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Munich RE, visionnary on space insurance policies

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Forty years after man first set foot on the moon, the aerospace industry with its highly ambitious goals faces risks that are extremely difficult to calculate. Munich Re’s highly sophisticated space insurance policies provide security for the visionary sector of commercial space flight in which technical innovation and professional risk management are key factors.

In the mid-1960s, a few years even before astronauts Neil Armstrong and Edwin Aldrin set foot on the moon on 20 July 1969, the commercialisation of space travel had already started. In contrast to state-subsidised projects such as the Apollo 11 mission, the private sector was unable to cover failure risks in its space programmes, and so there was urgent need for insurance protection. Parallel to the development of space technology, a highly specialised space insurance market emerged. Now the technology has come a very long way — and it is expensive: “Satellites cost in the region of US$ 250–300m. As a rule, several satellites are needed to build up satellite communications systems. Investment costs are therefore mostly over a billion US dollars,” explained Ernst Steilen, an aerospace expert at Munich Re.

Even financially sound companies are hardly able to take on such a major economic challenge without insurance cover: “There is always the risk of a high total loss in an extremely inaccessible environment. While minor technical glitches can be easily and quickly sorted out on earth, in orbit they can to the loss of the satellite and thus to the whole investment.”

In 1968, Munich Re concluded the first launch insurance covering five commercial Intelsat III launches — with one launch failure being contained in the deductible. In the beginning, Munich Re’s space insurances were written by the Aviation Department, but in the early 1980s a dedicated unit was set up. Since then, its highly respected aerospace experts assess these risks from every conceivable angle; calculating premiums requires extensive experience, an inquisitive mind, powers of imagination and a willingness to embrace visionary projects and undertakings.
Tailored solutions for a highly specialised class of business

“Aerospace is all about thinking the unthinkable. Conditions in space can only be simulated to a limited degree, everything has to function the first time, and every eventuality legislated for — with our insurance solutions, we have to do more than merely keep pace”, said Steilen by way of explaining Munich Re’s approach. In close cooperation with clients, we devise customised insurance solutions that offer them value and future-proof security. “With a share of 15–20% in global premium volume, we are the recognised market leader and the first port of call for clients seeking innovative and custom-tailored solutions.”

Major risks can crop up well ahead of the launch. For that reason, space insurance is divided into three main areas reflecting the various phases involved, from preparation and launch to operation of the satellite in orbit: pre-launch, launch, and in-orbit insurance. Pre-launch insurance covers risks that can arise in the pre-launch phase, i.e. transportation of the satellites and the launch vehicles from the manufacturer’s premises to the launch site, assembly of the satellite and rockets, and in particular fuelling the satellite and launch vehicles with highly explosive rocket propellants. Damage incurred in this phase can jeopardise the whole mission.

Launch insurance is a natural extension of the pre-launch insurance. It covers damage or losses during the actual launch phase, manoeuvring the satellite into its final orbit position and during the subsequent extensive series of satellite tests. The risk of a total loss is very much to the fore in launch insurance. In-orbit insurance covers the partial or total loss of a satellite during the operational phase; coverage of the satellite is renegotiated on a yearly basis. Within the various insurance policy periods, different aspects have to be taken into account such as the book value of the satellite, the costs of repeating the launch sequence following aborted launches, loss of revenue, as well as liability and business interruption losses.
Innovation risk as an opportunity

As a result of new technological solutions regarding launch vehicles as well as new satellite technologies, far-reaching risks arise that are difficult to anticipate and go far beyond the boundaries of traditional property insurance. In Ernst Steilen’s view, this is precisely where Munich Re is perfectly positioned: “High total losses, constant technical advances and failure-prone prototypes – these are the challenges space insurance sector always faces. While investor security is increasingly important to our clients, the pressure is also on to become even faster and more successful. For that reason we develop far-sighted solutions designed to secure the success and continuing existence of the whole aerospace industry.”

In the next ten to 20 years, the aerospace industry will set its sights on expanding and improving existing applications such as communications and navigation systems as well as weather and raw materials research. “Space tourism could also play an increasing role provided a sufficient number of reliable launch vehicles can be developed”, added Steilen. Should this vision actually come about, a new era will dawn for the insurance industry: just like 40 years ago.

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