SATELLITE INSURANCE SAID TO BE DRYING UP
Cost of satellite launch insurance has risen and in some cases companies may be unable to secure it because of impact on aviation industry of terrorist attacks, industry and insurance executives say. Some companies such as EchoStar are turning to self-insurance, spokeswoman said. Terrorist attacks, including recent explosion of fertilizer plant in Toulouse, France, coupled with “increasing number of launch failures” and problems of Loral and Boeing rockets, have insurance companies “taking closer look” at policies for satellite industry, official said.
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U.S. satellite insurance broker admitted rates “were going up,” but said it was part of “cycle.” He said rates “tend to go up and down over time” depending upon how much money companies were making. “It has nothing to do with terrorist attacks.” Broker said he expected premiums in aviation industry to rise and for many companies to “flock to that segment” of market, which in turn could lower rates.
Arianespace U.S. Pres. Clay Mowry told us rising cost of insurance was “major issue confronting industry right now.” He said “pool” for satellite insurance was “the same general pool of general underwriting for aviation industry aircraft.” Problem is not only cost, but availability, Mowry said: “It’s still too early to say what the state of the market is, but with the terrorist attacks, it’s an area people are going to be looking at closely to see if there is enough coverage for launches.” He said anomalies of launches also had “impacted” premium rates.
It’s not unusual for satellite operators to insure single launch for up to $400 million, with most opting for policies in $300 million range. Getting that much insurance is “going to be a difficult chore,” said official at AGF of Paris: “Some companies are going to have trouble finding coverage at reasonable rates simply because of supply and demand.” Mowry said insurance rates in 1990s had dropped considerably, with premiums priced as low as 8-10% of total value of satellite and launch. Now Mowry expects figure to reach up to 20%, meaning that on $300 million launch, policy could cost as much as $60 million. One local satellite broker disagreed with 20% estimate. “That’s a little high,” he said. Self-insurance is option only for “large companies with lots of money” or those “willing to take major risks,” Mowry said.
Satellite insurance problems are “issue that just came up,” following attacks, Aerospace Industries Assn. Space Policy Dir. Bruce Mahone said: “Insurance companies are really concerned about capacity.” He said “the entire industry is in flux” and had to “sort things out.” He called situation “short-term crunch” but didn’t “anticipate any real major problems” because satellites had shown themselves to be invaluable tool. Attacks on U.S. showed “vulnerability of terrestrial systems,” Mahone said, predicting govt. and others would become “increasingly dependent on satellite systems so you would see more launches and more satellites.” Insurance companies, he said, would follow suit.
Heavy launch vehicles that carry multiple satellites might prove to be “most troublesome,” AGF official said. “Finding enough underwriters” willing to take on that kind of risk “might be problematic,” he said. Satellite operators also would have to shop cautiously, AGF official said: “You want to make sure the companies you sign up with are going to be around following your launch just in case you need them to pay a claim.” Industry is likely to end up with “fewer but stronger” insurance carriers because of high costs involved, he said.
Right now “satellites aren’t a priority,” said Marham Space Consortium spokesman: “It’s not advisable for anyone to come into the market for satellite and launch insurance at this time.” Another satellite insurer agreed: “Some smaller underwriters will likely disappear from the market. Coverage is available, but it’s more expensive now than it would have been before September 11.” None of insurance officials was willing to discuss prices for competitive reasons.
Air transport insurers expect to lose tens of billions of dollars in claims because of terrorist attacks, causing premiums to rise dramatically. Carriers are focusing attention now on providing coverage in that area because of potentially higher profits. Underwriters typically consider space insurance to be part of air transport segment. Insurance for launch and operations of satellites will become more difficult to obtain as companies gear resources toward civil aviation insurance market where they can obtain more revenue quickly as airline companies scramble to get coverage, officials said.
Companies were beginning to reduce commitments to space industry before Sept. 11 attacks, industry sources said. Years of high claims transformed once high-yield space market into one of “lowest producing” aviation segments with lower margins to justify risk. For instance, Sea Launch and Arianespace have lost spacecraft aboard rockets this year. While insurers would place up to $1.2 billion in reserve fund to pay for space claims in 1990s, figure has decreased steadily, with coverage available this year below $1 billion, sources said. Some underwriters have “quit doing space insurance and others have gone out of business,” space executive said.