Editor's note: Sima Adhya is head of space, Torus

As the future of space travel shifts from government to private enterprise, the role of the commercial space market for insurance is growing.

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

Early space exploration was driven by governments, politically posturing and competing for the technological edge against the backdrop of Cold War. These technological developments were not designed with efficiency and repeatability in mind. They were costly and unsustainable.

Since the end of the Cold War space race, the imperative for governments to progress space travel capabilities ended. However, access to space remained firmly in the control of government organizations.

Yet recently, there has been renewed interest in developing launch systems, mainly through the participation of private enterprises. One large contributing factor to this shift has been the global trend for governments with dwindling aerospace budgets to cut costs by obtaining services through commercial contracts. In 2011 the U.S. government retired the shuttle, leaving the country totally reliant on Russian launch capabilities to take cargo or astronauts to the International Space Station (ISS).

NASA also opened up competition, this time to private companies to develop launch vehicles and astronaut transportation capabilities, offering financial support and contracts to several private U.S. companies including SpaceX and Orbital. The rationale was that without the burdensome reporting and oversight requirements of traditional government aerospace programs, these companies could deliver solutions more quickly and cheaper.

Private entities producing cheaper launch capabilities, without compromising on reliability, should make space travel for the masses a lot more viable. And the evidence so far is encouraging.

In 2013, SpaceX became the first commercial company to design and build a rocket, the Falcon 9, which was used to launch a geo-communications satellite. Though the strong start afforded by NASA backing enabled them to overcome early launch failures, SpaceX's recent string of successes (ten in a row as of July 16) exemplifies the efficient and relatively affordable promise of privatizing space ventures, proving that private companies can achieve what was once the sole domain of government agencies. Combined with its competitive pricing, SpaceX's increasing heritage as a credible launch operator has secured a busy launch manifest over the coming years.

[Editor's note: SpaceX has recently come under fire from Colorado legislators regarding an "epidemic" of rocket 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. With the satellite industry still a substantial growth sector—driven by growing demand for high content data across Asia, the Middle East and South America—nations such as China, Japan, Russia, Europe and India have been carrying out rapid development of their own launch systems to increase their capabilities and to compete for commercial business.

The European Space Agency, for example, is discussing ways to reorganize Europe's rocket industry including the design of a new Ariane 6 rocket, all with the aim of enhancing the competitiveness of its launch services.

The lowering costs of launch (for people and for satellites, which are becoming smaller and cheaper as technology evolves) is increasing the appeal of satellite-related businesses—from start-up companies to corporations like Google and Facebook, which have made moves toward developing satellite systems to deliver broadband Internet and imagery services.

So what impact do these changes have on insurers?

For commercial satellite operators insurance is key and is usually the third most expensive component of a space mission after the cost of the satellite and the launch vehicle. An operator will typically purchase asset coverage which will cover any damage or failure to the satellite that occurs during launch and an initial period in-orbit. In-orbit asset policies can be purchased thereafter and third party liability is also available.

A positive outcome of privatization is the boost to the commercial space market, with previously uninsured government missions, such as cargo and crew delivery to the ISS, now likely to be insured. This will bring more premium into the industry as a whole.

Yet with growth and innovation comes risk.

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

Today, however, there is mounting pressure on spacecraft manufacturers to replicate SpaceX's approach—to innovate and to reduce costs. Speed is also paramount: it currently takes around three years to build and deliver a satellite, and operators can lose customers during this period.

Looking to the future, more new products and technologies will appear in the commercial markets and we will undoubtedly see rapid change.

This will bring challenges. New spacecraft designs can often take four or five launches to iron out design issues and from an insurance perspective, it is always easier to rate well-established vehicles. Although newer technologies are learning more rapidly from what has gone before, new or unusual launches will always carry higher risk.

This is a period when it is important for the insurance industry to truly understand the technical risks involved. And as an industry we need to be providing more differentiation in the cover available—for the sake of own balance sheet as well as our insureds.

Special Reports /

The final frontier: How privatization is changing the need for space insurance

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