A string of recent communication satellite problems and recent world events has put a strain on space insurance firms which could make it more difficult for companies to launch new spacecraft, industry experts said last week.

Analysts and insurance industry officials told attendees of the International Space Symposium in Washington, DC, that there will be far less coverage available for future launches and spacecraft, and that what coverage is available will cost far more than in recent years.

Commercial satellites are typically insured against the possibility of a launch failure, as well as or-orbit problems. Such coverage, which for the launch of a large communications satellite can be worth several hundred million dollars, is often one of the most expensive aspects of a launch other than the satellite and launch vehicle themselves. However, it is also among the least appreciated. "Space insurance is not the sexiest aspect of this industry," said Philip McAlister of Futron Corporation.

A number of on-orbit problems among commercial spacecraft in recent years has had a major impact among space insurers. Several Hughes HS601 (now Boeing 601) communications spacecraft have been lost over the last few years when onboard controller systems shortcircuited and failed. More recently, Boeing admitted that problems with solar panels on the larger Boeing 702 series of spacecraft will reduce the amount of power available to the spacecraft over time.

Boeing is not the only satellite maker experiencing problems with its spacecraft. Earlier this year PanAmSat's PAS-7 spacecraft suffered a solar cell short circuit and a sudden, permanent loss of power when emerging from solar eclipse. Nearly a dozen other spacecraft of the same model, Loral's FS1300, currently in orbit could experience similar problems.

These failures have sharply increased the number of insurance claims. Over the last several years the space insurance industry has averaged between $400 and $600 million a year in losses. Jeffrey Cassidy, executive vice president of insurer ACE USA, said that $328 million alone in claims has been filed since early September, on top of several hundred million more in claims earlier this year.

The events of September 11 and their aftermath have also indirectly affected space insurance. Many insurers are facing massive claims from the terrorist attacks that will reduce the capital available for other insurance. The corresponding sharp increase in premiums for commercial air transportation insurance have led some insurers to focus on these more lucrative policies, at the expense of space insurance.

As a result of the combination of these problems and other events, insurers are sharply curtailing the amount of coverage they are providing for spacecraft and launches. In the late 1990s the theoretical capacity of the space insurance industry, the total amount of coverage available from all insurers combined, was as much as $1.3 billion, with as much as $400 million exposed on a single launch. In 2002, though, the theoretical capacity could be as little as $300 million, according to Stephen Leonard, executive vice president of International Space Brokers. "$400 million cannot be placed in today's market at any rate," he said. This could make it difficult for companies to obtain insurance for launches of large geostationary communications satellites, he noted.

Insurers remaining in the market are increasing their rates and decreasing the scope of their coverage. One major insurer, Munich Re, recently announced that it was increasing the rates on launch insurance by 50% and for on-orbit insurance by 75%. Moreover, it will also decrease the length of its on-orbit coverage to no more than one year to reduce its liability for long-term spacecraft problems.

Insurers are also trying to understand the root causes for the rash of spacecraft failures. The prime suspect is the increase in satellite manufacturing rates is suspected by many, as companies reduced the time needed to build a communications satellite from 36 months to as little as 12. The trend towards more generic spacecraft models may have also played a role, as defects that may have once affected a single spacecraft become systemic problems.

Ironically, many of those changes by the satellite industry were made to help meet the desire of insurers to reduce perceived risks. "We bought into it, to our dismay," said Cassidy. "We weren't prepared for the multiple generic problems that happened. That is not acceptable."

Insurers problems could be exacerbated by a new series of launch vehicles scheduled for introduction next year, including the Atlas 5, Delta 4, and an upgraded version of the Ariane 5. Noting the greater risk posed by a new, untried, booster, Cassidy said it will be difficult to insure those launches. "There will be a struggle to insure the first five launches of these new launch vehicles," he said.

Satellite companies should not expect a quick solution to these problems, especially if there are more satellite or launch vehicle problems, or additional external pressure on insurers by world events. "Traditional capacity is not going to be there for the foreseeable future,' said Leonard.