Analysis: 2018: A space policy

Spaceman

  • The UK wants to build a spaceport, possibly in Scotland, and require companies to obtain third-party liability insurance to launch satellites from there
  • Many countries request that operators purchase insurance up to a pre-agreed value and provide a government back-stop beyond this value
  • Start-ups launching small satellites at low cost will be less attractive to insurers than established players

The UK is contemplating liability options as it wants to allow satellite launches from its soil.

In March, the Space Industry Act became law, paving the way for companies to launch small satellites and scientific experiments from UK soil. The government is now seeking evidence to shape future policy on insurance for commercial spaceflight.

At the time the Bill was passed, Transport Minister Jo Johnson said that the Bill will put the UK “at the forefront of the new space race”, and help the country to compete as “the destination of choice for satellite companies worldwide”.

“Having a spaceport in the UK could be a great asset for the country,” says Pascal Lecointe, space underwriter at Hiscox. “A passion for space already exists here and, from an insurance point of view, this will create new opportunities for UK insurers and Lloyd’s participants, some of whom are already at the forefront of this class of insurance.”

State of the market

According to the latest figures, available in the December 2016 report The Size & Health of the UK Space Industry, the total income of the UK space industry grew to £13.7bn in 2014/15. Broadcasting generated more than half of that income, followed by communications, and navigation.

Less than 14% of income came from the public sector, compared to the global average of 24%. The UK industry is thus commercially-focused, with sales to consumers and businesses accounting respectively for 54% and 32% of its income.

This industry has developed despite the fact that there has never been a satellite launched from UK soil.

Denis Bensoussan, head of space at Beazley, says: “The plan with the new regulation is to provide the legal and contractual framework to allow a spaceport to be built in the UK.

“There are various suggested locations, one of them being in Scotland. The plan is to use that spaceport to launch UK operated and made launch vehicles, but also foreign launch vehicles. It’s a fairly open framework at the moment and the idea is to spur the development of a domestic launch industry.

“There are various candidates at the moment, and they’re all in the fairly early stages of development, so it’s not going to happen tomorrow. But there are at least two or three companies that are serious in that goal and they have good funding.

“There is a good probability that in the next five years there will be commercial launches occurring from British territory.”

“A launching State shall be absolutely liable to pay compensation for damage caused by its space object on the surface of the earth or to aircraft in flight.”

“A State which suffers damage, or whose natural or juridical persons suffer damage, may present to a launching State a claim for compensation for such damage.”

Source: Convention on International Liability for Damage Caused by Space Objects (1972)

Government proposals

The UK is aiming to increase its global share of the space sector from 6.5% to 10% by the year 2030, estimating a £10bn boon to the economy over the next decade as a result.

Dr Graham Turnock, CEO of the UK Space Agency, says: “The Space Industry Bill guarantees the sky is not the limit for future generations of engineers, entrepreneurs and scientists.

“We will set out how we plan to accelerate the development of the first commercial launch services from the UK, and realise the full potential of this enabling legislation over the coming months.”

Science Minister Sam Gyimah says: “Through the government’s industrial strategy, we are working with the sector to pursue pioneering commercial space opportunities, including developing new technologies, infrastructure and services.

“This will open up the UK to new frontiers, transforming the way we live, and establishing us as a spaceflight leader.”

Bensoussan adds: “It’s a huge development. At the moment, there is no spaceport at all on continental Europe. The European spaceport is in French Guiana, because it is close to the equator, which means it is more efficient to launch a satellite in geostationary orbit.

“But the UK wants to build a spaceport to target the small, emerging satellite industry where you don’t need to go to geostationary, you go into low orbit, so the latitude doesn’t matter so much.

“In the UK today, the satellite manufacturing industry is much more developed than the launch industry. There are already a few satellite companies as of today in the UK.”

Insurance ecosystem

Insurers believe that the risk environment surrounding the emerging industry will help spur the UK’s already established space insurance market.

In the wake of the Space Industry Act gaining Royal Ascent, the government is now calling for evidence to help form the future policy on the liabilities, insurance and charging arrangements for commercial spaceflight.

In the call for evidence, the government states that launch vehicle operators engaging in launch from the UK would be required to obtain and maintain third-party liability insurance.

In order to calculate the amount required, the government is considering using a ‘maximum probable loss” assessment to determine the insurance amount, a method that is used in both the US and Australia.

Lecointe explains: “In terms of the types of cover for the launch operator, there could be two parts to this: liability insurance and asset insurance.

“On the liability side, under international conventions, the launching states are ultimately liable for any third-party damage triggered by a faulty launch.

“Many governments have adopted a form of private/public partnership by requesting that operators purchase insurance up to a pre-agreed value and providing a government back-stop beyond this value.

“We don’t yet know if this structure would also be adopted by the UK, but any government looking to attract launch operators is likely to consider it. From a taxpayer point of view though, transferring part of this risk to the commercial market may be more palatable.

“On the asset side of things, this cover is typically offered to customers as an optional coverage. This insurance would be to cover the flight phase, which for these small satellites has exhibited an average 10% failure rate. It could also be extended to the initial operation and test of the satellites once in orbit.

“Insurers already provide these to operators all over the world and would welcome additional players in this field. Rocket heritage and reliability will be key differentiators.

“The number of small satellites launched has been limited by the availability of launchers, so a new spaceport with one or several launch providers would increase the possibility to secure a launch slot, facilitating the growth of this economy and, for insurers, widening the sample of risks being insured.”

Bensoussan agrees: “The insurance ecosystem will grow around it. As insurers, our lifeblood is large commercial satellites and that’s always been the main basis of our business. There has been a lot of growth in the past 10 years, but in the past two or three years we’ve observed a reduction in this growth.

“We’re talking about a reduced number of large satellites being launched every year, which has reduced our volume of business. At the same time, we’ve seen this emerging industry of small satellite start-ups developing new approaches and this is somewhat bringing growth back into the market.

“For us, it’s interesting to see diversification, it brings additional volume. At the same time, we have to be extremely careful, because yes, these guys are coming up with fresh ideas, but they are fairly inexperienced in the aerospace world, and everyone knows it’s a very harsh industry with a very high barrier to entry.”

However, Atrium space underwriter David Wade is not certain that a UK launch site will have a material impact on the UK space insurance sector.

“There is a strong interest in developing a UK launch site,” he says. “There’s every need for third-party liability insurance in case you drop the rocket on somebody or hit something. I’m not a big fan of launching from the UK, I’m not entirely sure that it adds much but, if we have a UK operator, maybe there’s a chance to get some more business through the third-party liability angle.

“But I don’t think we’re going to see frequent launches. It will be an odd launch here and there. There is so much competition worldwide I’m not positive it’s going to add that much.

“We’re very good at attracting small satellite sector to the UK. It will help attract more, but I don’t think that will necessarily float down to the insurance market.”

In addition, Wade is sceptical that a launch site will attract significant interest from satellite companies. “There is a political angle in having that launch site and launch capability, but quite frankly if you go and buy a cheap launch off the Indian Space Research Organisation, whether or not you take your satellite via lorry from Guildford to the North of Scotland or via plane to India, it’s not a major part of the cost.

“So it’s nice to fly the flag but I don’t think it’s going to add much to the UK plc.”  

Space infographic

Potential pitfalls

Space insurance is generally low frequency claims but high severity in nature. For example, when Space X’s Falcon 9 exploded on a launch pad and destroyed an Amos 6 satellite in 2016, the claim payout totalled $196m (£158m).

Bensoussan worries that emerging UK satellite and spaceport companies aiming for a low-cost approach may be far less attractive to insurers than established players.

“A low-cost approach may not be the right thing from a reliability point of view, and we can only stay profitable if satellites are reliable,” he says.

“Established players like Airbus or Boeing or Lockheed Martin, their number is somewhat reducing in the last couple of years, but we know the product, we know the risk profile, and they have a good heritage, whereas the newcomers don’t have the same risk approach.

“So we have every reason to be very excited, because they’re generating new blood within the industry, but at the same time we should be extremely cautious because it is not the same risk. It is more exposed from an insurance point of view.

“We should encourage and enable it, but not by using the same capacity that we’re deploying for a large satellite, where it’s a known quantity. We have to be able to adapt the coverage and the pricing.”

As a result of the potential pitfalls, Bensoussan believes that established players in the insurance market are best placed to take advantage of the emerging industry.

“In order to write this new breed, you need to have an established book you can rely on, and basically dedicate a small part of your capacity to this emerging business,” he says.

“That’s probably the right way to do it. If you don’t do that and you only write the most risky business because that’s the only thing you can do in the short term, you’re exposing yourself a lot. For example, if you only take the very high-risk, low-value, high-frequency risks.

“Space is generally low frequency high severity so, if you do that, you’re definitely changing the profile and the nature of the risk you’re writing.”

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