Main Engine Cut Off - T+229: Space Insurance (with Richard Parker and John Farnsworth)

Episode Date: September 13, 2022

Richard Parker, Head of Space at Canopius, and John Farnsworth, insurance broker and space advocate, join me to talk about the (seemingly) most mysterious topic in spaceflight: insurance!This episode of Main Engine Cut Off is brought to you by 42 executive producers—Simon, Kris, Pat, Matt, Jorge, Ryan, Donald, Lee, Chris, Warren, Bob, Russell, Moritz, Joel, Jan, David, Joonas, Robb, Tim Dodd (the Everyday Astronaut!), Frank, Julian and Lars from Agile Space, Matt, The Astrogators at SEE, Chris, Aegis Trade Law, Fred, Hemant, Dawn Aerospace, Andrew, Harrison, Benjamin, SmallSpark Space Systems, Schultzy, and seven anonymous—and 835 other supporters.TopicsCanopius global specialty (re)insuranceMeasat gives up on drifting satellite in a blow for insurers - SpaceNewsInsurance claim for failed Measat-3 satellite in dispute - SpaceNewsThe Space Review: Boldly insure where no one has goneOneWeb takes $229 million charge for canceled Soyuz launches - SpaceNewsStarlink’s head of India resigns as SpaceX refunds preorders - SpaceNewsThe ShowLike the show? Support the show!Email your thoughts, comments, and questions to [e-mail] @WeHaveMECOListen to MECO HeadlinesJoin the Off-Nominal DiscordSubscribe on Apple Podcasts, Overcast, Pocket Casts, Spotify, Google Play, Stitcher, TuneIn or elsewhereSubscribe to the Main Engine Cut Off NewsletterMusic by Max JustusArtwork photo by NASA/Joel Kowsky

Hello and welcome to Main Engine Cutoff. I am Anthony Colangelo and I'm excited about this one today. We got a really cool conversation because there is a single topic that I have had a really hard time getting any information about. that I have had a really hard time getting any information about, and that is space insurance. That means the launch insurance, satellite coverage, there's a whole bunch of different categories that we'll talk about in the show. But it's really hard to figure this stuff out because it's made to be mysterious by way of companies and those on the insuring side and the insured

don't really put out their terms as openly as you would think. So it's hard to get a sense for what kind of coverage there is, what it covers exactly, how the claims work, how much it costs in particular dollar amounts. So I've been trying to find people to talk about this with for a long time. And as you'll hear us discuss, John here, John Farnsworth emailed me and connected me with Richard Parker, who is an insurer at Canopias. John Farnsworth works in the insurance industry as well and is also just a huge space advocate. So we started chatting about this and realized this would be the perfect combo of people to talk about this topic.

So we're going to dive deep into the topic and get very specific because, again, like I said, you can really just find generalities. You don't get a lot of specific data, but Richard really unpacks it all with what he does. He's the head of space at Canopius, so he works with this every single day. And it was very enlightening to talk with him about exactly how all the ins and outs of space insurance work. So I just want to apologize to them, too, that we had this a couple of weeks ago, but then Artemis one happened. And then I got sick as I talked about on the show recently. So, um, it's been waiting in the hopper a little bit, but, um, glad that's finally getting out. And I think it's a really cool conversation.

So if you are similarly flummoxed by space insurance, if you're someone like me on the outside of these deals and you don't have a lot of visibility in, I think this will demystify a lot and help understand that side of the industry more because, you know, there's a lot of sections of space that are huge business that we just don't hear about a lot or don't think about a lot. But it makes the whole thing work. So this is one of them. And I'm very happy to have had these two on. So I hope you enjoy the conversation. Richard and John, we are here. I finally found some people that want to talk to me about insurance after a very long search. I forget who emailed me first, but one of you two rolled up in my inbox. It was like, we're the ones that you've been looking for all this time. So it's good to

finally have you on here. Yeah, I have been listening to the podcast for many months and I am a big fan and I'm honored to be here. So it really cool so yeah excellent let's do it and i think john you're the one that had uh made the connection here i forget exactly how this all went down yeah i did and richard and i did a couple of other um uh seminars uh webinars and um they went really well and so that was for insurance professionals and then some students and it was outstanding. We got good reviews. And so we said, and yeah, Richard had mentioned your podcast and I'm now, I'm a big fan. In fact, I'm going to be a member soon. I've been listening to you all the time. So looking forward to this. Awesome. Let's start with, with both of you and your background

so that people have a lay of the land for why you two are here talking. So John, since you were the one talking there a second ago, can you just give us a little background on you and your relation to this topic overall? Well, I'm a fan of, you know, I'm a serious space enthusiast. I used to live out in Southern California. I'm now in upstate New York. But I've been following space all my life. I was born in 1964. So I grew up with all of this.

And I've just been a serious enthusiast. I'm an advocate with the Planetary Society. I've been to JPL several times, took courses out in Pasadena. So I'm just all space. And I happen to be an insurance professional. So meeting Richard was a real joy and learning about what he does. And hopefully I'll be doing it someday, you know. But that's where I'm at. Yeah, and Richard, how about on your side of things?

How did you, were you in the space industry first and found your way to insurance? Or was it the other way around? How did that work? Yeah, yeah, that way around. Yeah, so I've been in the space industry for about 30 plus years. I got a really early start straight from school. I'm originally from the UK. I'm living in California at the moment. But in the UK, I left school and got an apprenticeship with what was British Aerospace Systems in Stevenage in the UK and is now Airbus. So I was fortunate enough to start, you know, moving around the departments and studying electrical, electronic engineering. And then went off to university, came back from university, worked on several spacecraft. I did about 14 years in all of what is Airbus now. And I was fortunate enough to work on two spacecraft for Intelsat.

And then Intelsat offered me a job in Washington, D.C. So I came over to the U.S. about 22 years ago, working for Intelsat, buying launch vehicles, buying satellites, and then, yeah, really didn't know anything about insurance at all. And actually, I still don't really know that much about insurance. I know about space insurance, but the rest of the insurance world, I'm, you know, I'm as confused as everyone else.

But yeah, ended up working for AXA. We had a space insurance operation in Maryland, worked with them for many years. And then I left, started my own space MGA, Managing General Agency. So we were writing space insurance for about 10 years, teamed up with Canopius. We were writing on behalf of Canopius. Canopius is a London Lloyds insurer. And then at the end of last year, we sort of merged essentially the capacity,

the funds that AssureSpace had, we merged that over to Canopius. And now I'm a proper Lloyds underwriter at Canopius, which is super cool. In fact, we are, we are the largest space insurer at Lloyd's at the moment. So yeah, it's really, that's my background. Now there's, I want to start with some high level stuff. Cause as you mentioned, uh, if, if you say you don't know anything about insurance and the rest of us are going to be really be lost

in this conversation, especially when it comes to space insurance. The thing that I, a reason I was trying to find people like you to come on is because it's almost an impenetrable topic when you're reading space media or you know trying to dig into any of these launch agreements i mean number one like launch agreements are barely talked about in terms of money or terms or anything like that and then when you get second level we get on the insurance agreements you can almost never find any details of that and And you occasionally hear stuff come out about, oh, this year is really bad for the launch insurers. They're losing money because of all these failures that have happened. There's been geostats that have failed over the last several years. And you kind of just hear

these vagaries around, is insurance doing good or bad? And you don't really know what context that's in. So let's start at what kinds of space insurance there are what those things cover absolutely and what the general framework is for space missions well i mean it's interesting the reason what the space insurance is a bit of a back box is because it is so specialized i mean it's a it's the coolest insurance ever i trust me but um but it is it's very limited. There are not that many markets. You know, when we talk about insurance companies,

there are four or five in the US only. The bulk of the insurance capacity tends to be in Europe. In total, there's probably about 20, 25, maybe 30 insurers, but they're all varying expertise, varying capacity. Some of them are market leaders. Some of them are, you know, less so. But and the other reason why you don't tend to think about insurance. I mean, if you're working as a satellite manufacturer, you're building a spacecraft, you don't provide any sort of warranty on that spacecraft. You can't fix it once it's launched. You can't offer a refund if it breaks because the financial impact, you only sell, you know, even the biggest

satellite manufacturers might sell four, five, six spacecraft a year. So you can't offer someone a replacement or a refund. You can't fix it. So basically, from the satellite manufacturer's perspective, you say, I'm going to build your spacecraft. It's going to take me three years to build a large geo, a year to design it and order the parts, a year to build it and test it, and another year for delays. But you deliver it on the ground at the launch site, and you tell the satellite operator who's bought the spacecraft, go buy insurance, because there's really not much they can do after launch.

And it's exactly the same with the launch service provider. They don't sell you the rocket. They sell you a launch service. They sell you a ride into space. If they fail, if the launch vehicle fails, they don't offer you a reflight. They don't offer you money back. They say go buy insurance. So we in the insurance community have this wonderful situation where reputational risk for the satellite manufacturer and the launch service provider is everything to

them. Their ability to sell the next rocket, the next satellite is based on their past performance. And we as insurance get to come along and say, yeah, okay, we'll insure that. We won't insure it. You know, and most of the time we don't have any issues. I mean, we have space insurance, quite volatile line of insurance. We can go months with no anomalies no launch failures we could be having a fantastic year and then right at the end of that year we can have a a major loss you know um touchwood this year's looking pretty good so far but you know we can have something go wrong and you'll see it in the news whether it's a vega launch with falcon eye that was a major launch major loss for the market a couple of years ago or sirius xm you know losing a spacecraft like that and and we can and we can

lose everything overnight so yeah so those are the two big segments. It's spacecraft focus and then the launch itself. Are those really the two big tentpoles? Yeah, they are. So, you know, essentially when we talk about space insurance, what we are talking about is first-party insurance. So we're not talking about third-party liability. We're talking about the value of the spacecraft at the time of launch. So it includes the cost of the launch service and the cost of the satellite.

But that's what we do. And what we basically say is we cover everything on an agreed value basis. So you tell us, the satellite operator tells us, hey, my satellite and the launch service at launch sitting on the pad, I need $300 million of insurance. And we will basically provide an all risks coverage, we won't, you know, if there's any problem during the launch, with the spacecraft after separation, deployments, orbit raising, checkout, IoT, the operation of that spacecraft in space for the first year any problem at all whether that's a you know workmanship issue a design issue a chronomass ejection a micrometeorite hit anything at all because insurers can't go and

inspect the hardware we will generally pay that loss. I mean, many of our launch losses, you can watch them on YouTube. So there isn't really a question of, you know, is this claim payable or not? But occasionally, you know, we'll get some very complicated partial loss claims, where the spacecraft is having an anomaly in orbit, and we need to decide, you know, what's the impact of that anomaly? Yeah. But basically, one of those going on right now, right? I don't know if it's something that you were involved with um failing me now i just read an article in space news the other day about uh a satellite that they thought was going to be paid out for its insurance that now they're quibbling over exactly how much it should be paid out for

i think that was miasat 3 with the3 with the fuel issue that it had. I read that in Space News. So I'm not involved in that one, actually. Yeah, you're right. This was just a couple of days ago as we're talking. I'll put a link in the show notes for that. Yeah, but that's exactly it. I mean, those situations when you have a non-orbit loss,

there's always interpretation. You know, it's the total loss situations from a claim standpoint are normally much easier to deal with. When it's a partial loss, it is quite challenging. And you do need to, you know, we can get quite into the weeds of the satellite design and the operation, particularly enough that we're talking to the operator and we're saying to them, you know, are there ways to mitigate the loss? Are there ways to operate the spacecraft that are, you know, not as optimal, but reduce the claim? So, you know, it can be quite challenging in that regard.

I was going to say, so in basic insurance form, you know, the insurance form terms, there's no exclusions with agreed value, and there's typically no claims adjusted. We do exclude war, terrorism, and most recently cyber, but that's about it. Nothing else, really. Now, there's like a million ways to go here, but to bring up a high-profile example, AMO-6 was the satellite that was sitting on a falcon 9 they were

yes now i'm forgetting i think it was in the static fire they were they were going ahead and yes i guess a fast fire if you want to use the one term for the explosion that definitely happened rapid rapid whatever you call it yeah again foggy memory but i feel like they did not get an insurance payout for that because it was not part of the launch campaign it was it was i guess ground transport sort of been covered by different insurance altogether so when does that handoff maybe all that was wrong and you can correct me on it and if not no yeah it's the handoff or the moment at which your insurance packages take over how does that work out yeah so we so as a space insurers we very much try and stay in our lane we're not trying to you know as i i know i work for canopius we're a specialty insurer and we provide lots of specialty

insurance so one of those insurances we do is you know cargo marine so typically for spacecraft launch vehicle that's still on the ground that's been you know shipped to the launch site processed fueled static fire test was included in that but everything on that side of the equation is still pre-launch cargo where the space insurers generally come online is depending on the rocket whether you've got solids or liquid engines but but we either come on at intentional ignition, so sending off the command to intentionally light the engines for the purposes of launch. That's pretty much the definition. Or we come on at liftoff. So if we come on at intentional ignition, there is a potential for the engines to shut back down. So you could send the command, you light the engines, they come up to thrust, they gimbal.

If there's an issue, they can be shut down again. We will then stay on risk until the pad is safe. But basically we come back off risk and, you know, there's typically no claim. There's, you know, we get to do it all over again, typically 24 hours later. typically 24 hours later. If it's liftoff, then, you know, if you've got a solid engine on your launch vehicle and you like that engine, then typically attachment of risk, the start of the insurance is going to be liftoff

because you're going whether you have a problem or not. There's no more negotiation of that one. That's it, you're done. So yeah, those are the two flavors. But basically, yeah, we come on at the moment that things start going upward. Let's talk about cost and hopefully we can get into some specifics. Not that you have to name specific examples, but just, you know, make up some dollar figures.

So you're talking about the way that this is priced. Maybe we can go into that a little more about how it's combined of spacecraft value plus launch service value. Sure. And then how does the cost break down associated to that whole package? value? Sure. And then how does the cost break down associated to that whole package? Yeah. So one important thing to know is that generally, my core business is a large geospace craft launching on a heavy lift launcher called Falcon 9 and Atlas and Ariane 5. And typically that spacecraft is going to be built one of the big Western manufacturers, Lockheed, is going to be built one of the big Western manufacturers,

you know, Lockheed, Airbus, Thales, Boeing, et cetera. Our business is worldwide. I mean, we do actually cover, you know, Chinese, Indian, Israeli. You know, we'll cover, we will definitely cover, you know, business across the globe. In fact, we were covering the Russian market until quite recently, and we've had to, you had to cancel all of those policies. But we were quite a bit of business on the Soyuz, out of Russia and some of their spacecraft as well.

I think OneWeb's now looking into piracy insurance is probably something they need to get signed on to. They've got a couple of satellites stuck over there still. Yeah, I think they're still there. I believe they are still in Kazakhstan. Last I heard, I spoke to someone last week about them. Last I heard, the spacecraft are in an environmentally controlled environment and they are being remotely monitored.

So, yeah, I don't know what their future is. It's not good, but we'll see. But they're insured. I mean, they are insured on that pre-launch coverage so i mean ultimately that could end up as an insurance claim on the pre-launch for them anyway sorry on the cost we digress but yeah so synd so syndicated placement so typically so if if that large geo satellite is worth know, say it's worth $150 to $200 million, and then you've got, you know, Falcon 9 at $60 million. So you're looking for $250 to $300 million of insurance.

That is always placed by a broker. So as an insurer, I don't deal directly with the client. I meet the client, we do technical information. They'll tell us about the design of the spacecraft, the heritage, the redundancy, the mission, the mission, some of the margins they've got, the propellant margin, the electrical power, et cetera. But ultimately, the insurance is going to be placed by a broker because it's syndicated. So that $300 million of insurance, they'll go to a specialized space insurance broker who will help them define the risk, work with all the insurers. And then all the insurers, basically, we will quote our prices in sort of like a reverse eBay auction. So you need $300 million of insurance. The entire market will get briefed

and broked by one broker. We'll all be told the same information. We'll go through, obviously, NDAs, non-disclosure agreements. That's another reason why you can't find out about space insurance. But we'll agree that everything we hear is subject to non-disclosure. Then we'll get all the technical information. We'll do a Q&A. We'll look at the policy wording because we're all going to agree, in theory, the same policy. And then we'll start pricing up our shares. So at Canopias, you know, if we see something that we particularly like, you know, we see something, you know, a Boeing, a Lockheed Airbus, etc. on a Falcon Atlas Ariane, we're going to quote, I would say rates today for launch plus one. I would say, rates today for launch plus one.

So that is the launch followed by separation, orbit raising, and then operation in space for a year. You're probably looking at between 5% and 7% typically for something like that at the moment. It does depend on how complex the spacecraft is and whether there's any new first flight items and the mission, etc. But essentially, we will offer that rate. And we will offer our capacity. So we'll say, okay, just a theoretical number, we'll say, okay, we'll do 6%. And we'll offer you $20 million. So we want as premium, 6% of $20 million. And so the broker

will record that offer, they will then ask everyone in the market and my competitors might say, okay, we'll do 10 million, but we'll do it at 5% or we'll do 30 million and we'll do it at 7%. And what the broker will start doing is filling up that $300 million of capacity with the cheapest capacity, you know, with the lowest rates, because in theory, he's only working with insurers that he wants to work with. He only works with insurers that have adequate security and are favorable. They have a relationship with that broker and the client. But basically, they'll start filling up that $300 million. Now, there'll be maybe best and final offers.

There'll be some negotiation. We might want some changes in the policy wording. We might want to change the margins or the redundancy, we might even want some exclusions, you know, if we see something that we particularly, you know, have issue with. And then but basically, the broker will get to the point where he's got his 300 million, anyone who's outside of that, you know, their price is too high to fall in that 300 million, they won't get an order. And those insurers that are within that 300 million will get their order for that insurance. And then, you know, we've all agreed in theory, the same policy. And so what the client ends up with what the satellite operator ends up with,

he ends up with basically one policy. It's got 25 different insurers signed up to it. And he's got and he knows how much premium he needs to pay he needs to pay all those individual uh quotes to pay that for that insurance but typically you know your composite rate today is going to be you know five to seven percent of that 300 million dollars so you're looking sort of 15 to 20 million dollars of insurance for a large year yeah for the broker world we call that building a tower right yes the policy that's really layers of like a force. Yeah, we don't actually have any layers. We generally all go flat. So we all have such big egos, these space insurers,

and we all believe that we all should decide our own fates. So we don't generally have layers and following markets, etc. We generally all believe that we should agree every single change. We should agree every claim ourselves. And we never want to be part of any group settlement or following market. So you're talking about in the case where you're talking about there, when you would maybe want an exclusion on that deal you would basically have to clear that with the rest

of the insurers and that would be a policy level thing rather than the agreement between a particular insurer on that policy? Yeah so you don't see a lot of exclusions on launch plus one coverage so the launch plus one that one year of coverage because the spacecraft's pristine, it's on the ground, you know, it's been built to spec, and any areas that it doesn't meet the spec, because you do get that occasionally, you know, particularly on, you know, payload performance. Well, those issues will have been waived by the client. So basically, you end up with a pristine spacecraft. Where we do sometimes see exclusions is after that one year. So after that launch plus one, the satellite operator then comes back and we sell them our other product. So we really only have two products. We have launch plus one, which we can break off the launch piece only if you want,

and we can break off the plus one. But basically, most people buy the launch plus one. Then after that one year, they come back and they buy one year of on-orbit coverage. So they say spacecraft's been up there for a year, and they give us a health report on the spacecraft. So we get a decent health report. It tells us what redundant systems are available, what propellants are available, and it lists any anomalies. So a lot of the anomalies that we see,

you know, expected, they're manageable, it's part of the redundancy, or they, you know, can be corrected, or, you know, but occasionally, we'll see something where what we term in the industry a single point failure, where we have a single point failure that if this other component or, or system were to fail, and we've typically already had one or more failures in that area already, then we may say, you know, we're not in the business of, you know, providing insurance on something that we think is going to happen in the next year. So we may say we want an exclusion. So you may say, you know, it could be momentum well exclusion, could be a thruster exclusion, could be some sort of battery cell exclusion. But it's generally a component where there are

other redundant systems, but they have started to fail. It could be a generic issue. You know, we don't see that very often. You know, we generally see single point, you know, single one-off failures, but we could have an exclusion. Now, we can't go and agree that with the other insurers. We just have to tell the broker, you know, this is what we believe is appropriate. And then the broker basically has to gauge. And sometimes the broker will tell us, you know, the rest of the market doesn't want that exclusion. So therefore, you have to decide, are you going to insist on your exclusion or are you not going to be on this placement? So that's a fairly common common that's common for us john you mentioned that um this kind of like stacking

of multiple policies is something that exists outside the world of space as well um i'm curious if you can give us some examples of of parallels to non-space uh industries that would that would maybe help us because i don't think a lot of people think about insurance that way they think like i've seen a million geico ads i'm going to go get you know car insurance or home insurance or something it's not like i need to go shop 10 times for home insurance um maybe i just don't have a big enough house for that but maybe you can give us some examples of where else that exists yeah in, in the in construction, anything that's going to be a really high value, whether it's a building or a cotton complex, maybe I don't know if you could come up with a

product other than space. But anything that's super high value insurance is about spreading the risk. So insurance companies, you know, a lot of them aren't willing to take on that much value because if it's a catastrophic loss, then it's going to be a big hit to their reserves. So most of the insurance world, other than space and some other markets, are highly regulated by the states in the U.S. and in other countries. I'm not sure how it's regulated. But in the U.S., the states, you know, acquire reserves to handle a large part of what they're writing.

So companies would share the risk where a broker would talk to a handful of companies or more to, like he said, take, you know, a million here, 10 million there, 100 million, whatever, and build that policy to satisfy the client. probably a better question for Richard of maybe specific examples, but there have been some insurance claims that weren't, you know, the launch failed and we need an insurance claim for the whole amount that we've insured. It could be an on-orbit failure five, 10 years into the lifespan where it's like a partial claim. How does that payout get spread around the insurers? Is it pretty much evenly split along whatever the original agreements were? How does that shake out? Yes. Yeah.

So total is easy, right? Total is an agreed value. It's not like your car insurance where, you know, you've totaled your car and you never told the insurance company the value of your car. You just said, hey, you know, I've got a Prius. It's now, I don't have a Prius. It's been stolen. It's been totaled.

And then they offer you a measly sum and you have to negotiate. We don't do any of that. We agree the value up front. So if it's a total loss and the insurance policy says the agreed sum insured is that $300 million and there's a total loss and we can all watch it on YouTube, we'll still take an awful long time trying to get to the bottom of the you know find out the root cause for the anomaly regardless of whether it's a spacecraft anomaly or a launch vehicle anomaly because we really we really want to make sure that it's part of our due diligence we really want to make sure that we understand what caused the anomaly to make sure it doesn't happen again so that we can you know we we typically have other ongoing launches. You know, if it's a launch vehicle, normally it's not so critical because you tend to find that that launch vehicle then gets grounded. They, you know, they're going to do their own investigation

and they're going to find the root cause or root causes and they're going to correct them and carry on launching, you know, weeks or months later. But for a satellite, you you know satellites share a lot of components across the industry and so you know if we have a spacecraft anomaly we really want to know what caused the anomaly you know what what was it exactly was it a design issue was it workmanship was it operator error etc so that we can then you know go to our other you know other clients that we're insuring and say to them, hey, are you flying this component?

Are you aware of this? You know, so that increases the knowledge. If it's a partial and we're only paying, you know, there's a proportional degradation of the satellite's performance, because really that's how we measure it. We measure a partial as an impact to the performance. So if the spacecraft loses some redundancy, that generally doesn't affect the ultimate performance. If you can still use a spacecraft, whether it's, you know, communication, point-to-point, broadband, radio, et cetera,

or Earth observation or GPS, whatever, you know, if you've lost some redundancy, you generally haven't lost the mission or even the mission's not even degraded in any way. Once that degradation starts or can be forecast to start because you know even though we're only providing one year of coverage that one year of coverage covers the future performance of the satellite so if in my if in the one year that i'm covering the spacecraft we have a fuel leak the spacecraft is potentially still able to operate normally for the next five years.

But after that, it might start losing life because of that fuel leak. So we calculate out whether it's a propellant loss, power loss, whatever it is, payload issue. We calculate out your actual versus expected. So you're expected to get a certain level of performance. Your actual performance is going to be less. We simply calculate the ratio of that loss. We agree and say, hey, it's a 20% loss. And then all insurers are going to pay 20% of whatever the sum insured was. So it just gets proportionally split across the insurers per their exposure. I want to talk about some future things here and probably two flavors. Some future things that are sort of happening now

that are more in Richards Ballpark and then future stuff that hasn't happened yet I think is closer to what John's focused on. On the things that are happening now, I'm curious how the advent of like Northrop Grumman's mission extension vehicle, the servicing vehicles that are talked about as coming soon, life extension, taking over attitude control. Do you think those services will have any impact on the insurance market overall in

terms of, you know, obviously it's not really up to you as to what these companies that are your clients choose to take advantage of in the market but um you might have to insure vehicles that are being life extended um and i don't know exactly how that would shake out on the insurance front because you have you know a north up grumman vehicle there but you also have your client's vehicle yeah in fact it's already i mean mev north up grumman's mission extension vehicle that's already had an impact on the insurance market you know it's a it's almost a win-win for us whether it's a mission extension or debris I mean, MEV, Northrop Grumman's Mission Extension Vehicle, that's already had an impact on the insurance market. You know, it's almost a win-win for us,

whether it's a mission extension or debris removal or anything that anyone wants to do in space typically creates a new opportunity for insurance for us. You know, so, you know, the MEVs, like almost every commercial spacecraft NGO. They buy insurance just like everybody else. They're no different. It's a spacecraft.

The MEV itself is a spacecraft. The future design of the MEV is a spacecraft. So, yeah, they actively talk to the insurers and they buy insurance like anybody else. And then for the customers that they are supporting, yeah, they're still there. They're still producing revenue. They're still servicing customers on the ground.

They still have an intrinsic value. And, you know, that's another opportunity for us to continue the insurance. So when I hear about areas where, you know where life extension, I guess, is one and debris is another to a certain extent, I just think of it as, oh, great, this is wonderful. More people are going to go to space. I love it. Let's ensure them. Are there tactical moments when the policies have to, maybe they become invalidated or have to get changed out like i'm thinking if if you're intel set and you had you know a year or two remaining on an

insurance policy on one of these vehicles that is now being extended um do you have to get a new policy when that mev takes over or when it because you're in some of these cases it's like you know hooking on to the the nozzle or even on some of the other things that are envisioned it would actually like puncture part of the fuel tank. So there's problematic moments there, right? When they're initially docking. But I don't know, does your insurance cover that? And then a new policy would take over in the extension phase?

How does that shake out? Yeah, it's tricky. It's tricky. There's definitely things to think about there. This is quite a difficult topic for me because there is only MEV at the moment. Yeah, it's happened twice. Please tell me everything about it. Yeah, so everything I say, you're just going to say, oh, well, that's what they did on MEV,

which I don't want to give that level of information. But yes, yeah, there's all of the above. There's definitely the asset, 901, 1002, the two intelsat birds that are currently being serviced that's public domain information you've got the two mevs the two two assets you have the the risk that the mevs can damage the intelsat spacecraft that's another risk i mean insurers are here to to take that risk um you know so yeah all of the above uh is something that the market can do for them so yeah we hope to see you know more and more of these opportunities going forward um i guess you know that i guess the downside is ultimately you know if if there aren't new spacecraft being launched brand new 300 $300 million geocomsats being launched, that could damage our business.

You know, we don't have a huge volume. You know, this is not the type of insurance where I am quoting 10 times a week. I tend to quote, you know, a couple of times a month. And those placements can take me several months. you know, a couple of times a month. And those placements can take me several months, you know, my entire book of insurance is probably, you know, 30 launches a year, and then another 50 or 60 satellites on orbit, you know, so you know, if we lost, if we lost 10% of new satellite orders, as a result of mission extension, lost 10% of new satellite orders as a result of mission extension, that would be quite painful.

I mean, there are other areas where I would say, okay, so we're going to cover the on-orbit servicing vehicles. Some of them are going to do some debris. We do more cargo to the space station at the moment. When the new space stations come on board, come live, that's quite interesting. New space stations come on board, come live. That's quite interesting. Human spaceflight, we've done a little bit of human spaceflight. Again, it's not something space insurers typically do because we don't generally provide life, accident, health insurance. But what we can do is we can provide coverage to the mission, to the vehicle, which is essentially the same thing.

So we've provided coverage on some of the Dragon manned missions where we're not really insuring the people, but we're insuring the Dragon. But if there's no Dragon, there's no people. So that's another area of growth. John, let's talk about some other future things that are coming online. You were nodding ferociously at the idea of commercial space stations. I sense that that would be an area where there's, you know, a lot of what we've been talking about, launch vehicles and satellites, communication satellites is what the space industry has looked like since the 70s, you know, so there haven't been fundamental changes to those typical operations, but things are going to look a lot different in 10 years if there's commercial space stations online

with governmental and private astronauts flying there. We've already seen some private missions to orbit. What are these areas that you're looking at from the non-space insurance angle that might change how that market is? And maybe it's your hook to get over into the space industry side of this. I hope so, yeah. Well, certainly construction of space stations, construction on the moon, construction in space,

that's an emerging market. And Richard and I agree, this is why space insurance is so exciting because insurance has been stagnant as it is for a long time. And this is totally emerging along the way. So I know Richard's company and other companies are trying to figure it out as commercial entities were getting into space and building these things and launching. So there'll be emerging types of risks that we really can't even think about that'll come along. I've seen talk about the space stations having labs and offices and tourism and all these

exciting things, and those are going to be exposures that we're not really dealing with right now. We don't see people buying insurance for that, but they will be. They'll be forced to, really. There'll be forced to really. There'll be, you know, facilities that need to house equipment and keep that equipment safe. And so there'll be lots of other third party liability exposures that will come to rise, which is, it's there now but I don't think there's a lot of um insurance that's being sold as third-party liability because and richard talked about this before one of the meetings we were on about um

how some of the third-party exposure is um not right to suit i think that's right richard yeah absolutely right so uh you know i'm looking forward to um you know it's it's essentially just like commercial property insurance it's just in space so the exposures are different um you know and the materials are different uh but it's still going to be similar in that sense but um to get insurance companies to sort of get out of their comfort zone is hard to do. But that's one of the things that brokers like me get good at. How do you see it when you're going to have to take these two sensibilities of insurance markets and jam them together? I don't know if many of the space insurers have done property insurance,

and I don't know if many of the property insurers have done space insurance, but pretty soon Blue Origin is going to be knocking on somebody's door and and asking about this kind of thing so like who who's going to be in the lead there where are the areas of overlap that that feel useful to you know have somebody in the lead of or are there things that you're looking at with what richard's working on and being like you guys are doing this all wrong based on what we know down here no we're learning a lot from guys like richard but it's certainly going to be lloyds of london is is the market one of the bigger markets for syndicate insurance and that's where the uh the grounds get broken

and that's where um these these higher risk uh exposures uh get dealt with and uh in the beginning and i'm sure like space insurance, it gets very expensive. And the real deal with insurance is if you're willing to pay for the capacity or risk on somebody else, there's going to be a point

where it's worth it, depending on how much you get invested. So, you know, as far as me, I'm the typical property and casualty liability broker who's very enthusiastic about space. So I hope to be on the edge of finding those markets. That's kind of what I specialize in in different ways on the ground here is finding difficult risks in place.

So try it on the island. And Richard, there's a lot of changes right now in the industry closer than commercial space stations there's i mean we are in an era where there's like a thousand new launch vehicles coming online that's right i'm sure that's tough to run math on so i'd love to hear a little behind the scenes on on how you're approaching because there's launch feels like starship and new glenn but there's smaller ones like relativity and abl you're launching how does that math shake out for you? Yeah, I mean, so those guys are already knocking.

You know, we are, you know, we're, like I say, this is the best job in the world because those companies, those new launch vehicles, they've already been talking to insurance for many years. You know, we have visited Blue, we've had briefings from Relativity, ABL, Firefly, blue we've had briefings from relativity abl firefly uh ula with the vulcan arianne six you know all of that because their business model is obviously to sell those launch services those uh the operators the buyers of those launch services are going to need insurance so you know those launch service companies already they're very comfortable bringing the insurers into their facilities giving us briefings, because,

you know, that ultimately our perception of the risk is going to price part of that business model in, you know, is someone going to buy an Ariane 6 or are they going to buy a Vulcan? Ultimately, they're going to want to know how much does that launch service cost? What is its capabilities in terms of mass and orbital injection? And then they're going to say, OK, so what's the insurance as well? How much are we going to charge? Vulcan versus Ariane 6. And that's all part of that business model.

And yeah, we're at a really interesting point because we have so many new launch vehicles coming online. Now, it's interesting. Even for our established launch vehicles, there is no law of large numbers. So other forms of insurance, I can tell you, you know, if you're a male and you're 35 and you drive a Ferrari, I can tell you what your insurance rate is going to be because I, you know, I have a good estimation of what your perceived risk is or, you know, your life expectancy, et cetera, that type of thing.

With space insurance, we don't have that data. We really don't. I mean, Falcon 9 has launched 170 times or so. One launch failure in that time. So what's the risk of the very next Falcon 9 working or not? No one knows, right? There's no model, even with that amount of data. Same with the Soyuz, again, hundreds of launches. But, you know, at the other extreme, you know, I have a number of vehicles that have never launched, and yet we're being asked to quote those at the moment. So we're actively working on quotes at the moment for Vulcan, Ariane 6,

nothing for New Glenn at the moment, but I imagine it's just weeks away. They've got some orders, I think, but we haven't seen those clients come to the insurance market yet. So it's interesting. So for us, we sort of have a three-step methodology internally first we're technical you know first we want to find out everything about the technical side of things whether it's a spacecraft or the launch vehicle we really want to get into into the weeds and look and do an assessment and we're pretty knowledgeable about we're not as knowledgeable

as the the guys that are building that hardware but we're reasonably knowledgeable and we're not as knowledgeable as the the guys that are building that hardware but we're reasonably knowledgeable and we're willing to learn and most of those manufacturers and launch vehicle providers are happy to to educate us because they feel that the more transparent they are the better we understand the risk and and the lower the rate will be so then you know when a risk comes in and we're looking at the coverage. So we're trying to match up that the client, the coverage of the client wants basically matches up with the satellite or the launch vehicle that they've bought, you know, so that there's significant margin in there on our side and on their side, and that we really understand, you know, what are the partial loss formulas, et cetera. And then finally, once we really understand the technical,

we understand the coverage they want, really then it's down to sort of our rating and exposure because we have sort of two controls. One is that price, the rate that we charge, and the other one is our exposure. You know, we're not always going to be offering, you know, $20, $25 million on a risk. We may be down to sort of $5 million, $1 million, you know, $20, $25 million on a risk, we may be down to sort of $5 million, $1 million,

you know, particularly if the sum insured is lower. So if it's a, if it's a spacecraft that's in Mio or Leo, and we are being particularly careful in Leo at the moment, I don't want to give the impression that we love Leo, we are worried about debris, debris risk, we can probably talk about that for hours as a separate topic. But we are worried about debris risk. We can probably talk about that for hours as a separate topic. But we are worried about debris risk. But so you know, if the sum insured is only 50 million to the market, then we don't want we probably don't want too much exposure. We don't want to be the only guy paying a claim. You know, we want to be part of the market. We ultimately believe that the space insurance market is a good market to be in.

It's volatile, but we think it's profitable. And we want to be an active part of that market. The one debriefing I had in my mind to poke that bear that you just mentioned, we mentioned OneWeb having satellites stuck in Kazakhstan, but we haven't talked about the constellations at all. Most of the examples are these ge geo satellites that are going out and it is an interesting situation with the constellations because they don't really care about any one individual satellite um there's there's the higher level things to worry about for them as if they've

got an issue that's going to affect all of their satellites or all of one run or you know like you're mentioning russia shoots down one of their satellites and that takes out a whole shell of a constellation like those the the risks aren't the one satellite it's like what if my entire system goes down by either my fault or something else so are they in the insurance market are they really just looking at the i don't even know if they i don't even the the space SpaceX example is weird because it's like their own vehicle on their own vehicle. So I don't even know if they're insuring themselves on there. But how does that, how do they approach the market? Yeah, so their business model, I mean, I'm never going to pay if Russia shoots down anything, right?

Because I'm excluding war, war, terrorism, active war, anything that's war-like. That's not me, right? That's not the intent. Oh, i just meant russia shooting down their own satellite that causes a cloud that runs through starlink every couple of weeks right yeah yeah so that would be covered i mean that's that's tricky that is a that's an that is a very interesting scenario you know that's this you know could definitely happen yeah that could that's definitely that would be covered but the old idea on the mega constellations on the huge constellations yeah i don't think they really need the insurance not in

space not in orbit you know it's sort of unless they had a generic parts issue where you know they had a generic issue on a component that they'd already been launched several times i mean they're really and that's and that would be unlikely. I mean, I don't think the, you know, we don't see that typically in the space industry anyway. You know, pretty good on parts alerts and testing, et cetera, and space rated components, et cetera. So I don't see that as a problem. But basically, the business model is, you know, these spacecraft are only going to be up there for you know five years and then you're going to be replacing them anyway you're going to continue to see refreshing various orbits i don't think the mega constellations really need insurance i really don't i don't see it as part of their business model for launch yeah i think we

you know we see some activity from them on the launch side, because losing an entire launch, that would be quite financially painful for them. You know, but yeah, the constellations, I mean, the constellations are driving our concern really about the debris risk. You know, that's the debris risk is interesting, because I the whole that for us, Leo, Leo risks are really challenging. You know, this the space insurance market, the community, all the insurance, we are really geared up to provide that three, four hundred million dollars of insurance. You know, if you're looking at an Ariane today, you can have two $300 million risks on board. So on the pad, there's $600 million of insurance. Our market is really good at finding $600 million of insurance. You know, that is a lot of insurance to place on a single event that lasts half an hour.

You know, there's a lot of people around the world who are watching that Ariane feed and we are pretty concerned. We're sitting there. It's the worst part of the job is sitting there watching these launches. But when you've got a risk in Leo that's only worth a million dollars or, you know, or less sometimes, that's where our business model sort of breaks down. Because, you know, I'd like to think that I should be able to charge that Leo risk more, because it doesn't have the redundancy, it doesn't have the heritage, it wasn't built by Lockheed Martin or Boeing or, you know, Maxar, it was built by, you know, some bright kids from Stanford, in a lockup in Silicon Valley. It's super cool, don't get me wrong. The business model, the access to space,

maybe they're on a transporter mission on Falcon 9. It's really cool, but it's still riskier. I mean, it doesn't have that heritage. It might not even have space-rated components. They're flying in an area where trying to evaluate the debris risk is tough for us, depending on the orbit. Do we really do? Do insurers fully understand where the debris is at the moment and what the underlying risk is? So I want to charge them more. I want to say, okay, your rate's going to be twice

what I charge my geomarkets. I want to charge you 10%. But I can't because I'm competing against the rest of the market that can provide $300 million of insurance. So if you only need $100 million, you know, the broker just can go out to – he doesn't even need to go out to all 30 insurers. He can go out to 10 insurers and very quickly he'll get the rate down to where it is on GEO. So for us, you know, we don't love the LEO side of things. The debris risk is obviously a worry as well.

But I do think, on the flip side, I do think that is the future. I don't think we're going to be able to stand on the sidelines and watch this too much longer. I mean, the other thing is that a lot of the LEO operators are not buying insurance. If your spacecraft's only worth a million bucks, half a million bucks, you know, do you... It doesn't really matter when you put 10 billion into your system.

Yeah, it doesn't really matter. You know, even if it is your one-off and it's your baby. And, you know, I went to, I've been to Utah and gone to a small stack conference and there's like 3,000 people in the room. And I think if you were to go around every booth and say to all 3,000 people, how many of you are actually going to build your spacecraft and launch it? You're going to be down to 100 people.

And of those 100 people, how many of you are actually going to make any revenue? You're not doing just a scientific university program. You're not looking at the sun, the moon. You're actually gonna provide a service and charge people you're down to the 10 of those people and then of those 10 how many of you 10 actually have a budget you've done everything you need to do you've got into space but do you have a budget for space insurance and do you really care about space insurance you're down to one so you go to these conferences you're looking for that one guy

who will buy insurance and then trying to figure out, hey, do I want to insure that one thing? I think that thumbnail will change. I think it will change. I think we'll go to conferences in a few years' time and people will be making money in the small-sat market and they will need insurance. If you're borrowing money for your satellite

program the chances are your investors or your bank whatever financial institution you're getting your money from they're probably going to say to you you must buy insurance we'll lend you this money but you must buy insurance because if we watch it go bang on the pad we want our money back or we would at least we want you to be able to do it again and try again so yeah and and from both sides it seems like one of those things that's going to shake out in you know half a decade or a decade where yeah you know your posture towards leo's is this way and some others haven't adopted that mentality yet but you know i mean i don't know anyone that's going to say like there won't be a debris collision

in the next 10 years that could be catastrophic like that seems low that that won't happen yeah i almost need a collision to happen right to adjust the expectations of the rest of the market yeah it'll change the market i mean insurance are very reactionary you know we know about these risks i mean everyone everyone in our market you can't pick up you can't go to a conference or pick up space news or do anything without hearing about space state risk so everyone knows we just need something to happen so that we can say you know and it and it can't be a defunct you know an old stage one of a delta two and a dead russian that's not gonna work it's gonna have to be like pain they're gonna have to be financial pain for you know in the market and then and regulatory you know we need to change the whole

the 25 year deorbit we need to have people flying propulsion systems or deorbit systems we need better better monitoring and ssa all of these things together you know and i think you know there's a lot of you know i have a wish list of the things I want my operators to do. Yeah. So there's all those things will happen. I have no doubt. Whether that happened in my career. I don't know.

We'll see. Now I want to write a sci-fi book where the insurers get together to fund an insurance set. And it's just like this giant satellite that's just intended to create a collision to like completely tweak the market. This is the sci-fi book I'll start working on. That's awesome. I mean, we do get, you know, people that are talking about debris removal, they do come to us fairly frequently and they say, well, you know, you should invest.

You insurers should give me money now so I can clean up the orbits. And that's tricky because insurers, we don't have any money. We pay claims. That's the only time, you know, we have any money. It's not like we have money for these projects. Unfortunately, neither does anyone else at the moment for investments. It's tricky. Yeah, it's tricky. You may be. But then I do, I do think there's, there's a future in, could insurers pay claims to clean up? You

know, could someone buy insurance to say, if I create debris, you know, I am obligated. So if you have launched from the US, it could be some sort of US regulation where you have to buy insurance. And if you create debris, then insurance will either pay out to mitigate some of the, you know, mitigate that debris, whether we can truly, whether insurance would be responsible for clearing it up, I doubt. We probably wouldn't take that responsibility on. But could we pay a claim to help a third party or the US government clean up that environment?

I think there's definitely something there. I just can't quite grasp the financials. It's hard to put the right numbers on that. John, is there anything like that anywhere else in the world that is an analog we could use? It's kind of a weird scenario.

Yeah, no, I don't think so. Well, we'll have to think this one through. Otherwise, insurance sat is my best bet. Yeah, I love it. I love it, I love it. And now you've told everyone. I know. The evil plan is out there.

All right. Well, this is awesome. This is super helpful for me to get my head around it. Are there any things, John, is there anything else that I should have brought up from your perspective on the conversation here? We didn't talk about political risk. That's something that we're feeling lately in different ways. So that's another part of the insurance market that's going to grow quite a bit. As more countries get into space, I have more up there and more money invested. So that'll be, I think, part of the future, unfortunately. I think part of the future, unfortunately. Liquid risk is losing

money due to government making changes or saying that you can't do this anymore or even though you've got something in the construction too bad. So it can affect

it will affect space. Would that also affect um the licensing that that any company may or may not have to land services in a in a region it could it could affect anything like that i mean if the government can say you can't land here anymore you can't launch here anymore then it's going to be costly you know depending on how far and then even like the services aspect right because john or richard was talking about how uh some of the payouts are based on the the performance degradation overall the total proportion there so if you're expecting to be able to serve the entire global market with communications or something and then there's a political change

that takes out a continent from exactly or a country and half of your orbit is useless like that's concerning yeah start selling services in india without a license and then suddenly india says yeah who would have done that hypothetically exactly uh all right thank you both so much um i will put some links in the show notes to some of the stories that we were talking about and uh links you two will have passed along, I'm sure, to read up on some of this. But this was super helpful. I'm very appreciative. And once the new Glenn customers come knocking, Richard, I will call you up and we can compare

notes off the record to see. You're welcome. Interesting. Because I've heard some crazy numbers on that, and I'm very curious. So that would be cool to compare notes on in the future. But for now, thank you both again for being on the show. This has been awesome. Thank you.

Cool. Thank you so much for the opportunity. Thanks again to Richard and John for coming on. That definitely helped me understand the situation a lot better. Hope it did for you as well. So very cool to learn as much as we can from people that are working that close to this part of the industry. Before we get out of here, I want to say thank you to everyone who supports Main Engine Cutoff over at mainenginecutoff.com slash support. There are 877 of you supporting every single

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