Satellite insurance is a specialized branch of aviation insurance in which, as of 2000, about 20 insurers worldwide participate directly. Others participate through reinsurance contracts with direct providers. It covers three risks: relaunching the satellite if the launch operation fails; replacing the satellite if it is destroyed, positioned in an improper orbit, or fails in orbit; and liability for damage to third parties caused by the satellite or the launch vehicle.[1]
In 1965 the first satellite insurance was placed with Lloyd's of London to cover physical damages on pre-launch for the "Early Bird" satellite Intelsat I. In 1968 coverage was arranged for pre-launch and launch perils for the Intelsat III satellite. Satellites are very complex machines which are manufactured and used by governments and a few larger companies. The budget for a typical satellite project can be in excess of billions of dollars and can run 5–10 years including the planning, manufacturing, testing, and launch.
Insurance available for satellites is divided into two sections, satellite coverage and ground risk coverage.
Satellite risk coverage is insurance against damage to the satellite itself. There are four basic types of coverage available in this section.
As many ground stations are run by large government entities such as NASA, failure on the part of the insured is rare. In cases where failure occurs due to events which are beyond the control of the insured (such as an earthquake), coverage provides for the cost of hiring premises, replacing computer systems, software backup, and other items necessary to resume operations.
When considering a rating structure for satellite insurance coverage, during the early days many insurers based their rating according to the launch vehicle. For example, if the launch vehicle being used had a one in ten failure rate, the insurance premium would be ten per cent of the gross cost. Today, insurers use statistics and computer modeling to arrive at premium rates, although data for calculations is limited. Another aspect of satellite insurance is the procedure attached to salvage. Though it is impossible to obtain monetary value from the wreckage in the event of an actual total loss or constructive total loss, many insurers rely on sharing any revenue which may be obtainable from the failed satellite with the insured.
Rules of satellite launch technology is governed by International Traffic in Arms Regulation (ITAR) in the United States. This regulation states that the details of any technology provided to insurance underwriters are subject to strict rules and are provided to selected insurers only. This is an important consideration as the structure and technology used on launch vehicles is similar to missile technology for weapons. Failure to comply with ITAR rules could result in heavy fines and imprisonment. In cases where reinsurance coverage is arranged, re-insurers who provide such coverage have to rely on very limited information.