Coverage Issues Irk Satellite Operators

by

Satellite owners and their insurance brokers cited three areas that they said cause them problems with respect to their insurance coverage: short coverage lead times, excessive use of exclusions for certain satellite technologies and underwriters’ resistance to extending coverage to longer periods.

Several operators, particularly the smaller ones, said it would help their financing if they could confirm a coverage amount and cost a couple of years before launch, when they are still raising money. They said this would help them secure project financing at lower interest rates.

David Williams, chief executive of Avanti Communications of London, a startup operator of Ka-band broadband satellites with two spacecraft on order, said it is hard for operators to secure coverage more than 18 months before launch, a fact that makes it harder to secure financing on attractive terms.

The exclusion issue is one of the most controversial. Underwriters a decade ago paid out hundreds of millions of dollars in claims because of what were called serial defects in satellites that were not known until several of the spacecraft were in orbit.

That made the underwriters hesitant to insure new technology, and led to today’s practice of excluding any technology that has had a problem in orbit, even if a newer version is substantially different.

One insurance broker said the most flagrant example of this was when TerreStar Networks of the United States had trouble maintaining coverage of the TerreStar-1 satellite’s deployable antenna for its unfurling in orbit in mid-2009. The antenna was similar to hardware aboard the Eutelsat W2A satellite that proved defective following the spacecraft’s April 2009 launch. Following that incident, TerraStar’s insurers insisted on excluding the deployment phase of the TerraStar-1 antenna.

The debate over the length of insurance coverage is related to the exclusion issue. Simon D. Clapham, an underwriter at Liberty Syndicates in London, said multiyear policies expose underwriters to the serial-defect issue because underwriters would not be able to exclude defective hardware on satellites already covered.

Satellites typically are insured for their launch, plus one year in orbit. After that, the coverage is for one-year periods.

Already, Clapham said, a defect that manifests itself early in a one-year policy leaves underwriters vulnerable to similar failures for 11 months before they can exclude it from subsequent policies.

The desire for longer coverage periods is not limited to smaller operators with limited financial resources. Maureen Offord, vice president for insurance at SES World Skies, a division of Luxembourg-based SES, a large fleet operator, said SES is seeking multiyear policies and greater flexibility in policies with respect to excluding certain technology.

“Agreeing to multiyear in-orbit policies should be to everyone’s benefit,” Offord said. “It could help move the in-orbit [insurance] market from a commodity to one that would provide more protection.”