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Economic Observer reporter Lao Yingying On August 6, my country successfully launched the Qianfan Polar Orbit 01 satellite group using the Long March 6 modified carrier rocket at the Taiyuan Satellite Launch Center, and the satellite successfully entered the predetermined orbit. The Qianfan Polar Orbit 01 satellite group is the first batch of networking satellites of the "Qianfan Constellation" plan, known as the domestic "Starlink". The complete success of this launch mission means that my country's commercial aerospace industry has entered a stage of rapid development.

As space launches are characterized by "high value", "high risk" and "high technology", more and more rocket and satellite companies will purchase insurance for their products in advance to avoid property losses caused by risks. At the same time, insurance companies have also seen the needs of aerospace companies and launched aerospace insurance products such as rocket/satellite pre-launch insurance and rocket/satellite launch insurance.

Many people in the insurance industry said that the annual premium scale of the global space market is only between US$500 million and US$700 million, and the loss amount in 2023 will exceed US$1.2 billion. The premium scale is small and the volatility is high. Due to the high risk, high insurance amount, and high loss intensity (insurance term: refers to the scale of loss caused by a single accident), insurance companies are currently cautious about the first few launches of new models of rockets.

What is aerospace insurance?

On August 5, Xu Ying, general manager of public affairs of Galaxy Aerospace, told the Economic Observer that Galaxy Aerospace had purchased insurance for its own low-orbit broadband communications satellite.

According to the company's official website, Galaxy Aerospace successfully launched low-orbit broadband communication satellites on January 16, 2020, March 5, 2022, and July 23, 2023. Xu Ying said that she bought launch-related insurance (third-party liability insurance) for the first time in January 2020, and has been insured for every launch since then.

According to Xu Ying, space launches face the characteristics of "high value", "high risk" and "high technology". Specifically, the aerospace industry has intensive high-tech applications, the value of satellites or rockets is relatively high, and the risks are highly concentrated. A single accident may cause huge losses. In order to avoid property losses caused by risks, many aerospace companies will purchase corresponding insurance in advance.

She further pointed out that aerospace insurance needs to be purchased through insurance companies with special insurance qualifications, such as PICC Property & Casualty Insurance, Pacific Property & Casualty Insurance, Ping An Property & Casualty Insurance, or through qualified insurance brokers. Aerospace companies generally communicate with insurance companies in advance about matters such as the insured amount, premium rate, and policy terms, and pay the premium before the risk start date (the time when the insurance starts), and the policy will take effect.

Space insurance mainly includes rocket/satellite pre-launch insurance, rocket/satellite launch insurance, satellite in-orbit life insurance, launch third-party liability insurance and in-orbit third-party liability insurance.

Rocket/satellite pre-launch insurance mainly refers to the insurance coverage of the transportation risks of the carrier rocket or satellite from the manufacturer to the launch site, the storage and transshipment risks at the launch site, the testing at the technical center and launch center, the docking of satellites and rockets, the fueling and other risks caused by losses.

A person working in aerospace insurance business at an insurance brokerage company told the Economic Observer that the entire period from the transportation of rockets or satellites from the manufacturing plant to the launch site, to some preparation work at the launch site, until the rocket ignites, can be covered. Some companies think that it is relatively safe once they arrive at the launch site, so they will only purchase transportation insurance, that is, to cover the risks of transportation from the manufacturing plant to the launch site. Therefore, in the pre-launch stage, companies can choose either pre-launch insurance or only transportation insurance.

Rocket/satellite launch insurance refers to the risk of total loss or presumed total loss of the satellite and/or rocket during the rocket flight phase. Satellite in-orbit life insurance refers to the insurance for all losses caused by the satellite itself during the separation process of the rocket and the satellite, the satellite orbit transfer process, the satellite attitude adjustment and various in-orbit tests, or the satellite losing control due to the malfunction of its own system after entering orbit; it also covers the losses caused by the satellite malfunctioning due to accidents on the predetermined orbit, the inability to work normally or the partial loss of working ability, or the reduction of the satellite life due to accidents.

Third-party liability insurance refers to the insurance that covers personal injury and property damage to third parties caused by objects falling from rockets or satellites during and after the launch of satellites or rockets. The Economic Observer learned from the interview that "launch third-party liability insurance" is compulsory insurance, and the other insurance types are optional.

It is understood that most of my country's satellite launch and in-orbit insurance projects need to arrange reinsurance, forming an underwriting process of domestic co-insurance and international reinsurance involving multiple entities such as the insured, insurance brokers, co-insurers (including lead underwriters), reinsurance brokers, and reinsurers.

How to apply for insurance

The launch third-party liability insurance clauses are formulated based on the 1972 Convention on International Liability for Damage Caused by Space Objects. The liability limits can be selected from three levels: US$10 million (for small satellites), US$50 million and US$100 million (for large communications satellites or remote sensing satellites) according to different types of satellites.

The above-mentioned insurance brokerage company personnel said that the third-party liability insurance rate for mature rockets is about 0.9% to 0.1%. For example, the insured amount of a general small and medium-sized rocket is about 50 million US dollars, which is about 350 million yuan in RMB, and then multiplied by the average rate of 0.1%, the premium is about 350,000 yuan. If it is a new rocket, the rate may be higher, about 0.2%. Based on the insured amount of 50 million US dollars, the premium may reach 600,000 to 700,000 yuan. For the launch third-party liability insurance, if the rocket company has already insured, the satellite company does not need to insure. The satellite company can start buying "on-orbit third-party liability insurance" during the orbital stage, because the risk is relatively small and the price will be much cheaper.

The above-mentioned insurance broker further stated that the insured amount of "rocket launch insurance" is determined according to the value of the rocket's subject matter, which can be 10 million yuan, 20 million yuan, or even more. The insured amount for the first launch or the first few launches is generally not too large, and the premium rate is relatively high, which may reach 18% to 20%. For example, the premium required to pay for an insured amount of 10 million yuan is 1.8 million to 2 million yuan, and there are not many insurance companies that dare to insure the first and second launches. If the success rate of rocket launches has been high, the rate may drop after dozens of launches. For launch insurance, the insurance rates paid by satellite companies are basically the same as those of rocket companies.

A relevant person in charge of Ping An Property & Casualty Insurance told the Economic Observer that Ping An Property & Casualty Insurance provided customized risk protection for the first few experimental launches of new rockets. For example, the Long March 8 rocket Y2, which was the lead insured, was the second launch of this model and the first launch without a booster configuration. Ping An Property & Casualty Insurance's coverage of the second launch of a new model of rocket is a first in the domestic market.

The above-mentioned insurance brokerage company personnel said that the insured amount of "pre-launch insurance" is also determined based on the value of the subject matter (rocket or satellite). The insured amount of "satellite in-orbit life insurance" will decrease year by year according to the depreciation of the satellite. For example, a communication satellite has the highest risk in the first year of orbit, and the insured amount will be as high as several hundred million US dollars. After a few years in orbit, the risk will gradually decrease, and at the end of the satellite's life, the risk will increase accordingly. Therefore, the premium rate of satellite in-orbit life insurance will show a trend of gradually decreasing and then increasing with the life of the satellite.

Several rocket companies interviewed by the Economic Observer said that they are still in the ground testing phase and cannot take out insurance at this stage.

The relevant person in charge of Ping An Property & Casualty Insurance said that there is currently no precedent for insuring property losses of rockets or engines themselves during ground tests. Because the technical status of the rocket engine has not been fully determined during ground tests, ground engine tests (ground tests of rocket engines) and vibration tests are often aimed at finding safety limits, such as maximum engine thrust, maximum ignition duration, resonance frequency, maximum acceleration, etc., which can be understood as testing with the purpose of destruction, which does not comply with the insurance loss compensation principle. Of course, there have been recent cases of ground tests going out of control or even exploding, causing losses to factories other than rockets or third parties. Relevant insurance plans have also been discussed in the industry, but because there are too many uncontrollable factors, it is very difficult to actually implement them.

According to the Economic Observer, there are theoretically protection products during the rocket/satellite manufacturing stage, called "space product liability insurance," but aerospace companies currently have no need for insurance.

According to the above-mentioned person in charge of Ping An Property & Casualty Insurance, the basis for the existence of this product is the commercial and legal environment in which claims/recoveries can be made from rocket, satellite or parts manufacturers. For example, in the aviation field where the commercial market is highly developed, "aviation product liability insurance" is an important insurance that aircraft and parts manufacturers must purchase. However, before the emergence of commercial aerospace, my country's aerospace industry has always been developed in a "grasping the overall situation" (through centralized management and coordination, to achieve the optimal allocation of resources and the unified realization of goals). There is no commercial and legal environment for seeking compensation from upstream manufacturers, so there is no need for insurance. But with the continuous development of commercial aerospace, I believe that there will be a demand for "aerospace product liability insurance" in the future.

How to claim

The above-mentioned insurance brokerage company said that he has handled many rocket claims cases. Recently, a launch mission of a carrier rocket he handled failed and failed to send the satellite into the predetermined orbit. This is the fourth time that the launch has failed in seven times. The company's insurance coverage is more than 10 million yuan. If the launch is judged to be a complete failure, the company can claim compensation from the insurance company. Insurance companies will set some claim standards based on different launch missions, such as requiring the rocket launch to reach a certain altitude, requiring the main satellite to separate (during the launch process, the main satellite and other satellites on board will enter their own independent orbits at the predetermined time point), etc. The specific situation requires specific analysis.

The above-mentioned Ping An Property & Casualty Insurance executive said that the basic claim determination principle for satellite launch insurance and on-orbit life insurance is "the satellite has lost its use value." Any satellite is designed with "redundant backup" (redundancy in aerospace refers to improving the reliability and safety of the entire system by adding additional equipment or systems to deal with possible failures or problems). This has been a basic requirement of the industry for a long time. For example, satellites must carry at least one year of fuel redundancy, and the power reserve is generally not less than 7.5%. As long as the satellite still has redundant backup available, its use value still exists, and no claim can be made to the insurance company.

On June 25, China Satcom Group Co., Ltd. issued an announcement stating that the ChinaSat-6C satellite it operates and manages had a malfunction in the satellite thrusters, which led to increased propellant consumption and a reduction in the estimated remaining life of the satellite. The company reached an agreement with the insurance underwriter on the compensation plan and confirmed that the company could obtain an insurance claim of US$32,217,422 (approximately RMB 233 million) for the ChinaSat-6C satellite from the insurance underwriter.

The person in charge of Ping An Property & Casualty Insurance said that it is difficult to underwrite space insurance, which is specifically reflected in the high risk of rocket underwriting. Even for the most mature rockets, the launch success rate is only about 98%. For the first three launches of a new model, the loss rate exceeds 20%. The insurance coverage of a communication satellite is as high as several hundred million US dollars. If there is a problem during the launch phase, it is basically a total loss.

The above-mentioned insurance brokerage company personnel revealed that compared with the technology of national satellite research and development, the technology of commercial satellites is more complicated, and there are fewer standardized products, so the insurance risk is higher. In recent years, the phenomenon of problems with satellites in orbit has gradually increased. In the future, as the risks in orbit increase, the rates will gradually increase.

According to the above-mentioned person in charge of Ping An Property & Casualty Insurance, the annual premium scale of the global aerospace market is only US$500 million to US$700 million, and the loss amount in 2023 will exceed US$1.2 billion. Such a small market size results in limited underwriting capacity. In theory, the underwriting capacity of domestic aerospace insurance is only about US$100 million. Basically, all projects need to be reinsured to overseas markets in large proportions. At the same time, due to the large losses in the overseas market in recent years, the underwriting capacity has shrunk significantly, and the price has increased indiscriminately, with an increase of about 100%, making domestic reinsurance more difficult and the cost has increased significantly.

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Lao Yingying, Director of Economic Observer

Director of Guangzhou News Department
Focus on reports on South China's financial institutions, capital markets and major news events in the region.