Insurance coverage on the final frontier

As last week's 40th anniversary of the moon landing focused attention on the future of manned space flight, observers said early providers of space tourism would face expensive pricing for property and liability cover and possibly scarce capacity.

The advent of private companies routinely taking paying passengers into orbit to visit space stations, or even to experience weightlessness on a suborbital flight, likely is at least several years from reality.

Vienna, Va.-based Space Adventures Ltd. has sent six passengers into space since 2001, reportedly for $20 million or more per seat. Virgin Galactic, a division of Virgin Group Ltd., has sold 300 tickets for not-yet-scheduled suborbital flights, and a handful of other companies have planned suborbital flights.

Virgin Galactic says it could begin its flights in 2011, although the short history of the space tourism industry is beset with delays and setbacks. Still, the Federal Aviation Administration, which regulates private space flight in the United States, says space tourism could generate $1 billion in annual revenue by 2021.

Brokers and other observers said it is difficult to speculate on the insurance market for private space flight because the space tourism industry is not yet a reality, but some said they believe the initial ventures would have difficulty buying cover for the risk.

“I imagine at first what you're probably going to see is a limited amount of insurance capacity to purchase on an asset and liability basis,” said Jeffrey Poliseno, chief executive officer of International Space Brokers Inc., a Rosslyn, Va.-based division of Aon Risk Services. “You'll have a few (underwriters) in the beginning willing to take on more risk (on space tourism) than others, but they'll price accordingly.”

One aerospace underwriter agreed, saying the history of private companies attempting to launch satellites suggests insurers could expect space tourism to produce at least one loss in its early stages.

“There are going to be very few markets willing to write that business,” the underwriter said. “You're talking about people being placed on top of vehicles that are going to fail...It's a very volatile area.”

Mr. Poliseno said space tourism presents a risk too different from satellite launches to compare the two. But he said he thought space tourism underwriters would want to see extensive test flights and demonstrations of reliability before putting capital at risk.

“In the beginning, it's going to be difficult for insurers to quantify what they're insuring—to quantify the risk,” Mr. Poliseno said. “As you get a larger sample of flights and a reliability record and it's proven to be consistent and reliable, you'll find some support from the insurance market. But it'll take some time to get there...It's a prove-it-to-me market.”

He and others said they think insurers would treat space tourism as aviation risks more than space risks, which to date have involved mostly satellites.

“It could become more of an aviation-related risk rather than a launch risk,” said Mark Quinn, a Bethesda, Md.-based senior vp at Willis Inspace, a specialist space division of Willis Group Holdings Ltd. “A lot of the space tourism companies are talking about doing multiple flights a week—flying a lot more frequently than any of the (satellite) launch providers do.”

Observers say the space insurance market focuses mostly on property cover with some third-party liability cover written by aviation underwriters. Mr. Poliseno said one of the major hurdles in getting underwriters to cover private-sector space flight, based on discussions he has heard, would be liability for the deaths of passengers, who—at least initially—are likely to be extremely wealthy. He said it would be important to have consistent legislation across all 50 states—seven of which have operational spaceports, with many more proposed—on this issue.

“That's going to be the real challenge because the assumption of liability is going to be enormous,” he said. “These are obviously very expensive assets carrying very high-net-worth individuals.”

Mr. Quinn said for satellites, the launch licenses granted by the FAA have liability insurance requirements and he expects space tourism flights to work the same way. He said satellite companies and launch providers must carry third-party liability insurance to cover the maximum probable loss, up to $500 million, but he said typically they need $150 million to $200 million or less. Mr. Quinn said he thought space tourism providers likely would need the same level of liability protection.

He speculated the market would have $500 million in property and liability capacity for any single space tourism risk. He said there likely would be adequate capacity to write reasonably priced cover because private space flight companies and insurers are communicating as projects develop.

“I think it could be relatively affordable from the start, and it should be because all these ventures are either using heritage technology that has—if not actual flight success—some substantial test heritage which will validate its flight performance,” he said. “And I think everybody does a very good job of keeping each other informed... Insurers are very clear about what they're going to need to see for them to be able to provide a valuable insurance product.”

Mr. Poliseno agreed demonstrated reliability would attract insurers to the market and bring pricing down.

“This opens up a whole new potential revenue stream for insurers,” he said. “Ultimately, when space tourism becomes routine, they are going to be very large supporters of it.”