Nearshore Americas

Insurance Premiums are Being Hit Hard by Space Debris

The vast expanse of space, once thought to be an infinite and untouched frontier, is now cluttered with a growing menace: space debris. 

As humanity’s presence in space expands, so does the risks associated with orbiting fragments of defunct satellites, spent rocket stages and other discarded space objects. This surge in space debris poses unique challenges for the aerospace industry, particularly in the realm of insurance. 

There is an intricate relationship between space debris and aerospace insurance; a relationship which profoundly impacts this crucial sector.

Bracing for impact

Space debris –ranging from minuscule paint flecks to sizable derelict satellites– poses a significant threat to operational spacecraft. 

The risk of collisions and subsequent damage has escalated as the number of satellites in orbit has surged, driven by the boom in satellite constellations for communication, Earth observation and other purposes. 

As per a recent estimate, more than 30,000 pieces of trackable space debris are orbiting the Earth. It is projected that, over the next decade, more than 12,000 satellite launches will be taking place each year.  

A direct hit on insurance premiums

Aerospace insurance broadly covers three stages: liftoff, placement of the satellites into orbit and the lifespan of the satellite. Disasters and failures during liftoff are well known to everyone. However, what is relatively lesser known is the failure of placing satellites in their designated orbits.

On a broad level, there are three types of orbits: high Earth orbit, medium Earth orbit and low Earth orbit. Each has its own purpose and offers various perspectives through the feeds they send back. Most weather and communications satellites tend to have a high Earth orbit (above 35,000km from Earth’s surface). Navigation and speciality satellites, designed to monitor a particular region, are typically placed in a mid Earth orbit (25,000 km-35,000 km from Earth’s surface). Most scientific satellites have a low Earth orbit (180 km-2,000 km from Earth’s surface). 

Though the gap between orbits might look wide, one should consider the speed at which a satellite needs to travel to remain geostationary in each orbit or to keep revolving around the Earth. The combination of both (height and speed) is what makes the exact placement of satellites in orbit so critical. 

If –for whatever reason– placement is inaccurate from launch, fuel stored within the satellites is consumed to move it towards its intended spot. This severely limits the lifespan of the satellite and its value delivery, an aspect covered by insurance also.

The escalating threat of space debris has increased the threat factor in the placement and lifespan of the satellites in an unforeseen way. This has forced insurance providers to reassess their risk models and pricing strategies. 

As the likelihood of collisions increases, so does the potential for insurance claims. Insurers are compelled to adjust premiums to accommodate the heightened risk associated with space missions. The risk assessment becomes more complex as the volume of space debris grows, demanding a delicate balancing act for insurers to remain financially viable while providing coverage for their clients.

Evolving policies

The space insurance industry is witnessing a paradigm shift in the design and implementation of policies. Traditional policies may no longer suffice in the face of the evolving space debris landscape. 

Insurers are now incorporating clauses specific to space debris mitigation measures, collision avoidance protocols and end-of-life disposal plans. The most common measure adopted is to allow the satellites to re-enter the stratosphere and burn down before crashing on Earth. However, with increasing satellite density of varying sizes, compliance and adherence to such measures are a little fuzzy. 

The shift in focus of disposal requires both insurers and policyholders to stay abreast of evolving international guidelines and best practices to ensure comprehensive coverage in an era dominated by space debris concerns.

A tech advantage

Advancements in technology offer a silver lining amid the challenges posed by space debris. 

Insurance companies are increasingly relying on satellite tracking systems, collision prediction algorithms and real-time monitoring to assess and mitigate risks. 

Such technological interventions not only enhance risk management, but also empower insurers to provide more accurate and tailored coverage, aligning with the dynamic nature of space activities.

International collaboration

Space debris is a global concern that transcends national boundaries. International collaboration is crucial to address the challenges posed by space debris, and this extends to the realm of insurance. 

The harmonization of regulations, sharing of data and collaborative efforts to establish standardized practices are essential components to ensure the long-term sustainability of space activities and insurance coverage.

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The impacts of space debris on aerospace insurance are profound, ushering in a new era of challenges and opportunities. As the aerospace industry navigates the complexities of an increasingly crowded orbital environment, insurance providers play a pivotal role in shaping risk mitigation strategies. 

The ongoing evolution of policies, integration of cutting-edge technologies and international collaboration are key elements in safeguarding the future of space exploration and the insurance industry that supports it.

Sourav Ghosh

Sourav advises organizations on their operations strategy, assists in improving profitability, efficiency of business processes and in executing business transformation through calibration of operating model and technology. In his current role, Sourav oversees Digital Solution Design and Delivery across a number of industries: banking, insurance, healthcare, retail and telecom.

Pinaki Ray

Pinaki is responsible for leading the digital transformation practice for the Healthcare, Insurance and Life Sciences Vertical globally. Prior to this, he managed digital transformation consulting and delivery for large marquee clients across North America, EMEA, UK and APAC for multiple large global companies. Pinaki is a Fellow of Insurance Institute of India with nearly two decades of experience in business and enterprise technology transformation advisory, consulting and delivery.

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