You can insure almost anything, if you know the right people.
You can insure your fantasy football team, or your own kidnapping.
You can insure the weather, or the cash prize for your hole in one contest.
Australian cricket player Merv Hughes insured his mustache for $775,000, and Project Runway’s
Heidi Klum had her legs insured for $2 million—not $1 million each, by the way; Lloyd’s of
London actually determined that her right leg is slightly more valuable than her left
leg.
Did you need to know that?
No, but I needed to tell you.
Now, insuring a leg might be tricky, but if you’re looking for some of the most complicated
insurance policies in the world—or just slightly outside of the world—look no further
than satellites.
To understand how, exactly, you might go about insuring something as niche and expensive
as a satellite, we need to talk about how insurance works in the first place.
The first thing you need to know about insurance companies—and I hate to be the one to break
this to you—is that their job is to make money.
And in order to make sure that they’re not forking over more money than they’re raking
in, these companies need to accurately assess the likelihood that any given policy they’ve
sold will be claimed.
This is done with a process called “underwriting,” where an insurance company will create a statistical
model of whatever it is that they’re insuring—your car, your home, your pair of Heidi Klum’s
legs—and determine the chance that that thing will be destroyed during the time that
it’s covered.
So, let’s just take life insurance as an example: an underwriter's job will be to figure
out the chance that you’re gonna die by looking at stuff like your age, gender, height,
weight, blood pressure, cholesterol, medical history, smoking habits, career choice, driving
records, history of foreign travel, and whether or not your hobbies include playing Russian
roulette with your friends every Friday evening.
This lets them put you in one of four categories of risk, with “Preferred Plus” meaning
that you’re one of the healthiest people on Earth, and “Standard” being a very
polite way of highlighting your special relationship with mortality.
Now, selling life insurance isn’t all that complicated, because people are pretty predictable,
especially when you’re taking the average of thousands or millions of them.
The relevant data is accessible, easy to model, and if worse comes to worse, the payouts don’t
hurt that badly because people just aren’t worth very much.
None of these things are true when it comes to satellites, and that’s why insuring them
is such a risky task—in fact, there have been plenty of years where insurers lost way
more than they made because these calculations are just so difficult to pull off.
But if you were wondering how they at least attempt to not lose money, here’s how it
works.
Each stage of the satellite’s life is covered by a different kind of insurance policy, each
geared to the particular risks that the satellite might face during that period.
The first is pre-launch insurance, which covers the satellite between the time that it leaves
the manufacturing facility all the way up until a few seconds after ignition; this isn’t
all that different from insuring any other hugely expensive object that needs to be transported
to Florida without being destroyed beyond repair, so let’s move on to where things
get interesting: launch insurance.
Launch insurance covers the satellite for a very brief, but very crucial period of time,
kicking in as soon as the launch can no longer be aborted, up until the point that the satellite
has successfully detached from the launch vehicle in space.
Calculating the risks for this type of coverage is almost impossible to do accurately—most
of this hinges on the reliability of the launch vehicle itself, but uh oh, here come the International
Traffic in Arms Regulations to ruin everyone’s fun again: it turns out that the rockets we
use to send satellites to space are awfully similar to the rockets we use to send deadly
explosives to Afghani weddings, so most of this data is kept secret; very few insurers
are ever given access to the specifics of a given launch vehicle, and when they are,
they usually have to sign a consent decree with the United States allowing them to station
government overseers around the clock in the company’s offices for years after the fact.
Insurers are often left with whatever limited information is in the public domain, and that
information usually isn’t the best basis for a multi-billion-dollar insurance contract.
Just as an example, they might be dealing with statistics like this: a rocket that technically
has a 100% failure rate.
Since they can’t actually issue an insurance policy with a 100% chance of failure, they
just have to take a stab in the dark.
And that’s assuming that they know what the launch vehicle even is—sometimes, these
contracts are written before a launch vehicle has been chosen, so the underwriters literally
just try to guess what rocket might get used and cross their fingers that it’s not one
of the ones with a 100% failure rate.
Now, once the satellite is on its own, a new kind of insurance kicks in: in-orbit insurance.
Much like launch insurance, this is not an easy phase to accurately underwrite.
Generally, insurance companies will look at satellites built on the same bus—which is
just a fancy word for this thing—with similar payloads, and see how long their average lifespans
were.
They’ll also do simulations of satellites that are still in orbit, try to calculate
when those satellites will fail, and then use that data to make predictions for satellites
that have yet to be launched.
To accurately make those predictions, they’ve gotta factor in things like radiation, crazy
temperature fluctuations, random solar storms, and any miscellaneous objects that Elon Musk
sent up there for fun.
That last point is actually why this kind of insurance has been skyrocketing recently,
as insurers are getting more and more worried that satellites are going to start crashing
into one another, creating a cascading effect of debris that will disrupt many of our critical
communications systems and trap humanity on Earth forever.
But we still have a few years until that happens, so just keep spending your time watching YouTube
videos about how niche insurance policies work.
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