Editor's note: Sima Adhya is head ofspace, Torus

As the future of space travel shifts from government to privateenterprise, the role of the commercial space market for insuranceis growing.

When the firstsatellite entered orbit nearly 60 years ago and man walked on the Moon just over a decade later, it seemed thatregular manned-space travel was tantalizingly close. Yet after ashort flurry of U.S. moon landings in the 1970s, nobody hasreturned for more than 40 years.

Early space exploration was driven by governments, politicallyposturing and competing for the technological edge against thebackdrop of Cold War. These technological developments were notdesigned with efficiency and repeatability in mind. They werecostly and unsustainable.

Since the end of the Cold War space race, the imperative forgovernments to progress space travel capabilities ended. However,access to space remained firmly in the control of governmentorganizations.

Yet recently, there has been renewed interest in developinglaunch systems, mainly through the participation of privateenterprises. One large contributing factor to this shift has beenthe global trend for governments with dwindling aerospace budgetsto cut costs by obtaining services through commercial contracts. In2011 the U.S. government retired the shuttle, leaving the countrytotally reliant on Russian launch capabilities to take cargo orastronauts to the InternationalSpace Station (ISS).

NASA also opened up competition, this time to private companiesto develop launch vehicles and astronaut transportationcapabilities, offering financial support and contracts to severalprivate U.S. companies including SpaceX and Orbital. The rationale was thatwithout the burdensome reporting and oversight requirements oftraditional government aerospace programs, these companies coulddeliver solutions more quickly and cheaper.

Private entities producing cheaper launch capabilities, withoutcompromising on reliability, should make space travel for themasses a lot more viable. And the evidence so far isencouraging.

In 2013, SpaceX became thefirst commercial company to design and build a rocket, the Falcon9, which was used to launch a geo-communications satellite. Thoughthe strong start afforded by NASA backing enabled them to overcomeearly launch failures, SpaceX's recent string of successes (ten ina row as of July 16) exemplifies the efficient and relativelyaffordable promise of privatizing space ventures, proving thatprivate companies can achieve what was once the sole domain ofgovernment agencies. Combined with its competitive pricing,SpaceX's increasing heritage as a credible launch operator hassecured a busy launch manifest over the coming years.

[Editor's note: SpaceX has recently comeunder fire from Colorado legislators regarding an "epidemic" ofrocket anomalies. Read more here:http://www.bizjournals.com/denver/blog/boosters_bits/2014/07/spacex-rocket-anamolies-should-be-explained-by.html]

The U.S. is not the only country to see significant change. Withthe satellite industry still a substantial growth sector—driven bygrowing demand for high content data across Asia, the Middle Eastand South America—nations such as China, Japan, Russia, Europe andIndia have been carrying out rapid development of their own launchsystems to increase their capabilities and to compete forcommercial business.

The European Space Agency,for example, is discussing ways to reorganize Europe's rocketindustry including the design of a new Ariane 6 rocket, allwith the aim of enhancing the competitiveness of its launchservices.

The lowering costs of launch (for people and for satellites,which are becoming smaller and cheaper as technology evolves) isincreasing the appeal of satellite-related businesses—from start-upcompanies to corporations like Google and Facebook, which have mademoves toward developing satellite systems to deliver broadbandInternet and imagery services.

So what impact do these changes have on insurers?

For commercial satellite operators insurance is key and isusually the third most expensive component of a space mission afterthe cost of the satellite and the launch vehicle. An operator willtypically purchase asset coverage which will cover any damage orfailure to the satellite that occurs during launch and an initialperiod in-orbit. In-orbit asset policies can be purchasedthereafter and third party liability is also available.

A positive outcome of privatization is the boost to thecommercial space market, with previously uninsured governmentmissions, such as cargo and crew delivery to the ISS, now likely tobe insured. This will bring more premium into the industry as awhole.

Yet with growth and innovation comes risk.

At the turn of the century there seemed to be an aggressive pushtoward higher power, mass and capability in the satellite industry,with new and relatively untested designs being launched in quicksuccession by many major manufacturers. This was in stark contrastto practices for several years from the mid-2000s onward, whereimprovements and upgrades tended to be small evolutions fromexisting designs with thorough testing at each stage.

Today, however, there is mounting pressure on spacecraftmanufacturers to replicate SpaceX's approach—to innovate and toreduce costs. Speed is also paramount: it currently takes aroundthree years to build and deliver a satellite, and operators canlose customers during this period.

Looking to the future, more new products and technologies willappear in the commercial markets and we will undoubtedly see rapidchange.

This will bring challenges. New spacecraft designs can oftentake four or five launches to iron out design issues and from aninsurance perspective, it is always easier to rate well-establishedvehicles. Although newer technologies are learning more rapidlyfrom what has gone before, new or unusual launches will alwayscarry higher risk.

This is a period when it is important for the insurance industryto truly understand the technical risks involved. And as anindustry we need to be providing more differentiation in the coveravailable—for the sake of own balance sheet as well as ourinsureds.