Up, Up, and Away! The Increase in Satellites and the Potential Exodus of Satellite Insurers

The number of satellites orbiting earth is estimated to increase anywhere from 20,000-100,000 in the next 10 years. While these projections, if realized, could provide exceptional technological advancements, this number of satellites comes with significant cost and an increasing amount of risk. As of May 2021, the Department of Defense was tracking more than 27,000 pieces of orbital debris, or “space junk,” and there are countless more pieces that are too small to track. While satellites are designed to avoid collisions, in-orbit collisions will become increasingly more frequent due to the overcrowding of Earth’s atmosphere.

Who pays for the damage if these collisions occur? While some governments or private entities may choose to self-insure by simply absorbing the costs of any damage that occurs to, or is caused by, a satellite, most routine launches like those to send GPS satellites into orbit will typically be covered by insurance companies. Dating back to 1965, Lloyds of London issued the first ground and liability policy to cover physical damages on pre-launch for the “Early Bird” satellite Intelsat I. Today, types of satellite insurance include pre-launch, third-party liability, launch and on-orbit.  Depending on the type of satellite and choice of coverage, this insurance can range from as little as $500,000 to more than $300 million.

However, due to these growing risks and subsequently high premiums, insurers and potential insureds are beginning to rethink this line of insurance. While there are no signs that the overcrowding of satellites in Earth’s orbit will lead to a cascade of collisions in the immediate future, some insurers have already begun limiting space-related coverage. Assure Space, a unit of AmTrust Financial, stopped providing spacecraft insurance in the Low Earth Orbit, where most satellites operate, and excludes collision coverage in the policies it has issued in recent years. Similarly, following a launch failure in 2019, Swiss Re, a major underwriter in the aviation sector, announced its exit from the space market due to “bad results of recent years and unsustainable premium rates.” In general, as of 2018, about two-thirds of launched satellites were covered by some form of insurance, but by 2021, it was estimated that just about half of new satellite launches were covered by insurance.

Currently, it is understood that the total premiums collected annually are not high enough to cover the peak insured value on the largest policies. To some extent, this disparity has not been an issue for many insureds due to the low number of claims filed. Additionally, larger insurers mitigate the risk by having non-space related lines of insurance account for the difference. However, the uncertainty around the risk and the developing space industry is something that many insurers are eager to find answers to.

In the meantime, will the number of satellites covered by insurance continue to decrease? Will insurers begin to exclude collision coverage from their policies? Will separate policies be issued for intentional acts or acts of war, as higher numbers of satellites have led to governments such as Russia and China expressing national security concerns? Will additional insurers enter the market to take on some of the risk as the space and satellite industry continues to take off? These are just a few questions that we will be keeping our eyes on in the coming years and suggest insurers do as well.