Space Insurance – the key to a sustainable space environment?
Market Insight 05 February 2024 05 February 2024
UK & Europe
Aviation & Aerospace
The congestion of outer space near-earth orbits* is now an acknowledged threat to both future access to space, the space economy, and to our current way of life. Humanity has become heavily dependent on reliable satellite connectivity, and orbital congestion and debris have an undeniable impact on the life expectancy of satellites currently in orbit and future launches. The continued use of near-earth orbits without good faith efforts to do so in a sustainable manner will render these orbits unusable in the not-too-distant future. In this article, we briefly examine the UK Government’s latest attempts to address issues of sustainability via space insurance.
*Mainly Low and Medium earth orbit with some Geostationary orbits.
It is reported that the first space insurance policy was written in 1965 in respect of Intelsat 1 (Early Bird)1 satellite. The risk was written to cover third party ground risks and it is noteworthy that this policy was incepted some four years before the first man walked on the moon and two years before the Outer Space Treaty was agreed - demonstrating that space insurers have always had to be ahead of the curve. Space insurance generally available in the market is set out broadly into four categories namely: pre-launch, launch, in-orbit, and third-party. Third-party cover is mandated by some States before they issue launch licenses as a means for the State to mitigate its international liability, as we set out further below.
What is Space Sustainability?
The United Nations Committee on the Peaceful Uses of Outer Space (“UNCOPUOS”) 2019 Guidelines for the Long-Term Sustainability of Outer Space Activities define space sustainability as: ‘the ability to maintain the conduct of space activities indefinitely into the future in a manner that realises the objectives of equitable access to the benefits of the exploration and use of outer space for peaceful purposes, in order to meet the needs of the present generations while preserving the outer space environment for future generations.’
Space sustainability is therefore critical to ensuring the life-expectancy of satellites and also mitigating the risk of loss of spacecraft. In recent years, within the context of the wider climate agenda and in light of the increasing interest in space activities, space sustainability has become a critical topic discussed in both international and domestic forums. Regulators, private companies, and insurers alike are progressively considering what steps can be taken to safeguard the present and future space economy. The UK Government has further underscored the importance of space sustainability in its National Space Strategy as released in September 2021.
Current UK space insurance landscape
The current UK legal regime, as it relates to launch licensing, mandates that launching parties obtain third-party liability insurance in a sum stipulated by the State. In the event of any claims, the State will call on that insurance cover to insulate itself from and against any third-party liability claims. The rationale behind this requirement stems from the fact that the UK is a party to the 1972 Liability Convention which stipulates (in Articles II and III) that States are responsible for third-party damage arising from the space activities undertaken by their nationals and this is the case even if the activity is carried out by a national in a third jurisdiction.
In line with its international treaty obligations, the UK includes an insurance component within its two main space laws:
- the Outer Space Act 1986 (“OSA”), which applies in respect of activities carried out by UK entities overseas (including the operation of a satellite in orbit from an overseas facility by a UK entity); and
- the Space Industry Act 2018 (“SIA”), which is intended to regulate and enable launches to take place from UK territory.
Both legal regimes reference the requirement for those seeking launch licenses to obtain third-party liability insurance2 with limits set by the Civil Aviation Authority (“CAA”) as the responsible authority in the UK for orbital operations occurring overseas in line with the OSA as well as those occurring from UK territory under the SIA. The UK calculates launch insurance requirements and limits using what it calls a “Modelled Insurance Requirement” (“MIR”).
UK insurance requirements are specific to each launch licence and are assessed by the CAA based on the likely risks of a proposed launch mission. A “standard mission” is considered to involve a single satellite utilising a recognised and proven launch service provider, platforms, and operational practices. The CAA assesses the level of third-party risk for this type of launch as low and expects proof of coverage in the amount of EUR 60 million before a licence will be issued.3 It usually characterises “high-risk” launches as having novel and/or unproven techniques and/or technologies. These missions would usually require that the licensee obtain coverage in excess of the EUR 60 million requirement. At present the CAA does not appear to factor in issues of sustainability into its insurance requirements, although it does in its licensing conditions. The US Federal Communications Commission (“FCC”) likewise considers sustainability (to some extent) in its licensing process, as evidenced by the fine issued to a satellite operator in 2023 for failing to put a defunct satellite into a graveyard orbit in a timely manner as required by their licence.
UK Space Agency Proposal - changes in the Space Insurance regime to promote sustainability
In 2023, the UK Space Agency (“UKSA”) commenced a consultation on “Orbital Liabilities, Insurance, Charging and Space Sustainability”.4 The UKSA – as part of the UK Government – recognises that “space is a critical resource to support activity on Earth” and was therefore seeking consultation on ways to ensure future space sustainability. In line with the UNCOPUOS definition set out above it has proposed a “Space Sustainability Roadmap to 2050” which will set out detailed and measurable deliverables to achieve sustainability goals.
Variable Insurance limits
One of the many proposals set out in the UKSA consultation paper is to reconsider the mandatory EUR 60 million limit to include a sustainability quotient, aiming to promote sustainable space practices by dispensing with the mandatory insurance minimum if the mission is deemed ‘sustainable’. The consultation recognises however, that although the required insured sum may vary (and be reduced) from current levels, there is no requirement on the part of insurers to reduce the premium charged.5 Features of a space activity sufficient to reduce the insurance amount include evidence that the satellite is designed to be manoeuvrable to avoid collisions with third party objects in space, whether the proposed satellite has enhanced trackability, what the end of life plans to mitigate it becoming space debris are, whether the satellite interferes with dark and quiet skies. Some of these points are likely more relevant to the licencing of satellite constellations than the licencing of a single satellite.
The UKSA proposal relating to variable liability limits seeks to balance the need for space sustainability with adequate insurance coverage in respect of potential third-party damage. To date, most space insurance losses have not been as a result of in-orbit collisions, but with more satellites entering already congested orbits the chances of collision are steadily increasing.
However, it is also clear that most of the sustainability features mentioned in the consultation relate to novel technologies. This may in effect mean that underwriters cannot gain any real comfort that risks are in fact being mitigated – although those same features should reduce the loss of satellites and spacecraft in outer space.
Practically speaking, although the move to a sustainable space environment needs to progress at speed, it is unclear whether underwriters will be able to reflect these changes from a risk and premium perspective for some time yet.
The consultation closed on 5 January 2024. It is not yet known what submissions have been made, and it will undoubtedly be interesting to see what the industry has to say on the matter. Whilst the UKSA variable insurance proposal might be a notable step towards safeguarding space sustainability, other measures must occur in parallel as they have a crucial role to play, such as the provision of reliable space situational awareness data and stronger government incentives. Only a holistic approach towards space sustainability can ensure the continuance of a thriving and safe space economy for generations to come.
1On 6 April 1965, NASA launched first commercial communications satellite into Geosynchronous orbit and it was active until 1969.
2The OSA stipulates in Article 5 (2)(f) that “a licence may contain conditions requiring the licensee to insure himself against liability incurred in respect of damage or loss suffered by third parties in the UK or elsewhere as a result of the activities authorised by the licence”. Similarly, Article 38 (1) of the SIA states that “regulations may require licence holders and other persons engaged in spaceflight activities to be insured in respect of prescribed risks and liabilities.”
3Note that current limits are set in euros, although the UK Government has decided to now change this to sterling.
511.4 Variable liability limit: The approach which has been applied is theoretical. Since any reduction in liability limit would reduce the amount of insurance purchased, insurers and brokers may seek to keep their premium income at a higher level by not passing on the full theoretical reductions to operators that the UK Government has calculated for this analysis. The analysis also assumes that insurance companies currently charge premiums that reflect the actual risks of orbital missions.