What are the Insurance Implications for Commercial Space Flight?

The question of insurance is undoubtedly far from the minds of those of us who indulge in escapist fantasies by watching programs like “Star Trek,” and its multiple generations and spin-offs. How do they handle the whole health care thing in the 24^th century anyway? And what about damage to the Enterprise—property damage from errant phaser blasts, or error & omission coverage for the command crew?

Don’t worry; I’m not going to spend the next several paragraphs wondering about the insurance picture for fictional characters. That said, however, now that we actually are reaching out into the heavens, some of these issues will soon start to matter very much in the real world.

Just recently, Republicans in the U.S. House of Representatives raised several concerns with the shift in priorities in the President’s budget proposal. According to the GOP, the Constellation Program at NASA, which is the planned follow-on system to the Space Shuttle, would be cancelled under the proposed budget request. In so doing, the request would not support the goal of returning to the Moon by 2020 that was articulated in the FY 2010 budget request. In its place, however, the Administration proposes to spend $6 billion over five years in the development of commercial human space flight vehicles.

So now we would have a completely new kind of vehicle that would transport humans through extremely dangerous and lethal environments. How do we deal with such new and uncharted risks from an insurance point of view? To be sure, we could certainly draw on aviation insurance as a start, but zipping around outside the Earth’s atmosphere is another kettle of fish altogether.

One would assume that commercial space flight could easily involve trips to the moon, perhaps to develop and tap into the natural resources there. While I have no actuarial tables on this, I would suggest that the chances of being killed on such a flight are much greater than, say, being in a plane crash (interesting problem for you life insurers). Sure, we’ve ventured out into the space near our planet a few times, but do we really know everything there is to know about the dangers out there? We do know that meteors, space debris, radiation and other dangers await, however, and we need to build these realities into our models when we generate risk tables.

Then there’s the whole issue of negligence. When is a breach of the ship’s hull due to someone’s mistake, rather than a chance meeting with something floating in space? What is the standard for hull integrity? What about the fact that these ships will have to travel at extremely high speeds to escape Earth’s gravity? How about the concept of pilot error (Maybe our intrepid captain could have avoided that space rock if he was paying closer attention to his readouts)?

Finally, such vessels will almost surely be massively expensive to build and replace, so totaling your commercial moon shuttle—in addition to the almost certain loss of life—would represent a major hit to the carrier who insured it. As a result, commercial space vehicle insurance might well be unaffordable, even for those who can raise the cash to build or buy such a craft.

I suspect that as the need for such coverage becomes more real, insurers will look to other modes of transportation for clues on how to structure policies. Nevertheless, it will take some time—and much trial and error—to get such insurance products to the point where they are effective and affordable.

What better time to start thinking of this than now, with the federal government suddenly throwing billions into the kitty? It should be fascinating to see how we provide insurance to those who venture into the “final frontier.”

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