverage as a pre-condition to funding.
- LEO satellites, on the other hand, orbit at less than 2,000 kilometres and consist of the vast majority of active satellites currently in orbit. They are far smaller than GEO satellites, a fraction of the price and operate in large inter-linked constellations, made possible by rapidly falling launch costs. Often venture funded, it is far less likely for LEO satellites to be insured. Starlink, the SpaceX subsidiary, accounted for 79% of all deployed spacecraft in 2023 and self-finances its own risk.
Defying gravity: premiums on the rise
Insurers, brokers and, as a result, policyholders face unique challenges in the satellite insurance market:
- Long after Neil Armstrong put an end to the Space Race on 20 July 1969, innovation in satellite technology continues to develop at an exceptionally rapid pace. Not only does this rate of innovation require insurers and brokers to attempt to keep up with the latest developments; it also means that insurers cannot rely on established technology with a demonstrated track record of reliability when assessing risk. Whereas an airplane will have thousands of previous flights that can be used for modelling purposes, there may only be a handful of previous launches for a particular brand of satellite, making the risk assessment process much more complex.
- One of the main sources of risk in space is orbital debris – the accumulation of non-functional satellites, rocket stages and other objects in the Earth’s orbit, posing a threat of collision and damage to operational satellites. According to the European Space Agency, there are about 34,000 objects larger than 10 cm, 900,000 objects between 1 and 10 cm, and 128 million objects between 1 mm and 1 cm in orbit, and these numbers are expected to grow as more launches and activities take place. Increased crowding in orbital regimes necessarily increases the risk of collision and the potential for insurer liability.
- The high cost of GEO satellites, combined with the difficulty of performing repairs should anything go wrong, means that a few large claims can substantially impact the entire market. Indeed, at the time of writing, the market is still recovering from a difficult 2023 in which claims exceeded premiums by hundreds of millions of dollars, primarily resulting from two GEO satellites experiencing post-launch failures, with potential insurance claims in the region of US$350 million to US$420 million (compared to an expected total market premium of US$550 million for the year).
These difficult market conditions and dramatic volatility have resulted in insurers shifting capacity to other sectors, with Canopius and Brit exiting the space insurance market in September and November 2023 respectively.
For policyholders, this contraction in capacity, combined with recent high-profile losses, has resulted in significantly increased premiums, making it more difficult to justify coverage and depriving satellite operators of an important risk mitigation option.
For GEO satellite operators in particular, access to institutional finance is often reliant on obtaining sufficient insurance coverage, meaning that they are forced to pay increased premiums to continue operations.
A new hope: future developments
Despite the challenges faced by policyholders in the satellite insurance market, developments in adjacent technology, governmental support and new insurer attitudes offer hope for a brighter future:
- The high cost of GEO satellite failures and the resulting premium volatility can be mitigated by ongoing development in the adjacent industry of in-orbit servicing, which attempts to overcome the inaccessibility of satellites and therefore the difficulties in repairing them. By making in-orbit repair possible, such technology could reduce claim amounts, making the market less volatile, attracting new insurance providers and lowering premiums.
- Government agencies, including in the UK and the U.S., are alive to the difficulties faced by policyholders in the satellite insurance market, particularly where regulators require satellite operators to hold third-party liability insurance. Since September 2023, the UK Space Agency has been conducting a Consultation on Orbital Liabilities, Insurance, Charging and Space Sustainability, aimed at promoting more competitive pricing and increasing the availability of insurance for satellite operators.
- Despite recent volatility and market exits, the fact remains that the commercialisation of space will only continue to increase, and with it the demand for insurance coverage, thereby bringing in new insurance providers and increasing market capacity. Future demand will extend beyond traditional satellite insurance, as advancing technology opens up a new privatised space economy, including commercial space stations, asteroid and lunar mining, and in-orbit manufacturing. Moreover, space insurance is largely independent of conditions on Earth, providing insurers with a useful hedge when terrestrial factors result in increased claims in other sectors, thus offering a further incentive to enter the market.
Such developments will hopefully make the space insurance market more hospitable to policyholders, facilitating the continued expansion into space.
Should you wish to discuss your space insurance needs or issues, do not hesitate to reach out to Laura-May Scott and Dan Sahraee.
Client Alert 2025-008