Risk Issues Remain Unresolved as Space Tourism Nears Liftoff

Lloyds_of_London_logoVia Lloyd’s
Reprinted by Permission

Space is the final frontier for hundreds of high net worth individuals seeking the ultimate tourist thrill. However, as industry delegates to a symposium held at Lloyd’s heard, some risk issues remain unresolved.

Suborbital flight – flying higher than 100km above sea level – will soon be a reality for anyone willing and able to pay thousands of pounds for a ticket. There are plenty of people already queuing for the privilege of being among the first 1,000 humans to experience space travel.

Over 500 people have signed up for a $200,000 ticket to board Virgin Galactic’s manned suborbital spacecraft, SpaceShipTwo (SS2), which could go into service later this year. Virgin astronauts are trained at the firm’s centrifuge facility in Philadelphia and on zero gravity flights. They can see the spaceships being built in California and observe test flights of the spaceship at Spaceport America in New Mexico.

Virgin’s rival, XCOR Aerospace, is also taking bookings, charging $95,000 for a suborbital flight ticket aboard its Lynx craft, a piloted, two-seat, fully reusable liquid rocket-powered vehicle that takes off and lands horizontally. In a further sign that space travel is entering the mainstream, the UK’s Unilever Group recently purchased 22 Lynx tickets to give away in a cologne promotion.

Risk reminder

Speaking at the recent seminar, Space Tourism – Risks & Solutions, held at Lloyd’s, Nick Hughes of the law firm Holman Fenwick Willan LLP, put the event into sobering context.

Mr Hughes noted that February 1st 2013 was the 10th anniversary of the Space Shuttle Columbia disaster in 2003.The Columbia disintegrated over the southern USA during re-entry, resulting in the death of all seven crew members strewing debris into Texas and parts of Louisiana.

On the very day of the seminar (which was sponsored by International Space Brokers, part of Lloyd’s broker Aon) news emerged of the failure of a commercial satellite launch. A Zenit 3SL rocket operated by Sea Launch fell into the equatorial Pacific Ocean moments after lifting off from a mobile platform, destroying the booster and sending an Intelsat communications satellite to the seabed.

The insurance loss, the space market’s biggest, is estimated at $400 million.“It’s possible that some of the enthusiastic people involved in the business and some of those that have signed up to take a sub-orbital space flight have not taken on-board the extent of the operational and legal risks involved in such a venture,” Mr Hughes said.

“These two events reminded everyone about the risks involved – and the value of insurance in insuring space ventures.” Mr Hughes says that the legal liability framework for space tourism flights is still evolving, with little international agreement on regulation.

“The Virgin Galactic flights, for example, will operate on a round trip, to and from New Mexico in the US. It’s effectively a domestic flight. The US authorities facilitated the venture by providing a special regime that effectively signs away any rights against the US government,” he said. “It also allows the flight participants to agree comprehensive waivers of responsibility with the operator and other entities.”

Lost in space

So will a space travel insurance market develop? Some of the space tourists who have been up to the international space station had personal accident insurance so it will probably be available for the sub-orbital flights, as will cancellation cover, says Lloyd’s space underwriter David Wade of Atrium.

“It was mentioned at the recent conference in Lloyd’s that one insurer will even cover lost baggage – although considering the suborbital flights will land at the same airport you departed from some three hours earlier, it’s not clear to me where your luggage is going to get to!” Mr Wade told lloyds.com.

The tour operators will be able to arrange insurance for their space craft “hulls”, and third party liability cover will be mandatory. The technology and flight envelope of the suborbital vehicles means that this new market is going to attract the attention of both the space and aviation insurance markets, Mr Wade explains.

However it isn’t entirely clear how coverage will be apportioned. That’s because the key question of whether the crafts are rockets with wings – or rocket-propelled aircraft – is unresolved.

The important thing is to ensure there are no gaps in the coverage, Mr Wade believes, and that won’t be easy. “What do we consider to be the point at which it transfers from an aviation to space risk and vice versa? As soon as the rocket propellant is loaded? When the rocket engine ignites? When it crosses the recognised boundary of space – 100 km altitude? And again on the way back down?”

There is an appetite for space tourism insurance business in both the aviation and space markets and many Lloyd’s insurers operate in both camps, says Tim Wakeman of International Space Brokers, the Aon subsidiary. “That can only be good for customers looking for competitively priced, innovative insurance products,” he reckons.

“The insurance market has a good reputation for responding to new challenges, like insuring the first wide bodied aircraft, the first supersonic aircraft.