"We're supposed to help people -- "

"We're supposed to help OUR people, starting with our stockholders Bob! Who's helping them out HUH???" 

- Gilbert Huph and Mr. Incredible, The Incredibles (2004)

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For most of us, insurance is one of those humdrum and tedious "adult" responsibilities that we have no concrete concept of as kids and only superficially understand as grown-ups. When I got my first job at Evercore I remember struggling to pick health insurance for the first time (premiums and deductibles and co-pays, oh my!), and I endured a similar ordeal buying car insurance after I moved to LA for SpaceX! My earliest perception of insurance was this hilarious scene from Disney/Pixar's The Incredibles, where Mr. Incredible's boss is pissed because the superhero in him can't help but pay out claims "to every Harry Hardluck and Sally Sobstory that gives [him] a phone call!" When I was 8, all those jokes went right over my head; all I gathered was that Mr. Incredible messed up and was in trouble. Watching it now 16 years later, suddenly every line in that scene makes perfect, comedic sense

"A company is like an enormous clock." They should've put those words of wisdom in my undergrad business textbooks HAHA!

A few weeks ago, someone on Instagram asked me an interesting question - "who pays for the destroyed satellites if a rocket fails?" As it turns out, there's an whole subsector of the insurance industry dedicated to providing policy coverage for rocket payloads. This niche was born in 1965 when Lloyd's of London set up a coverage plan for any damage associated with the launch of the communications satellite Intelsat 1. If you think about it, it makes sense that such a role exists - satellite constellations are multibillion dollar projects, and rockets are fickle and explosive, especially in the early days of the Space Age. A manufacturer being forced to eat the entire cost of an obliterated rocket and payload at once makes for a very bad quarter (and a lot of unhappy investors!). From a cash flow perspective, it might be more palatable to spread out that cost through regular premiums so that an insurer will cover the loss in the event of a launch failure

Liftoff of Intelsat 1 on a Delta D rocket. Fortunately for Lloyd's (and everyone else!), the mission was a success

Naturally, payload insurance has gotten more complex in the decades since Intelsat 1, particularly with the rise of the commercial space industry. Policies now cover specific failure points during the mission (during transit, pre-launch, at-launch, in-orbit, etc.) as well as ancillary assets like the production facilities and launch pads. But while you might think this is a nifty little cash cow for the big insurance companies, given the obvious need, increasing demand, and improved reliability of launch vehicles, it's actually an extremely challenging industry. For one, pricing these policies is an incredibly difficult task. Unlike auto, home, or life insurance which have enormous swaths of consumer data to analyze risk, rocket launches just aren't that frequent. Insurers and manufacturers work together to make their best estimates using engineering expertise and computer modeling, but at the end of the day, how can anyone say for sure that a rocket that has only flown twice has a 1 in 20 chance of failure? An unexpectedly crappy rocket ends up being really expensive to insure!

Four recent failures that led to hefty insurance claim payouts: Russian Proton (2015), SpaceX Falcon 9 (2016), Maxar WorldView-4 (2019), Arianespace Vega (2020)

The cost of a lost vehicle / payload can be so financially catastrophic that a string of just a few launch failures can wipe out the entire industry's annual profits. A report noted that from 114 rockets launched globally in 2018, the industry collected \$450M in premiums and paid out $600M in claims. Furthermore, expensive failures lead to wild pricing volatility on future policy premiums as the insurers try to reassess the risk profile, which can discourage both launch providers from getting insurance in the first place and new insurers from entering the market. Ultimately, the incentives for launch vehicle manufacturers aren't all that different from buying car insurance: drive safely, and you get to pay cheaper premiums. Build a good rocket, reap the same reward 

Here are some of the key players in the payload insurance industry

Despite the challenges, the burgeoning commercial space industry is still a market that insurance providers want to get in on, even if at a more cautious pace. Recent research by Morgan Stanley estimates that while the broader space industry will triple over the next two decades to \$1 trillion, the payload insurance sector will grow at a more modest 14% from \$700M to $800M.

Finally, there's one last piece of the puzzle worth noting. Not all spaceflight insurance comes from the private sector - while companies must turn to private insurance to cover their rockets and payloads specifically, Congress made a wise decision in 1988 to allow the US government to provide insurance via the FAA against massive collateral damage from rocket mishaps (say, if a rocket fell on an urban area). Arguably, the commercial space sector would not exist without this law, as it provided launch providers and private insurers the confidence to launch payloads knowing that if a truly cataclysmic disaster happened, the government would support them. Not bad Congress, not bad!