Satellite insurance is the insurance purchased by companies to protect against the failure of satellites launched into space. The costs of satellites and the rockets that launch them are extremely high, so companies and institutions dealing in space exploration need some sort of protection. As an industry, satellite insurance has become more prevalent as more companies from around the world get involved with launches. In some cases, however, it is difficult for actuaries, who determine the amount of risk involved with insurance policies, to judge satellite launches, because there are still too few launches for accurate risk assessments to be made.
It is nearly impossible to envision the modern world without satellites. Their capabilities play a large part in the fact that the world is such an interconnected society in terms of communication, and they also factor in space exploration, earth studies, and weather prediction. But they also come with large price tags, meaning that satellite companies run a great financial risk every time they launch them. For that reason, satellite insurance has become an essential part of the satellite phenomenon.
One of the most important concerns that an insurance company has when determining whether or not to give out satellite insurance is the huge cost of replacing a satellite. An insurance company has to be concerned with its own bottom line, which means that it must receive premium payments that compensate for the risk involved. Any type of space travel carries enormous risks, so the possibility of a satellite company cashing in on a policy is relatively high.
Actuaries are employed by insurance companies to assess the risk attached to each policy, and that risk helps determine the rates that are charged for the policies. In the case of satellite insurance, actuaries have to set a rate that covers the insurance company for huge potential losses. It is also common for insurance companies to set a maximum amount a company can receive for a lost satellite. If this amount falls short of the cost to replace the satellite, the satellite company must decide whether it is worth the cost of the policy.
Another facet of satellite insurance that causes difficulties for actuaries is that they rarely have much information to study when trying to determine the relative safety of a particular launch. With space travel becoming an international pastime, more and more companies are springing up with the idea of sending up satellites for various purposes. These new companies may have a hard time getting competitive insurance rates simply because the risk levels are too unknown for the insurers.