Debating the Merits of Total Constructive Loss

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The debate among insurers over whether “constructive total loss” provisions should be allowed only when a satellite is totally lost or severely crippled has not ended, underwriters said.

The debate revolves around a simple question: If a satellite loses 50 percent of its function, should insurers pay a claim for a 100 percent loss? By doing so, they could take ownership of the satellite and in theory operate it on their own or sell it to some other operators. But underwriters are nearly unanimous in expressing their aversion to this. They also do not have satellite operating licenses.

Christian Riedl, senior space underwriter at Munich Re, a company with a long history in insuring satellites, said that while he would prefer to see the definition of constructive total loss, or CTL, approach 100 percent of a satellite’s capacity, his company remains open to operators who wish to be covered for a total loss when much of the satellite remains functional.

“We would be open to any CTL point as long as there is an explanation behind it,” Riedl said. “We still have 50 percent CTL points. But it needs an explanation.”

Jeff Poliseno, chief executive of space broker Aon ISB, said getting rid of CTLs and insuring only for the percentage of a satellite that is lost “is a nice idea, but the fact is that each satellite operator has his own priorities.”