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Within the space industry, few topics are as ‘hot’ as NewSpace, and it has been that way for a while now. Originally the expression covered satellites that were ‘smaller than usual’. There were a range of names for these, such as ‘minisats’, ‘microsats’, ‘nanosats’ and ‘picosats’. In a lightbulb moment, someone saw sense, and they are now collectively known as ‘smallsats’.
It was quickly realised that the demand for smallsats was potentially big enough to provide a commercial basis for small launchers; development on these also started some years ago. Luckily, no one thought of calling them minilauncher, microlauncher or picolauncher! With the availability of small launchers able to launch small satellites on dedicated rides into dedicated orbits, missions became viable, which would have been difficult to perform earlier. Now the entire NewSpace ecosystem includes a range of services from finance to manufacturing, operating and data analysis.
However, NewSpace is much more than that. SpaceX’ Starship project and Blue’s New Glenn are certainly not ‘small’ but are attempting to do something genuinely transformative and are absolutely part of the ‘New’.
What identifies NewSpace? There are no hard and fast rules, but a couple of common aspects tend to stand out:
So, what have insurers done to assist the NewSpace community?
Probably not as much as the insurance community should do.
The key challenge often put forward is that the sums insured are low. This means that there is less premium to go around and therefore not worthwhile. This is of course hogwash. After all, it is possible to insure a mobile phone, and the smallsats are not quite as cheap as those yet. Of course, insurers need to adapt their practices when they are used to insurance values upwards of $100 million. An easy way to do that is to write each smaller risks 100% instead and adapt their underwriting to be more streamlined to stop overheads eating into the profit margins. Of course, this means having conviction and discipline. It means an intelligent set of underwriting tools and a reliable rating model, rather than following the market on bigger risks and competing on price but not on the product. That isn’t easy and a challenge but something many insurers could and certainly should do.
The second challenge is the relatively unknown technical risks. A blend of new technology, new processes, new applications, and new customers can be a heady mix and should not be taken on lightly. Having said that, the beauty of NewSpace is that there is the potential for a high-risk count. Contrary to the traditional space market, where the low-risk count is often stated as a challenge (since low-risk count leads to high volatility and therefore low return on risk-based capital), NewSpace presents a refreshing antidote. Hence, much of the technical risk can be mitigated by good tools for underwriting and rating. If these are properly implemented and attract a decent risk count, mutualisation of losses (the ‘big pool’ principle which underlies all insurance) will play its role, and a NewSpace portfolio can be as profitable but less volatile than a traditional book – even if the risks are more technically challenging.
Eagle eyed readers will have noted the third key challenge above, attracting a decent risk flow. A wise underwriter once said: “Write one challenging risk, and you are a fool. Write 100 challenging risks, and you are a hero with a strong portfolio.” Attracting those 100 risks is the key challenge. Underwriters typically wait for brokers to produce their business. Whereas many underwriters enjoy excellent relationships with their clients, contacting them directly or prospecting new clients directly tends to make the brokers none too happy.
Unfortunately, brokers are struggling more than underwriters to adapt to NewSpace. The solution to a smaller sum insured, viz. writing the risk 100%, does not help brokers who instead will need to increase brokerage from 5% to 15-20%, making them seem expensive. Ditto, the underwriting pool mitigating technical challenges is of no use to brokers who want to provide each client with excellent service. An entirely new approach to broking and distribution is required, and such a commitment is difficult – especially when the traditional space market is already lucrative.
We have no easy solution to this but are keen to work with brokers and insureds to find ways forward.
In the meantime, Aesir has been busy talking to many NewSpace actors and has developed an insurance structure which we believe addresses many of the needs for NewSpace companies and is flexible enough to be adapted to include special requirements.
Our Bifrost facility provides certainty of cover even when circumstances change. The alignment of interests baked into the structure allows the client to benefit from the expected low losses and business growth. Bifrost provides cover all along the lifetime of a project, from inception through to decommissioning and, if required, for several projects in parallel. Yes! Bifrost can include post-separation cover in-orbit. And yes! We can include cover for various time-related incidents such as missing a launch slot.
The Aesir team sees insurance as a tool to enable our clients to achieve success with their ventures. An intelligent insurance structure allows the insureds to focus on their innovation and technology development whilst we make sure that if bad things happen, they have minimal impact on the business plan.
Please get in touch with us – or ask your broker to talk to us – if you think we can help you achieve success.
Written by Morten Pahle
The Elektron launcher is a successful launcher of small satsCredit: rocketlabusa.com
An example 8U smallsat constellation from GOMSpaceCredit: gomspace.com
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