Originally published at: Insuring spacecraft is risky business | Boing Boing
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So then the insurers aren’t charging enough for the coverage. Insurance is not a new business, they should have this stuff figured out.
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Well, the BB blurb doesnˋt establish that.
If there’s only one year’s-premium-wiping out claim every ten years, the insurers are doing fine. And the article suggests they’re doing fine but that if there are going to be more launches, premiums might go up.
As you’d expect.
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Also, this is what Re-Insurance is about.
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Apollo astronauts had trouble getting life insurance, and had to find a creative way around the problem.
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The hackaday article makes no sense to me.
So the problem is that there aren’t enough launches to amortize risk, but the more launches there are the worse it will get? More launches should reduce insurance risk unless their failures are correlated.
I can see it being a problem that there are relatively few launches and the cost per event is huge. If a single failure or a cluster of failures that pays out several years worth of premiums can be hard to tolerate even if the long term risk calculation is correct. That is indeed what re-insurance is about, balancing risk from sectors like this with even larger risk pools.
I also think that how bad this is is overstated. $400M is a really big insurance payout, but it is still a fraction of what a large auto or health insurance company pay out every year. It is also much smaller than the payouts from large natural disasters such as hurricanes, floods, and fires which regularly total in the billions. Payouts from large natural disasters can exceed the premiums collected in the market for many years.
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Although more launches should make these easier to insure. The larger pool of launches should “smooth out” payments so that they happen more frequently and are easier to account for. Also more launches should make estimates of mission success more accurate.
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The issue seems to be that there aren’t enough launches per year for the insurance agencies to determine the real risk of loss during/after a launch. The overall risk of loss is a big piece of the policy cost equation. Underestimate the risk and your insurance company may not be able to pay out when claims are filed because you didn’t charge enough for the policy. Overestimate the risk and companies will not buy policies because they are perceived as being too expensive.
The article seems to go off the rails when the author tries to sum up the future impact of cheaper launches on claim payouts. The author doesn’t mention that the satellite builds will also get cheaper. He also doesn’t mention that the overall risk of loss should also decrease as companies get better at building and launching, something that will come as demand increases theoretically. Cheaper per launch cost and lower risk of failure should equate to a cheaper policy cost.
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Try insuring a nuclear power plant. Impossible. This is the main reason I’m against nuclear power. The only way to deal with the risk is to externalize it.
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Cry me a river! This is just another example how the financial and investment industries have become totally risk-averse and expect a guarantee on profits, even a possible government bail out, when things go pear shaped.
When Lloyd’s started hs insurance businesses in that coffeehouse in London it was understood to be about sharing risks. Buying into insurance was a risky bet only for people who had a fair wad of money they could afford to lose because when the ships went south things also often did.
A good storm somewhere on the trade routes could and sometimes did wipe out all of a year’s proffit at once. Part of doing that kind of business.
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Lloyd’s wasn’t even a limited liability corporation. If you were one of the “names”, you could be personally wiped out. Nowadays, rich people can use corporations so they don’t have to have skin in the game.
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