Reinsurance Tutorials #19 - Season 2
Hi everybody 👋
Today, we will focus on two specialty lines of business: Space and Aviation. Let’s take a flight together and get an overview.
Space insurance and reinsurance are minute components on their markets. However, there is an increase in satellite launches, thanks to closer cooperation between space powers, the emergence of new players (such as India and China) and of private operators of “space tourism” or space flights.
Space activity is characterized by low frequency but high severity of claims and a high probability of disaster. This makes it difficult to apply the principles of mutualization. Therefore, space insurance requires a sharing of risk exposure through combined coinsurance and reinsurance mechanisms.
Since the launch of the first Sputnik satellite in 1957, the space insurance and reinsurance industry has become more structured and organized.
The space insurance and reinsurance industries work with insured manufacturers of launchers and satellites, satellite operators (civilian operating and marketing companies), telecommunications companies, television channels, launching agencies and also service providers and users (astronauts and ground staff).
The space insurance market generates about 700 million US dollars in premiums each year.
Let’s start! ⏬
We may distinguish between two categories of space insurance:
1. Liability insurance
Space insurance policies mainly cover liability for damages caused by satellites or launchers. Satellite operators are the insured parties. Space insurance covers damages suffered by third parties during launching and first-time-orbit operations. The operator or owner of the satellite may also take out an optional space liability policy to cover damages caused subsequently to launch.
Space product liability covers the liability of manufacturers and service providers who participate in the construction of a spacecraft when the defect in a product is the cause of property damages or bodily injuries for a spacecraft under construction.
1. Property and all risks insurance
These policies cover the failure of a satellite to deliver expected performance. The cause of this failure may be linked to:
- Political risk such as confiscation and embargo
- Commercial risk related to bankruptcy
- Delay in launching due to damage suffered by the satellite itself
- Incentive warranty pay back to cover constructors from unpaid amounts from the operator should the satellite underperform
- Tests and pre-launch coverages for losses suffered by the satellite or the launcher during the integration and testing phases. These may also cover damages during the transit period or storage period. Coverage can start from manufacturing to ignition of the launch engine.
- Property policies to cover factories and launch sites during handling and erection operations due to the specificities of installation techniques or products used that are inherent in this activity.
- Launch coverage for additional costs arising during the launch phase but also afterwards
The sum insured is the value of the satellite.
But there are also other niche coverages such as orbit insurance to cover the satellite during its orbit lifetime.
Another specialty line: Aviation, also presents several challenges.
Given the worldwide growth in air traffic and the fast-changing technology of the industry there was a growing demand for insurance and reinsurance up to 2019. However, the Covid-19 crisis of 2020-2021 has led to a decline in the number of flights with more planes now grounded than in the skies. The path to recovery remains uncertain.
According to the number of seats or tonnage, aviation insurance and reinsurance is split into:
- General or light (leisure) aviation and;
- International (airliner) fleets for public passenger transport
To be accredited to fly, aircrafts must comply with a third party and passenger’s liability insurance.
Most aircraft are covered by a property damage insurance policy, for disappearance, theft and material damage suffered by the aircraft hull.
Moreover, to complete the insurance package, transport insurance policies provide air transport professionals with effective protection against the risks of loss and damage to aircraft and goods. Transport insurers are compensated for the financial consequences of events occurring during transport, such as partial or total destruction of cargo and damages to third parties.
As for satellites, the number of accidents is low but their incidences and costs are very high. Consequently, aviation insurance also relies on a share of the risk exposure through combined coinsurance and reinsurance mechanisms.
Conclusion
Now that we’ve spoken about space and aviation, let’s talk about the sea! Laurent will now talk about Marine insurance with you in the next video.
Thanks for your attention!
Bye for now 👋
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